UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2021 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 . |
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 January 28, 2022, there were 26,641,808 shares of the registrant's common stock, no par value per share, outstanding.
LSI INDUSTRIES INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2021
INDEX
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. of Financial Condition and Results of Operations |
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23 |
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ITEM 3. Market Risk |
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31 |
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ITEM 4. |
Controls and Procedures |
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31 |
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PART II. Other Information |
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ITEM 5. |
Other Information |
32 |
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ITEM 6. |
Exhibits |
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32 |
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Signatures |
33 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LSI INDUSTRIES INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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(Unaudited) |
Three Months Ended |
Six Months Ended |
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December 31 |
December 31 |
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(In thousands, except per share data) |
2021 |
2020 |
2021 |
2020 |
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Net Sales |
$ | 111,143 | $ | 76,387 | $ | 217,540 | $ | 146,393 | ||||||||
Cost of products and services sold |
85,695 | 56,676 | 167,582 | 108,407 | ||||||||||||
Severance costs |
- | 5 | - | 5 | ||||||||||||
Restructuring costs |
- | - | - | 3 | ||||||||||||
Gross profit |
25,448 | 19,706 | 49,958 | 37,978 | ||||||||||||
Selling and administrative expenses |
21,026 | 17,004 | 41,092 | 33,074 | ||||||||||||
Severance costs |
- | 16 | - | 16 | ||||||||||||
Operating income |
4,422 | 2,686 | 8,866 | 4,888 | ||||||||||||
Interest (income) |
- | (1 | ) | - | (2 | ) | ||||||||||
Interest expense |
529 | 63 | 763 | 121 | ||||||||||||
Other expense (income) |
9 | (135 | ) | 88 | (240 | ) | ||||||||||
Income before income taxes |
3,884 | 2,759 | 8,015 | 5,009 | ||||||||||||
Income tax expense |
779 | 551 | 1,777 | 811 | ||||||||||||
Net income |
$ | 3,105 | $ | 2,208 | $ | 6,238 | $ | 4,198 | ||||||||
Earnings per common share (see Note 5) |
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Basic |
$ | 0.11 | $ | 0.08 | $ | 0.23 | $ | 0.16 | ||||||||
Diluted |
$ | 0.11 | $ | 0.08 | $ | 0.22 | $ | 0.15 | ||||||||
Weighted average common shares outstanding |
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Basic |
27,292 | 26,639 | 27,144 | 26,580 | ||||||||||||
Diluted |
28,067 | 27,360 | 27,895 | 27,161 |
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 |
Six Months Ended |
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December 31 |
December 31 |
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(In thousands) |
2021 |
2020 |
2021 |
2020 |
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Net Income |
$ | 3,105 | $ | 2,208 | $ | 6,238 | $ | 4,198 | ||||||||
Foreign currency translation adjustment |
9 | 102 | (35 | ) | 147 | |||||||||||
Comprehensive Income |
$ | 3,114 | $ | 2,310 | $ | 6,203 | $ | 4,345 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, |
June 30, |
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(In thousands, except shares) |
2021 |
2021 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ | 914 | $ | 2,282 | ||||
Accounts receivable, less allowance for credit losses of $405 and $256, respectively |
69,168 | 57,685 | ||||||
Inventories |
71,954 | 58,941 | ||||||
Refundable income taxes |
1,194 | 1,275 | ||||||
Other current assets |
3,413 | 4,825 | ||||||
Total current assets |
146,643 | 125,008 | ||||||
Property, Plant and Equipment, at cost |
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Land |
4,010 | 3,984 | ||||||
Buildings |
24,433 | 24,393 | ||||||
Machinery and equipment |
67,087 | 65,928 | ||||||
Buildings under finance leases |
2,033 | 2,033 | ||||||
Construction in progress |
347 | 933 | ||||||
97,910 | 97,271 | |||||||
Less accumulated depreciation |
(69,296 | ) | (66,719 | ) | ||||
Net property, plant and equipment |
28,614 | 30,552 | ||||||
Goodwill |
44,388 | 43,788 | ||||||
Other intangible assets, net |
70,360 | 72,773 | ||||||
Operating lease right-of-use assets |
10,185 | 11,579 | ||||||
Other long-term assets, net |
3,279 | 3,121 | ||||||
Total assets |
$ | 303,469 | $ | 286,821 |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
LSI INDUSTRIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, |
June 30, |
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(In thousands, except shares) |
2021 |
2021 |
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LIABILITIES & SHAREHOLDERS' EQUITY |
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Current liabilities |
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Current maturities of long-term debt |
$ | 3,571 | $ | - | ||||
Accounts payable |
36,737 | 32,977 | ||||||
Accrued expenses |
27,483 | 37,918 | ||||||
Total current liabilities |
67,791 | 70,895 | ||||||
Long-term debt |
83,030 | 68,178 | ||||||
Finance lease liabilities |
1,386 | 1,521 | ||||||
Operating lease liabilities |
9,436 | 10,890 | ||||||
Other long-term liabilities |
2,940 | 4,167 | ||||||
Commitments and contingencies (Note 13) |
- | - | ||||||
Shareholders' Equity |
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Preferred shares, without par value; Authorized 1,000,000 shares, none issued |
- | - | ||||||
Common shares, without par value; Authorized 50,000,000 shares; Outstanding 26,630,923 and 26,517,836 shares, respectively |
136,707 | 132,526 | ||||||
Treasury shares, without par value |
(4,941 | ) | (2,450 | ) | ||||
Deferred compensation plan |
4,941 | 2,450 | ||||||
Retained earnings (loss) |
2,165 | (1,405 | ) | |||||
Accumulated other comprehensive income |
14 | 49 | ||||||
Total shareholders' equity |
138,886 | 131,170 | ||||||
Total liabilities & shareholders' equity |
$ | 303,469 | $ | 286,821 |
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 |
Retained |
Total |
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Number Of |
Number Of |
Compensation |
Comprehensive |
Earnings |
Shareholders' |
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(In thousands, except per share data) |
Shares |
Amount |
Shares |
Amount |
Amount |
Income (Loss) |
(Loss) |
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 |
- | - | - | - | - | - | 4,198 | 4,198 | ||||||||||||||||||||||||
Other comprehensive income |
- | - | - | - | - | 147 | - | 147 | ||||||||||||||||||||||||
Stock compensation awards |
25 | 150 | - | - | - | - | - | 150 | ||||||||||||||||||||||||
Restricted stock units issued |
28 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Shares issued for deferred compensation |
96 | 679 | - | - | - | - | - | 679 | ||||||||||||||||||||||||
Activity of treasury shares, net |
- | - | (83 | ) | (571 | ) | - | - | - | (571 | ) | |||||||||||||||||||||
Deferred stock compensation |
- | - | - | - | 571 | - | - | 571 | ||||||||||||||||||||||||
Stock compensation expense |
- | 902 | - | - | - | - | - | 902 | ||||||||||||||||||||||||
Stock options exercised, net |
33 | 178 | - | - | - | - | - | 178 | ||||||||||||||||||||||||
Dividends — $0.20 per share |
- | - | - | - | - | - | (2,681 | ) | (2,681 | ) | ||||||||||||||||||||||
Balance at December 31, 2020 |
26,648 | $ | 129,622 | (263 | ) | $ | (1,692 | ) | $ | 1,692 | $ | 54 | $ | (403 | ) | $ | 129,273 |
Common Shares |
Treasury Shares |
Key Executive |
Accumulated Other |
Retained |
Total |
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Number Of |
Number Of |
Compensation |
Comprehensive |
Earnings |
Shareholders' |
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Shares |
Amount |
Shares |
Amount |
Amount |
Income (Loss) |
(Loss) |
Equity |
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Balance at June 30, 2021 |
26,863 | $ | 132,526 | (346 | ) | $ | (2,450 | ) | $ | 2,450 | $ | 49 | $ | (1,405 | ) | $ | 131,170 | |||||||||||||||
Net Income |
- | - | - | - | - | - | 6,238 | 6,238 | ||||||||||||||||||||||||
Other comprehensive loss |
- | - | - | - | - | (35 | ) | - | (35 | ) | ||||||||||||||||||||||
Stock compensation awards |
19 | 150 | - | - | - | - | - | 150 | ||||||||||||||||||||||||
Restricted stock units issued, net of shares withheld for tax withholdings |
80 | (250 | ) | - | - | - | - | - | (250 | ) | ||||||||||||||||||||||
Shares issued for deferred compensation |
334 | 2,569 | - | - | - | - | - | 2,569 | ||||||||||||||||||||||||
Activity of treasury shares, net |
- | - | (324 | ) | (2,491 | ) | - | - | - | (2,491 | ) | |||||||||||||||||||||
Deferred stock compensation |
- | - | - | - | 2,491 | - | - | 2,491 | ||||||||||||||||||||||||
Stock compensation expense |
- | 1,686 | - | - | - | - | - | 1,686 | ||||||||||||||||||||||||
Stock options exercised, net |
5 | 26 | - | - | - | - | - | 26 | ||||||||||||||||||||||||
Dividends — $0.20 per share |
- | - | - | - | - | - | (2,668 | ) | (2,668 | ) | ||||||||||||||||||||||
Balance at December 31, 2021 |
27,301 | $ | 136,707 | (670 | ) | $ | (4,941 | ) | $ | 4,941 | $ | 14 | $ | 2,165 | $ | 138,886 |
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)
Six Months Ended |
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December 31 |
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(In thousands) |
2021 |
2020 |
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Cash Flows from Operating Activities |
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Net income |
$ | 6,238 | $ | 4,198 | ||||
Non-cash items included in net income |
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Depreciation and amortization |
5,101 | 4,023 | ||||||
Deferred income taxes |
(256 | ) | 315 | |||||
Deferred compensation plan |
2,569 | 679 | ||||||
Stock compensation expense |
1,686 | 902 | ||||||
Issuance of common shares as compensation |
150 | 150 | ||||||
Loss on disposition of fixed assets |
22 | - | ||||||
Allowance for doubtful accounts |
148 | 96 | ||||||
Inventory obsolescence reserve |
955 | 817 | ||||||
Changes in certain assets and liabilities |
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Accounts receivable |
(11,608 | ) | (6,476 | ) | ||||
Inventories |
(13,995 | ) | 3,195 | |||||
Refundable income taxes |
77 | (522 | ) | |||||
Accounts payable |
3,747 | 3,933 | ||||||
Accrued expenses and other |
(6,360 | ) | 834 | |||||
Customer prepayments |
(5,017 | ) | 1,273 | |||||
Net cash flows (used in) provided by operating activities |
(16,543 | ) | 13,417 | |||||
Cash Flows from Investing Activities |
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Purchases of property, plant and equipment |
(745 | ) | (880 | ) | ||||
Adjustment to JSI acquisition purchase price |
500 | - | ||||||
Net cash flows used in investing activities |
(245 | ) | (880 | ) | ||||
Cash Flows from Financing Activities |
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Payments of long-term debt |
(77,737 | ) | - | |||||
Borrowings of long-term debt |
96,192 | - | ||||||
Cash dividends paid |
(2,657 | ) | (2,639 | ) | ||||
Shares withheld for employees' taxes |
(250 | ) | (28 | ) | ||||
Payments on financing lease obligations |
(129 | ) | (118 | ) | ||||
Proceeds from stock option exercises |
26 | 178 | ||||||
Net cash flows provided by (used in) financing activities |
15,445 | (2,607 | ) | |||||
Change related to foreign currency |
(25 | ) | 137 | |||||
(Decrease) increase in cash and cash equivalents |
(1,368 | ) | 10,067 | |||||
Cash and cash equivalents at beginning of period |
2,282 | 3,517 | ||||||
Cash and cash equivalents at end of period |
$ | 914 | $ | 13,584 |
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 December 31, 2021, the results of its operations for the three and six-month periods ended December 31, 2021 and 2020, and its cash flows for the six-month periods ended December 31, 2021 and 2020. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2021 Annual Report on Form 10-K. Financial information as of June 30, 2021 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 2021 Annual Report on Form 10-K.
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 display solutions 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 branded print graphics |
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Electrical components based on customer specifications |
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Digital signage and related media content |
The Company also offers installation services for its display solutions elements and select lighting products. Installation revenue is recognized over time as the 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 performance obligation.
On occasion, the Company enters into bill-and-hold arrangements on a limited basis. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: (1) the customer has requested delayed delivery and storage of the products by the Company because the customer wants to secure a supply of the products but lacks storage space; (ii) the risk of ownership has passed to the customer; (iii) the products are segregated from the Company’s other inventory items held for sale; (iv) the products are ready for shipment to the customer; and (v) the Company does not have the ability to use the products or direct them to another customer.
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 below presents a reconciliation of the disaggregation by reportable segments:
Three Months Ended |
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(In thousands) |
December 31, 2021 |
December 31, 2020 |
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Lighting Segment |
Display Solutions Segment |
Lighting Segment |
Display Solutions Segment |
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Timing of revenue recognition |
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Products and services transferred at a point in time |
$ | 50,141 | $ | 35,437 | $ | 39,941 | $ | 15,987 | ||||||||
Products and services transferred over time |
7,135 | 18,430 | 5,185 | 15,274 | ||||||||||||
$ | 57,276 | $ | 53,867 | $ | 45,126 | $ | 31,261 |
Six Months Ended |
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(In thousands) |
December 31, 2021 |
December 31, 2020 |
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Lighting Segment |
Display Solutions Segment |
Lighting Segment |
Display Solutions Segment |
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Timing of revenue recognition |
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Products and services transferred at a point in time |
$ | 94,723 | $ | 72,868 | $ | 79,981 | $ | 30,441 | ||||||||
Products and services transferred over time |
13,813 | 36,136 | 10,550 | 25,421 | ||||||||||||
$ | 108,536 | $ | 109,004 | $ | 90,531 | $ | 55,862 |
Three Months Ended |
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(In thousands) |
December 31, 2021 |
December 31, 2020 |
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Lighting Segment |
Display Solutions Segment |
Lighting Segment |
Display Solutions Segment |
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Type of Product and Services |
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LED lighting, digital signage solutions, electronic circuit boards |
$ | 47,626 | $ | 12,551 | $ | 40,514 | $ | 6,870 | ||||||||
Poles, printed graphics, display fixtures |
9,079 | 31,127 | 4,154 | 15,392 | ||||||||||||
Project management, installation services, shipping and handling |
571 | 10,189 | 458 | 8,999 | ||||||||||||
$ | 57,276 | $ | 53,867 | $ | 45,126 | $ | 31,261 |
Six Months Ended |
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(In thousands) |
December 31, 2021 |
December 31, 2020 |
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Lighting Segment |
Display Solutions Segment |
Lighting Segment |
Display Solutions Segment |
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Type of Product and Services |
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LED lighting, digital signage solutions, electronic circuit boards |
$ | 89,505 | $ | 24,979 | $ | 78,383 | $ | 11,951 | ||||||||
Poles, printed graphics, display fixtures |
18,045 | 64,429 | 11,228 | 29,717 | ||||||||||||
Project management, installation services, shipping and handling |
986 | 19,596 | 920 | 14,194 | ||||||||||||
$ | 108,536 | $ | 109,004 | $ | 90,531 | $ | 55,862 |
Practical Expedients and Exemptions
● |
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. |
● |
Shipping costs that are not material in context of the delivery of products are expensed as incurred. |
● |
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. |
● |
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. |
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New Accounting Pronouncements:
In October 2021, The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” creating an exception to the recognition and measurement principles in ASC 805. The amendment requires that entities apply ASC 606, “Revenue from Contracts with Customers,” rather than using fair value, to recognize and measure contracts assets and contract liabilities from contracts with customers acquired in a business combination. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, including adoption in an interim period, regardless of whether a business combination occurs in that period. The guidance should be applied prospectively; however, an entity that elects to early adopt in an interim period should apply the amendments to all business combinations that occurred during the fiscal year that includes that interim period.
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.
In March 2020 and January 2021, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU 2021-01, “Reference Rate Reform: Scope,” respectively. Together, the ASUs provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures, if adopted.
NOTE 3 — ACQUISITION OF JSI STORE FIXTURES
On May 21, 2021, the Company acquired 100% of the issued and outstanding shares of capital stock of JSI Store Fixtures (JSI), a Maine-based provider of retail commercial display solutions, for $93.7 million. The acquisition of JSI expands the Company’s total addressable markets within the grocery and convenience store verticals. The Company funded the acquisition with a combination of cash on hand and $71.6 million from the credit facility.
The Company accounted for this transaction as a business combination. The Company preliminarily allocated the purchase price of approximately $93.7 million, which included an estimate of customary post-closing purchase price adjustments to the assets acquired and liabilities assumed at estimated fair values, and the excess of the purchase price over the aggregate fair values was recorded as goodwill. During the second quarter of fiscal 2022, goodwill increased by $0.6 million. The increase is the net difference between the original estimate of recovery from the pre-funded working capital and the final cash received of $0.5 million. The preliminary allocation is subject to the finalization of pre-acquisition tax filings, which are expected to be finalized in the fourth quarter of fiscal 2022. The preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed as of May 21, 2021, is as follows:
May 21, 2021 |
||||||||||||
as initially |
May 21, 2021 |
|||||||||||
(In thousands) |
reported |
Adjustments |
as adjusted |
|||||||||
Cash and cash equivalents |
$ | 4,067 | $ | - | $ | 4,067 | ||||||
Accounts receivable, net |
9,252 | - | 9,252 | |||||||||
Inventories |
9,898 | - | 9,898 | |||||||||
Property, plant and equipment |
7,076 | - | 7,076 | |||||||||
Other assets |
7,440 | - | 7,440 | |||||||||
Intangible assets |
45,760 | - | 45,760 | |||||||||
Accounts payable |
(4,199 | ) | - | (4,199 | ) | |||||||
Accrued liabilities |
(8,434 | ) | - | (8,434 | ) | |||||||
Deferred tax liability |
(10,583 | ) | - | (10,583 | ) | |||||||
Identifiable assets |
60,277 | - | 60,277 | |||||||||
Goodwill |
33,415 | 600 | 34,015 | |||||||||
Net purchase consideration |
$ | 93,692 | $ | 600 | $ | 94,292 |
The gross amount of accounts receivable is $9.3 million.
Goodwill recorded from the acquisition of JSI is attributable to the impact of the positive cash flow from JSI in addition to expected synergies from the business combination. The intangible assets include amounts recognized for the fair value of the trade name, technology assets, non-compete agreements and customer relationships. The fair value of the intangible assets was determined based upon the income (discounted cash flow) approach. The following table presents the details of the intangible assets acquired at the date of acquisition:
Estimated |
Estimated Useful |
|||||||
(In thousands) |
Fair Value |
Life (Years) |
||||||
Tradename |
$ | 8,680 |
Indefinite life |
|||||
Technology asset |
4,900 | 7 | ||||||
Non-compete |
260 | 5 | ||||||
Customer relationship |
31,920 | 20 | ||||||
$ | 45,760 |
The fair market value write-up of the property, plant, and equipment totaled $1.8 million. Transaction costs related to the acquisition totaled $2.9 million in the fourth quarter of fiscal 2021.
Pro Forma Impact of the Acquisition of JSI (unaudited)
The following table represents unaudited pro forma results of operations and gives effect to the acquisition of JSI as if the transaction had occurred on July 1, 2019. The unaudited pro forma results of operations have been prepared for comparative purposes only and are not necessarily indicative of what would have occurred had the business combination been completed at the beginning of the period or the results that may occur in the future. Furthermore, the unaudited pro forma financial information does not reflect the impact of any synergies or operating efficiencies resulting from the acquisition of JSI.
The unaudited pro forma financial information for the twelve months ended June 30, 2021 and June 30, 2020 is prepared using the acquisition method of accounting and has been adjusted to give effect to the pro forma events that are: (1) directly attributable to the acquisition; (2) factually supportable; and (3) expected to have a continuing impact on the combined results. The unaudited pro forma operating income of $19.3 million excludes acquisition-related expenses of $2.9 million.
Twelve Months Ended |
||||||||
June 30 |
||||||||
(In thousands, unaudited) |
2021 |
2020 |
||||||
Net sales |
$ | 391,000 | $ | 362,541 | ||||
Gross profit |
$ | 97,947 | $ | 86,399 | ||||
Operating income |
$ | 19,312 | $ | 13,878 |
NOTE 4 - 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 Display Solutions (formerly known as the Graphics Segment), 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 non-residential outdoor and indoor lighting fixtures utilizing LED light sources that have been fabricated and assembled for the Company’s markets, primarily the petroleum/convenience markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports complex market. The Company also offers a variety of lighting controls to complement its lighting fixtures which include sensors, photocontrols, dimmers, motion detection and Bluetooth systems. The Company also services lighting product customers through the commercial and industrial project, 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 Company acquired JSI in the fourth quarter of fiscal 2021, and consolidated it into the former Graphics Segment, which has been rebranded as the Display Solutions Segment, to more closely align the Company’s comprehensive product offering with the markets it serves. The Display Solutions Segment manufactures, sells and installs exterior and interior visual image and display elements, including printed graphics, structural graphics, digital signage, menu board systems, display fixtures, refrigerated displays, and custom display elements. These products are used in visual image programs in several markets including the petroleum/convenience markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports complex market. The Display Solutions Segment implements, installs and provides program management services related to products sold by the Display Solutions Segment and by the Lighting Segment.
The Company’s corporate administration activities are reported in the Corporate and Eliminations line item. These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit staff, expense related to the Company’s Board of Directors, equity compensation expense for various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.
One customer program in the Display Solutions Segment represents $11.4 million, or 10.3%, and $23.7 million, or 10.9%, of the Company’s net sales in the three and six months ended December 31, 2021, respectively. There were no customers or customer programs representing a concentration of 10% or more of the Company’s consolidated net sales in the three or six months ended December 31, 2020. There was no concentration of accounts receivable at December 31, 2021 or June 30, 2021.
Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of December 31, 2021 and December 31, 2020:
Three Months Ended |
Six Months Ended |
|||||||||||||||
(In thousands) |
December 31 |
December 31 |
||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Net Sales: |
||||||||||||||||
Lighting Segment |
$ | 57,276 | $ | 45,126 | $ | 108,536 | $ | 90,531 | ||||||||
Display Solutions Segment |
53,867 | 31,261 | 109,004 | 55,862 | ||||||||||||
$ | 111,143 | $ | 76,387 | $ | 217,540 | $ | 146,393 | |||||||||
Operating Income (Loss): |
||||||||||||||||
Lighting Segment |
$ | 4,623 | $ | 2,134 | $ | 8,962 | $ | 5,722 | ||||||||
Display Solutions Segment |
3,837 | 3,143 | 7,586 | 4,966 | ||||||||||||
Corporate and Eliminations |
(4,038 | ) | (2,591 | ) | (7,682 | ) | (5,800 | ) | ||||||||
$ | 4,422 | $ | 2,686 | $ | 8,866 | $ | 4,888 | |||||||||
Capital Expenditures: |
||||||||||||||||
Lighting Segment |
$ | 172 | $ | 275 | $ | 352 | $ | 644 | ||||||||
Display Solutions Segment |
254 | 40 | 475 | 67 | ||||||||||||
Corporate and Eliminations |
22 | 160 | (82 | ) | 169 | |||||||||||
$ | 448 | $ | 475 | $ | 745 | $ | 880 | |||||||||
Depreciation and Amortization: |
||||||||||||||||
Lighting Segment |
$ | 1,450 | $ | 1,610 | $ | 2,911 | $ | 3,229 | ||||||||
Display Solutions Segment |
1,016 | 304 | 2,047 | 662 | ||||||||||||
Corporate and Eliminations |
72 | 76 | 143 | 132 | ||||||||||||
$ | 2,538 | $ | 1,990 | $ | 5,101 | $ | 4,023 |
December 31,
|
June 30,
|
|||||||
Identifiable Assets: |
||||||||
Lighting Segment |
$ | 144,107 | $ | 132,169 | ||||
Display Solutions Segment |
153,921 | 147,354 | ||||||
Corporate and Eliminations |
5,441 | 7,298 | ||||||
$ | 303,469 | $ | 286,821 |
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 |
Six Months Ended |
|||||||||||||||
(In thousands) |
December 31 |
December 31 |
||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Lighting Segment inter-segment net sales |
$ | 11,266 | $ | 5,038 | $ | 21,723 | $ | 9,118 | ||||||||
Display Solutions Segment inter-segment net sales |
$ | 72 | $ | 75 | $ | 235 | $ | 113 |
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 5 - 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 and six months ended December 31, 2021 and December 31, 2020 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 6 – INVENTORIES, NET
The following information is provided as of the dates indicated:
December 31, |
June 30, |
|||||||
(In thousands) |
2021 |
2021 |
||||||
Inventories: |
||||||||
Raw materials |
$ | 50,924 | $ | 40,567 | ||||
Work-in-progress |
2,646 | 4,757 | ||||||
Finished goods |
18,384 | 13,617 | ||||||
Total Inventories |
$ | 71,954 | $ | 58,941 |
NOTE 7 - ACCRUED EXPENSES
The following information is provided as of the dates indicated:
December 31, |
June 30, |
|||||||
(In thousands) |
2021 |
2021 |
||||||
Accrued Expenses: |
||||||||
Customer prepayments |
$ | 6,333 | $ | 11,352 | ||||
Accrued warranty |
4,686 | 5,295 | ||||||
Compensation and benefits |
4,649 | 10,051 | ||||||
Accrued sales commissions |
1,953 | 2,568 | ||||||
Operating lease liabilities |
1,446 | 1,424 | ||||||
Accrued FICA |
1,114 | 1,190 | ||||||
Finance lease liabilities |
269 | 263 | ||||||
Accrued income tax |
- | 434 | ||||||
Other accrued expenses |
7,033 | 5,341 | ||||||
Total Accrued Expenses |
$ | 27,483 | $ | 37,918 |
NOTE 8 - 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 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. Following the acquisition of JSI, the Company has a total of three reporting units that contain goodwill. One reporting unit is within the Lighting Segment and two reporting units are within the Display Solutions Segment. The tradename intangible assets have an indefinite life and are also tested separately on an annual basis. The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.
The following table presents information about the Company's goodwill on the dates or for the periods indicated:
(In thousands) |
Display |
|||||||||||
Lighting |
Solutions |
|||||||||||
Segment |
Segment |
Total |
||||||||||
Balance as of December 31, 2021 |
||||||||||||
Goodwill |
$ | 70,971 | $ | 62,105 | $ | 133,076 | ||||||
Measurement period adjustment |
- | 600 | 600 | |||||||||
Accumulated impairment losses |
(61,763 | ) | (27,525 | ) | (89,288 | ) | ||||||
Goodwill, net as of December 31, 2021 |
$ | 9,208 | $ | 35,180 | $ | 44,388 | ||||||
Balance as of June 30, 2021 |
||||||||||||
Goodwill |
$ | 70,971 | $ | 28,690 | $ | 99,661 | ||||||
Goodwill acquired |
- | 33,415 | 33,415 | |||||||||
Accumulated impairment losses |
(61,763 | ) | (27,525 | ) | (89,288 | ) | ||||||
Goodwill, net as of June 30, 2021 |
$ | 9,208 | $ | 34,580 | $ | 43,788 |
The gross carrying amount and accumulated amortization by each major intangible asset class is as follows:
December 31, 2021 |
||||||||||||
(In thousands) |
Gross |
|||||||||||
Carrying |
Accumulated |
Net |
||||||||||
Amount |
Amortization |
Amount |
||||||||||
Amortized Intangible Assets |
||||||||||||
Customer relationships |
$ | 62,083 | $ | 12,692 | $ | 49,391 | ||||||
Patents |
268 | 252 | 16 | |||||||||
LED technology firmware, software |
20,966 | 14,007 | 6,959 | |||||||||
Trade name |
2,658 | 994 | 1,664 | |||||||||
Non-compete |
260 | 32 | 228 | |||||||||
Total Amortized Intangible Assets |
86,235 | 27,977 | 58,258 | |||||||||
Indefinite-lived Intangible Assets |
||||||||||||
Trademarks and trade names |
12,102 | - | 12,102 | |||||||||
Total indefinite-lived Intangible Assets |
12,102 | - | 12,102 | |||||||||
Total Other Intangible Assets |
$ | 98,337 | $ | 27,977 | $ | 70,360 |
June 30, 2021 |
||||||||||||
(In thousands) |
Gross |
|||||||||||
Carrying |
Accumulated |
Net |
||||||||||
Amount |
Amortization |
Amount |
||||||||||
Amortized Intangible Assets |
||||||||||||
Customer relationships |
$ | 62,083 | $ | 10,967 | $ | 51,116 | ||||||
Patents |
268 | 237 | 31 | |||||||||
LED technology firmware, software |
20,966 | 13,415 | 7,551 | |||||||||
Trade name |
2,658 | 939 | 1,719 | |||||||||
Non-compete |
260 | 6 | 254 | |||||||||
Total Amortized Intangible Assets |
86,235 | 25,564 | 60,671 | |||||||||
Indefinite-lived Intangible Assets |
||||||||||||
Trademarks and trade names |
12,102 | - | 12,102 | |||||||||
Total indefinite-lived Intangible Assets |
12,102 | - | 12,102 | |||||||||
Total Other Intangible Assets |
$ | 98,337 | $ | 25,564 | $ | 72,773 |
Three Months Ended |
Six Months Ended |
|||||||||||||||
December 31 |
December 31 |
|||||||||||||||
(In thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Amortization Expense of Other Intangible Assets |
$ | 1,198 | $ | 670 | $ | 2,413 | $ | 1,341 |
The Company expects to record annual amortization expense as follows:
2022 |
$ | 4,808 | ||
2023 |
$ | 4,760 | ||
2024 |
$ | 4,760 | ||
2025 |
$ | 4,760 | ||
2026 |
$ | 4,754 | ||
After 2026 |
$ | 36,829 |
NOTE 9 - DEBT
The Company’s long-term debt as of December 31, 2021 and June 30, 2021 consisted of the following:
December 31, |
June 30, |
|||||||
(In thousands) |
2021 |
2021 |
||||||
Secured line of credit |
$ | 62,525 | $ | 68,178 | ||||
Term loan, net of debt issuance costs of $31 and $0, respectively |
24,076 | - | ||||||
Total debt |
86,601 | 68,178 | ||||||
Less: amounts due within one year |
3,571 | - | ||||||
Total amounts due after one year, net |
$ | 83,030 | $ | 68,178 |
In September 2021, the Company amended its existing $100 million secured line of credit, to a $25 million term loan and $75 million remaining as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. The principal of the term loan is repaid $3.6 million annually over the five-year period with a balloon payment of the remaining balance due on the last month. Interest on both the revolving line of credit and the term loan is charged based upon an increment over the LIBOR rate or a base rate, at the Company’s option. The base rate is calculated as the highest of (a) the Prime rate, (b) the sum of the Overnight Funding Rate plus 50 basis points and (c) the sum of the Daily LIBOR Rate plus 100 basis points as long as a Daily LIBOR rate is offered, ascertainable and not unlawful. The increment over the LIBOR borrowing rate fluctuates between 100 and 225 basis points, and the increment over the Base Rate fluctuates between 0 and 125 basis points, both of which depend upon the ratio of indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined in the line of credit agreement. The increment over LIBOR borrowing rate will be 200 basis points for the fourth quarter of fiscal 2022. The fee on the unused balance of the $75 million committed line of credit fluctuates between 15 and 25 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 ratio. As of December 31, 2021, there was $13.4 million available for borrowing under the $75 million line of credit.
The Company is in compliance with all of its loan covenants as of December 31, 2021.
NOTE 10 - CASH DIVIDENDS
The Company paid cash dividends of $2.7 million and $2.6 million in the six months ended December 31, 2021 and December 31, 2020, respectively. Dividends on restricted stock units in the amount of $0.1 million were accrued as of both December 31, 2021 and 2020, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In January 2022, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 15, 2022to shareholders of record as of February 7, 2022. The indicated annual cash dividend rate is $0.20 per share.
NOTE 11 – 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 equates to 1,692,180 as of December 31, 2021. 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 six months ended December 31, 2021, the Company granted 189,980 PSUs and 145,781 RSUs, both with a weighted average fair market value of $8.16. Stock compensation expense was $1.1 million and $0.4 million for the three months ended December 31, 2021 and 2020, respectively, and $1.7 million and $0.9 million in the six months ended December 31, 2021 and 2020, respectively.
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Six Months Ended |
||||||||
(In thousands) |
December 31 |
|||||||
2021 |
2020 |
|||||||
Cash Payments: |
||||||||
Interest |
$ | 627 | $ | 48 | ||||
Income taxes |
$ | 2,820 | $ | 1,123 | ||||
Non-cash investing and financing activities |
||||||||
Issuance of common shares as compensation |
$ | 150 | $ | 150 | ||||
Issuance of common shares to fund deferred compensation plan |
$ | 2,569 | $ | 679 |
NOTE 13 - 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 December 31, 2021, there were no such standby letters of credit issued.
NOTE 14 – SEVERANCE COSTS
The activity in the Company’s accrued severance liability is as follows for the periods indicated:
Six Months |
Six Months |
Fiscal Year |
||||||||||
Ended |
Ended |
Ended |
||||||||||
December 31, |
December 31, |
June 30, |
||||||||||
(In thousands) |
2021 |
2020 |
2021 |
|||||||||
Balance at beginning of period |
$ | 13 | $ | 639 | $ | 639 | ||||||
Accrual of expense |
- | 21 | 41 | |||||||||
Payments |
(13 | ) | (392 | ) | (667 | ) | ||||||
Balance at end of period |
$ | - | $ | 268 | $ | 13 |
NOTE 15 - LEASES
The Company leases certain manufacturing facilities along with a small office space, several forklifts, several small tooling items and various items of office equipment. The Company also acquired buildings, machinery and forklift leases with the acquisition of JSI, as well as one sublease. All but two of the Company’s leases are operating leases. Leases have a remaining term of one to seven 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 and six months ended December 31, 2021 and 2020, 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.
Three Months Ended |
Six Months Ended |
|||||||||||||||
December 31 |
December 31 |
|||||||||||||||
(In thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Operating lease cost |
$ | 870 | $ | 565 | $ | 1,749 | $ | 1,138 | ||||||||
Financing lease cost: |
||||||||||||||||
Amortization of right of use assets |
74 | 72 | 148 | 145 | ||||||||||||
Interest on lease liabilities |
20 | 23 | 41 | 47 | ||||||||||||
Variable lease cost |
22 | 1 | 44 | 2 | ||||||||||||
Sublease income |
(94 | ) | - | (188 | ) | - | ||||||||||
Total lease cost |
$ | 892 | $ | 661 | $ | 1,794 | $ | 1,332 |
Six Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Cash flows from operating leases |
||||||||
Fixed payments - operating cash flows |
$ | 1,778 | $ | 1,141 | ||||
Liability reduction - operating cash flows |
$ | 1,502 | $ | 929 | ||||
Cash flows from finance leases |
||||||||
Interest - operating cash flows |
$ | 42 | $ | 47 | ||||
Repayments of principal portion - financing cash flows |
$ | 129 | $ | 118 |
Operating Leases:
|
December 31, |
June 30, |
||||||
2021 |
2021 |
|||||||
Total operating right-of-use assets |
$ | 10,185 | $ | 11,579 | ||||
Accrued expenses (Current liabilities) |
$ | 1,446 | $ | 1,424 | ||||
Long-term operating lease liability |
9,436 | 10,890 | ||||||
Total operating lease liabilities |
$ | 10,882 | $ | 12,314 | ||||
Weighted Average remaining Lease Term (in years) |
3.49 | 3.93 | ||||||
Weighted Average Discount Rate |
4.81 | % | 4.81 | % |
Finance Leases:
|
December 31, |
June 30, |
||||||
2021 |
2021 |
|||||||
Buildings under finance leases |
$ | 2,033 | $ | 2,033 | ||||
Equipment under finance leases |
30 | 30 | ||||||
Accumulated depreciation |
(487 | ) | (339 | ) | ||||
Total finance lease assets, net |
$ | 1,576 | $ | 1,724 | ||||
Accrued expenses (Current liabilities) |
$ | 269 | $ | 263 | ||||
Long-term finance lease liability |
1,386 | 1,521 | ||||||
Total finance lease liabilities |
$ | 1,655 | $ | 1,784 | ||||
Weighted Average remaining Lease Term (in years) |
5.28 | 5.78 | ||||||
Weighted Average Discount Rate |
4.86 | % | 4.86 | % |
Maturities of Lease Liability:
|
Operating Lease Liabilities |
Finance Lease Liabilities |
Operating Subleases |
Net Lease Commitments |
||||||||||||
2022 |
$ | 1,920 | $ | 191 | $ | (189 | ) | $ | 1,922 | |||||||
2023 |
3,577 | 342 | (377 | ) | 3,542 | |||||||||||
2024 |
3,280 | 337 | (377 | ) | 3,240 | |||||||||||
2025 |
2,130 | 362 | (31 | ) | 2,461 | |||||||||||
2026 |
828 | 362 | - | 1,190 | ||||||||||||
Thereafter |
216 | 304 | - | 520 | ||||||||||||
Total lease payments |
$ | 11,951 | $ | 1,898 | $ | (974 | ) | $ | 12,875 | |||||||
Less: Interest |
(1,069 | ) | (243 | ) | (1,312 | ) | ||||||||||
Present Value of Lease Liabilities |
$ | 10,882 | $ | 1,655 | $ | 11,563 |
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 allowed the Company to carry back a federal net operating loss to prior tax years, offset taxable income in those earlier tax years and request a refund of income taxes that were paid at a higher statutory tax rate. The Company recognized tax benefits of $0.4 million in the first quarter of fiscal 2021 for utilizing the net operating losses in the prior tax years.
Three Months Ended |
Six Months Ended |
|||||||||||||||
December 31 |
December 31 |
|||||||||||||||
2021 |
2020 |
2021 |
2020 |
|||||||||||||
Reconciliation of effective tax rate: | ||||||||||||||||
Provision for income taxes at the anticipated annual tax rate | 23.8 | % | 25.0 | % | 24.0 | % | 24.5 | % | ||||||||
Uncertain tax positions | (3.9 | ) | (4.8 | ) | (1.5 | ) | (2.2 | ) | ||||||||
Tax rate changes | - | - | - | (7.0 | ) | |||||||||||
Share-based compensation | 0.1 | (0.2 | ) | (0.3 | ) | 0.9 | ||||||||||
Effective tax rate | 20.0 | % | 20.0 | % | 22.2 | % | 16.2 | % |
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, 2021, 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.
Summary of Consolidated Results
Three Months Ended |
Six Months Ended |
|||||||||||||||
December 31 |
December 31 |
|||||||||||||||
(In thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Lighting Segment |
$ | 57,276 | $ | 45,126 | $ | 108,536 | $ | 90,531 | ||||||||
Display Solutions Segment |
53,867 | 31,261 | 109,004 | 55,862 | ||||||||||||
$ | 111,143 | $ | 76,387 | $ | 217,540 | $ | 146,393 |
Three Months Ended |
Six Months Ended |
|||||||||||||||
December 31 |
December 31 |
|||||||||||||||
(In thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Lighting Segment |
$ | 4,623 | $ | 2,134 | $ | 8,962 | $ | 5,722 | ||||||||
Display Solutions Segment |
3,837 | 3,143 | 7,586 | 4,966 | ||||||||||||
Corporate and Eliminations |
(4,038 | ) | (2,591 | ) | (7,682 | ) | (5,800 | ) | ||||||||
$ | 4,422 | $ | 2,686 | $ | 8,866 | $ | 4,888 |
Net sales of $111.1 million for the three months ended December 31, 2021 increased $34.7 million or 45% as compared to net sales of $76.4 million for the three months ended December 31, 2020. Net sales were driven by increased net sales of the Display Solutions Segment (an increase of $22.6 million or 72%) and increased net sales of the Lighting Segment (an increase of $12.1 million or 27%).
Net sales of $217.5 million for the six months ended December 31, 2021 increased $71.1 million or 49% as compared to net sales of $146.4 million for the six months ended December 31, 2020. Net sales were driven by increased net sales of the Display Solutions Segment (an increase of $53.1 million or 95%) and increased net sales of the Lighting Segment (an increase of $18.0 million or 20%).
Operating income of $4.4 million for the three months ended December 31, 2021 represents a $1.7 million increase from operating income of $2.7 million in the three months ended December 31, 2020. Adjusted operating income, a Non-GAAP measure, was $5.9 million in the three months ended December 31, 2021 compared to $3.1 million in the three months ended December 31, 2020. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures.
Operating income of $8.9 million for the six months ended December 31, 2021 represents a $4.0 million increase from operating income of $4.9 million in the six months ended December 31, 2020. Adjusted operating income, a Non-GAAP measure, was $10.9 million in the six months ended December 31, 2021 compared to $5.8 million in the six months ended December 31, 2020. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures.
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 stock compensation expense, acquisition costs, severance costs and restructuring costs 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, Net Debt and Organic Net Sales. 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. These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, the non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should be used only to evaluate our results in conjunction with corresponding GAAP measures. 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, Net Debt and Organic Net Sales.
Reconciliation of operating income to adjusted operating income: |
Three Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Operating Income as reported |
$ | 4,422 | $ | 2,686 | ||||
Stock compensation expense |
1,130 | 397 | ||||||
Acquisition costs |
340 | - | ||||||
Severance costs |
- | 21 | ||||||
Adjusted Operating Income |
$ | 5,892 | $ | 3,104 |
Reconciliation of net income to adjusted net income |
Three Months Ended |
||||||||||||||||||
December 31 |
||||||||||||||||||
(In thousands, except per share data) |
2021 |
2020 |
||||||||||||||||
Diluted EPS |
Diluted EPS |
|||||||||||||||||
Net Income as reported |
$ | 3,105 | $ | 0.11 | $ | 2,208 | $ | 0.08 | ||||||||||
Stock compensation expense |
867 | (1) | 0.03 | 318 | (3) | 0.01 | ||||||||||||
Acquisition costs |
269 | (2) | 0.01 | - | - | |||||||||||||
Severance costs |
- | - | 17 | (4) | - | |||||||||||||
Net Income adjusted |
$ | 4,241 | $ | 0.15 | $ | 2,543 | $ | 0.09 |
The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates for the periods indicated (in thousands):
(1) |
$263 |
(2) |
$71 |
(3) |
$79 |
(4) |
$4 |
Reconciliation of operating income to adjusted operating income: |
Six Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Operating Income as reported |
$ | 8,866 | $ | 4,888 | ||||
Stock compensation expense |
1,686 | 902 | ||||||
Acquisition costs |
340 | - | ||||||
Severance costs |
- | 21 | ||||||
Restructuring costs |
- | 3 | ||||||
Adjusted Operating Income |
$ | 10,892 | $ | 5,814 |
Reconciliation of net income to adjusted net income |
Six Months Ended |
||||||||||||||||||
December 31 |
||||||||||||||||||
(In thousands, except per share data) |
2021 |
2020 |
||||||||||||||||
Diluted EPS |
Diluted EPS |
|||||||||||||||||
Net Income as reported |
$ | 6,238 | $ | 0.22 | $ | 4,198 | $ | 0.15 | ||||||||||
Stock compensation expense |
1,274 | (1) | 0.05 | 698 | (3) | 0.03 | ||||||||||||
Acquisition costs |
269 | (2) | 0.01 | - | - | |||||||||||||
Severance costs |
- | - | 17 | (4) | - | |||||||||||||
Restructuring costs |
- | - | 2 | (5) | - | |||||||||||||
Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes |
- | - | (297 | ) | (0.01 | ) | ||||||||||||
Net Income adjusted |
$ | 7,781 | $ | 0.28 | $ | 4,618 | $ | 0.17 |
(1) |
$412 |
(2) |
$71 |
(3) |
$204 |
(4) |
$4 |
(5) |
$1 |
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 |
Six Months Ended |
|||||||||||||||
December 31 |
December 31 |
|||||||||||||||
(In thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Operating Income as reported |
$ | 4,422 | $ | 2,686 | $ | 8,866 | $ | 4,888 | ||||||||
Depreciation and Amortization |
2,538 | 1,990 | 5,101 | 4,023 | ||||||||||||
EBITDA |
$ | 6,960 | $ | 4,676 | $ | 13,967 | $ | 8,911 | ||||||||
Stock compensation expense |
1,130 | 397 | 1,686 | 902 | ||||||||||||
Acquisition costs |
340 | - | 340 | - | ||||||||||||
Severance costs |
- | 21 | - | 21 | ||||||||||||
Restructuring costs |
- | - | - | 3 | ||||||||||||
Adjusted EBITDA |
$ | 8,430 | $ | 5,094 | $ | 15,993 | $ | 9,837 |
Reconciliation of cash flow from operations to free cash flow |
Three Months Ended |
Six Months Ended |
|||||||||||||||
December 31 |
December 31 |
|||||||||||||||
(In thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Cash Flow from Operations |
$ | (8,654 | ) | $ | 5,778 | $ | (16,543 | ) | $ | 13,417 | ||||||
Capital expenditures |
(448 | ) | (475 | ) | (745 | ) | (880 | ) | ||||||||
Free Cash Flow |
$ | (9,102 | ) | $ | 5,303 | $ | (17,288 | ) | $ | 12,537 |
Reconciliation of Net Debt |
December 31, |
June 30, |
|||||||
(In thousands) |
2021 |
2021 |
||||||
Current portion and long-term debt as reported |
$ | 86,601 | $ | 68,178 | ||||
Less: |
||||||||
Cash and cash equivalents as reported |
914 | 2,282 | ||||||
Net Debt |
$ | 85,687 | $ | 65,896 |
Reconciliation of net sales to organic net sales |
Three Months Ended |
Six Months Ended |
|||||||||||||||
December 31 |
December 31 |
|||||||||||||||
(In thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Lighting Segment |
$ | 57,276 | $ | 45,126 | $ | 108,536 | $ | 90,531 | ||||||||
Display Solutions Segment |
53,867 | 31,261 | 109,004 | 55,862 | ||||||||||||
Total net sales |
111,143 | 76,387 | 217,540 | 146,393 | ||||||||||||
Less: |
||||||||||||||||
JSI |
20,560 | - | 43,907 | - | ||||||||||||
Total organic net sales |
$ | 90,583 | $ | 76,387 | $ | 173,633 | $ | 146,393 |
Results of Operations
THREE MONTHS ENDED DECEMBER 31, 2021 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2020
Lighting Segment
Three Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Net Sales |
$ | 57,276 | $ | 45,126 | ||||
Gross Profit |
$ | 16,898 | $ | 13,704 | ||||
Operating Income |
$ | 4,623 | $ | 2,134 |
Lighting Segment net sales of $57.3 million in the three months ended December 31, 2021 increased 27% from net sales of $45.1 million in the same period in fiscal 2021. The increase is due to increases in both our project business and sales into distributor stock, as well as the launch of new products. Project business sales improved in the warehousing, petroleum, parking, and automotive verticals.
Gross profit of $16.9 million in the three months ended December 31, 2021 increased $3.2 million or 23% from the same period of fiscal 2021. Gross profit as a percentage of net sales was 29.5% in the three months ended December 31, 2021 compared to 30.4% in the same period of fiscal 2021. Gross profit as a percentage of net sales reflects effective price management and productivity, along with mitigating continued increases from the inflationary impact of input costs.
Operating expenses of $12.3 million in the three months ended December 31, 2021 increased $0.7 million from the same period of fiscal 2021, primarily driven by higher commission expense as a result of higher sales.
Lighting Segment operating income of $4.6 million for the three months ended December 31, 2021 increased $2.5 million from operating income of $2.1 million in the same period of fiscal 2021 primarily driven by sales volume.
Display Solutions Segment
Three Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Net Sales |
$ | 53,867 | $ | 31,261 | ||||
Gross Profit |
$ | 8,559 | $ | 6,006 | ||||
Operating Income |
$ | 3,837 | $ | 3,143 |
Display Solutions Segment net sales of $53.9 million in the three months ended December 31, 2021 increased $22.6 million or 72% from net sales of $31.3 million in the same period in fiscal 2021. The increase is driven primarily by the acquisition of JSI.
Gross profit of $8.6 million in the three months ended December 31, 2021 increased $2.5 million or 42% from the same period of fiscal 2021. Gross profit as a percentage of net sales in the three months ended December 31, 2021 was 15.9% compared to 19.2% in the same period of fiscal 2021. Gross profit as a percentage of net sales has been unfavorably impacted by inflationary input costs, partially offset by selling price increases, and project mix.
Operating expenses of $4.7 million in the three months ended December 31, 2021 increased $1.8 million from $2.9 million in the same period of fiscal 2021, primarily driven by the inclusion of three months of results for JSI.
Display Solutions Segment operating income of $3.8 million in the three months ended December 31, 2021 increased $0.7 million from operating income of $3.1 million in the same period of fiscal 2021. The increase of $0.7 million was primarily driven by an increase in sales.
Corporate and Eliminations |
Three Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Gross Profit (Loss) |
$ | (9 | ) | $ | (4 | ) | ||
Operating (Loss) |
$ | (4,038 | ) | $ | (2,591 | ) |
The gross profit relates to the change in the intercompany profit in inventory elimination.
Operating expenses of $4.0 million in the three months ended December 31, 2021 increased $1.4 million or 56% from the same period of fiscal 2021. The net increase was due to the acceleration of long-term incentive plan compensation expense and acquisition costs.
Consolidated Results
We reported $0.5 million and $0.1 million of net interest expense in the three months ended December 31, 2021 and December 31, 2020, respectively. The increase in interest expense from fiscal 2021 to fiscal 2022 is the result of higher levels of debt outstanding on our credit facility. We also recorded other expense/(income) in the three months ended December 31, 2021 and December 31, 2020, related to net foreign exchange currency transaction losses and gains through our Mexican and Canadian subsidiaries.
The $0.8 million of income tax expense in the three months ended December 31, 2021 represents a consolidated effective tax rate of 20.0%. The $0.6 million of income tax expense in the three months ended December 31, 2020 represents a consolidated effective tax rate of 20.0%.
We reported net income of $3.1 million in the three months ended December 31, 2021 compared to net income of $2.2 million in the three months ended December 31, 2020. Non-GAAP adjusted net income was $4.2 million for the three months ended December 31, 2021 compared to adjusted net income of $2.5 million for the three months ended December 31, 2020 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an increase in sales. Diluted earnings per share of $0.11 was reported in the three months ended December 31, 2021 as compared to $0.08 diluted earnings per share in the same period of fiscal 2021. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the three months ended December 31, 2021 were 28,067,000 shares compared to 27,360,000 shares in the same period last year.
SIX MONTHS ENDED DECEMBER 31, 2021 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2020
Lighting Segment |
Six Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Net Sales |
$ | 108,536 | $ | 90,531 | ||||
Gross Profit |
$ | 32,355 | $ | 27,530 | ||||
Operating Income |
$ | 8,962 | $ | 5,722 |
Lighting Segment net sales of $108.5 million in the six months ended December 31, 2021 increased 20% from net sales of $90.5 million in the same period in fiscal 2021. The increase is due to increases in both our project business and sales into distributor stock, as well as the launch of new products. Project business sales improved in the warehousing, petroleum, parking, and automotive verticals.
Gross profit of $32.4 million in the six months ended December 31, 2021 increased $4.8 million or 17% from the same period of fiscal 2021. Gross profit as a percentage of net sales was 29.8% in the six months ended December 31, 2021 compared to 30.4% in the same period of fiscal 2021. Gross profit as a percentage of net sales reflects effective price management and productivity, along with mitigating continued increases from the inflationary impact of input costs.
Operating expenses of $23.4 million in the six months ended December 31, 2021 increased $1.6 million from the same period of fiscal 2021, primarily driven by higher commission expense as a result of higher sales and non-recurring cost savings due to COVID-19 in the prior year.
Lighting Segment operating income of $9.0 million for the six months ended December 31, 2021 increased $3.2 million from operating income of $5.7 million in the same period of fiscal 2021 primarily driven by sales volume.
Display Solutions Segment |
Six Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Net Sales |
$ | 109,004 | $ | 55,862 | ||||
Gross Profit |
$ | 17,595 | $ | 10,448 | ||||
Operating Income |
$ | 7,586 | $ | 4,966 |
Display Solutions Segment net sales of $109.0 million in the six months ended December 31, 2021 increased $53.1 million or 95% from net sales of $55.9 million in the same period in fiscal 2021. The increase is primarily driven by the acquisition of JSI.
Gross profit of $17.6 million in the six months ended December 31, 2021 increased $7.1 million or 68% from the same period of fiscal 2021. Gross profit as a percentage of net sales in the six months ended December 31, 2021 was 16.1% compared to 18.7% in the same period of fiscal 2021. Gross profit as a percentage of net sales has been unfavorably impacted by inflationary input costs, partially offset by selling price increases, and project mix.
Operating expenses of $10.0 million in the six months ended December 31, 2021 increased $4.5 million from $5.5 million in the same period of fiscal 2021, primarily driven by the inclusion of six months of results for JSI and non-recurring cost savings due to COVID-19 in the prior year.
Display Solutions Segment operating income of $7.6 million in the six months ended December 31, 2021 increased $2.6 million from operating income of $5.0 million in the same period of fiscal 2021. The increase of $2.6 million was primarily driven by an increase in sales.
Corporate and Eliminations |
Six Months Ended |
||||||||
December 31 |
||||||||
(In thousands) |
2021 |
2020 |
||||||
Gross Profit (Loss) |
$ | 8 | $ | - | ||||
Operating (Loss) |
$ | (7,682 | ) | $ | (5,800 | ) |
The gross profit relates to the change in the intercompany profit in inventory elimination.
Operating expenses of $7.7 million in the six months ended December 31, 2021 increased $1.9 million or 33% from the same period of fiscal 2021. The net increase was due to the acceleration of long-term incentive plan compensation expense and acquisition costs, as well as non-recurring cost savings due to COVID-19 in the prior year.
Consolidated Results
We reported $0.8 million and $0.1 million of net interest expense in the six months ended December 31, 2021 and December 31, 2020, respectively. The increase in interest expense from fiscal 2021 to fiscal 2022 is the result of higher levels of debt outstanding on our credit facility. We also recorded other expense/(income) in the six months ended December 31, 2021 and December 31, 2020, related to net foreign exchange currency transaction losses and gains through our Mexican and Canadian subsidiaries.
The $1.8 million of income tax expense in the six months ended December 31, 2021 represents a consolidated effective tax rate of 22.2%. The $0.8 million income tax expense in the six months ended December 31, 2020 represents a consolidated effective tax rate of 16.2% and was driven by a favorable deferred tax asset adjustment related to a net operating loss carryback from the CARES Act.
We reported net income of $6.2 million in the six months ended December 31, 2021 compared to net income of $4.2 million in the six months ended December 31, 2020. Non-GAAP adjusted net income was $7.8 million for the six months ended December 31, 2021 compared to adjusted net income of $4.6 million for the six months ended December 31, 2020 (Refer to the Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an increase in sales. Diluted earnings per share of $0.22 was reported in the six months ended December 31, 2021 as compared to $0.15 diluted earnings per share in the same period of fiscal 2021. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the six months ended December 31, 2021 were 27,895,000 shares compared to 27,161,000 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 December 31, 2021, we had working capital of $78.8 million compared to $54.1 million at June 30, 2021. The ratio of current assets to current liabilities was 2.16 to 1 compared to a ratio of 1.76 to 1 at June 30, 2021. The increase in working capital from June 30, 2021 to December 31, 2021 is primarily driven by a $13.0 million increase in net inventory, $11.5 million increase in net accounts receivable, and a $10.4 million decrease in accrued expenses, partially offset by a $3.8 million increase in accounts payable, a $3.6 million increase in current maturities of long-term debt and a $1.5 million decrease in other current assets.
Net accounts receivable was $69.2 million and $57.7 million at December 31, 2021 and June 30, 2021, respectively. DSO decreased to 54 days at December 31, 2021 from 56 days at June 30, 2021.
Net inventories of $71.9 million at December 31, 2021 increased $13.0 million from $58.9 million at June 30, 2021. The increase of $13.0 million is the result of an increase in gross inventory of $13.2 million and an increase in obsolescence reserves of $0.2 million. Lighting Segment net inventory increased $9.2 million, to support our product availability initiative to capitalize on new, short-lead time opportunities and to mitigate the ongoing supply chain challenges. Net inventory in the Display Solutions Segment increased $3.8 million, to support several ongoing programs.
Cash generated from operations and borrowing capacity under our credit facility is our primary source of liquidity. In September 2021, we amended our existing $100 million secured line of credit, to a $25 million term loan and $75 million remaining as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. As of December 31, 2021, $13.4 million of the credit line was available. We are in compliance with all of our loan covenants. We believe that our $100 million credit facility plus cash flows from operating activities are adequate for operational and capital expenditure needs for the remainder of fiscal 2022. However, as the impact of COVID-19 on the economy and our operations evolves, we will continue to assess our liquidity needs.
We used $16.5 million of cash from operating activities in the six months ended December 31, 2021 compared to a source of cash of $13.4 million in the six months ended December 31, 2020. The decrease in net cash flows from operating activities is the result of increases in inventory and accounts receivable and decreases in accrued expense and customer prepayments, partially offset by improved earnings and an increase in accounts payable.
We used $0.2 million and $0.9 million of cash related to investing activities in the six months ended December 31, 2021 and December 31, 2020, respectively. Capital expenditures decreased from $0.9 million in the six months ended December 31, 2020 to $0.7 million in the six months ended December 31, 2021. We received $0.5 million of cash related to the settlement of working capital adjustments from the acquisition of JSI.
We had a source of cash of $15.4 million related to financing activities in the six months ended December 31, 2021 compared to a use of cash of $2.6 million in the six months ended December 31, 2020. The $18.0 million change in cash flow was the net result of an increase in the borrowings on the line of credit to support the growth in working capital. Most of the growth in working capital can be attributed to the increase in inventory to ensure product availability for critical sales growth initiatives and to mitigate supply chain challenges.
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 January 2022, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 15, 2022 to shareholders of record as of February 7, 2022. The indicated annual cash dividend rate for fiscal 2022 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 2021 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, 2021. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 13 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
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 December 31, 2021, 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 December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits:
3.1 |
Amended and Restated (Consolidated) Articles of Incorporation of LSI Industries Inc. |
10.1 |
10.2 |
10.3 |
Form of 2019 Omnibus Award Plan Restricted Stock Unit Award Agreement for FY22 Grant* |
10.4 |
Form of 2019 Omnibus Award Plan Performance Stock Unit Award Agreement for FY22 Grant*++ |
10.5 |
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.
LSI Industries Inc. |
|||
By: |
/s/ James A. Clark |
||
James A. Clark |
|||
Chief Executive Officer and President |
|||
(Principal Executive Officer) |
|||
By: |
/s/ James E. Galeese |
||
James E. Galeese |
|||
Executive Vice President and Chief |
|||
Financial Officer | |||
(Principal Financial Officer) |
|||
February 4, 2022 |
Exhibit 3.1
AMENDED AND RESTATED (CONSOLIDATED)
OF
LSI INDUSTRIES INC.
First. The name of the Corporation shall be LSI Industries Inc.
Second. The place in Ohio where its principal office is to be located is 10000 Alliance Road, Cincinnati, Hamilton County, Ohio 45242.
Third. The nature of the business and the purposes to be conducted and promoted by the Corporation is to engage in designing, manufacturing and supplying of electrical lighting systems and graphic products and to do any other lawful act for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
Fourth. The maximum number of shares which the Corporation is authorized to have outstanding is:
A. 50,000,000 shares of Common Stock, without par value and
B. 1,000,000 shares of Preferred Stock, without par value.
The holders of the Preferred Stock shall be entitled to receive dividends out of any funds of the Corporation at the time legally available for dividends when and as declared by the Board of Directors at such rate as shall be fixed by the Board of Directors before any sum shall be set apart or applied to the redemption or purchase of or any dividends shall be declared or paid upon or set apart for any class or series of Common Stock. In the event of any liquidation, dissolution or winding up of the Corporation, the holders of Preferred Stock shall be entitled to receive out of the assets of the Corporation payment of an amount per share as determined by the Board of Directors as a liquidation price (including accrued dividends, if any) before any distribution of assets shall be made to the holders of any class or series of Common Stock.
The Board of Directors shall have the express authority from time-to-time to adopt amendments to these Articles of Incorporation with respect to any unissued or treasury shares of Preferred Stock and thereby to fix or change the division of such shares into series and the designation and authorized number of shares of each series and to provide for each such series: voting powers, full or limited or no voting powers; dividend rates; dates of payment of dividends; dates from which dividends are cumulative; liquidation prices; redemption rights and prices; sinking fund requirements; conversion rights; restrictions on the issuance of shares of other series of Preferred Stock; and such other designations, preferences and relative participating options or other special rights and qualifications, powers, limitations or restrictions thereon as may be determined by the Board of Directors.
Fifth. No holder of any shares of this Corporation shall have any pre-emptive rights to subscribe for or to purchase any shares of this Corporation of any class whether such shares of such class be now or hereafter authorized or to purchase or subscribe for securities convertible into or exchangeable for shares of any class or to which shall be attached or appertained any warrants or rights entitling the holder thereof to purchase or subscribed for shares of any class.
Sixth. This Corporation, through its Board of Directors, shall have the right and power to purchase any of its outstanding shares of such price and upon such terms as may be agreed upon between the Corporation and any selling shareholder.
Seventh. BUSINESS COMBINATIONS
A. Voting Requirements for Business Combinations
In addition to any affirmative vote required by law or the Articles, no Business Combination may be effected with an Interested Shareholder for a period of five years following the date that such shareholder became an Interested Shareholder, unless approved by the affirmative vote of the holders of outstanding voting securities of the Corporation entitled to exercise two-thirds of the combined voting power of the Corporation and by the affirmative vote of two-thirds of the voting securities beneficially owned by Disinterested Shareholders.
B. Fair Price Requirement
Within 25 days after a corporation, person or other entity becomes an Interested Shareholder, such Interested Shareholder shall give written notice to each holder of voting securities or securities convertible into or exchangeable for voting securities, or options, warrants or rights to purchase voting securities or securities convertible into or exchangeable for voting securities of the Corporation stating that it is an Interested Shareholder and that such holder may sell any of the above-mentioned securities to the Interested Shareholder for cash at the price, as determined below. Within 25 days after a holder receives the above notice, the holder may send written demand to the Interested Shareholder stating the number, class and identifying number of the securities to be sold to the Interested Shareholder. Within 10 days after the holder sends written demand, the Interested Shareholder must purchase the securities identified in the written demand. Upon expiration of the 10 day purchase period, any holder of securities entitled to written notice under this section may institute an action or proceeding in any court of law or equity to enforce his or her rights under this section.
1. The price for all securities to be purchased by an Interested Shareholder shall be the higher of (a) the highest price paid per security by the Interested Shareholder for acquisitions of beneficial ownership of voting securities of the Corporations at any time plus an increment representing any value, including, without limitation, any proportion of any value payable for acquisition of control of the Corporation, that may not be reflected in such price or (b) the highest price per security of the voting securities traded on the securities markets in which the Corporation’s securities are traded during the 45 day period commencing 30 days prior to the date such Interested Shareholder became an Interested Shareholder.
2. For purposes of determining the price, all convertible or exchangeable securities shall be deemed to be converted or exchanged and all options, warrants and rights shall be treated as being exercised. That portion of the price equal to the exercise price for options, warrants and rights shall be paid to the Corporation and the balance to the holders thereof.
3. If an Interested Shareholder does not send notice or purchase securities as required by this section, the Corporation, at its option, may assume the obligations of the Interested Shareholders.
4. Regardless of anything contained in this subsection, in the event any court of law or equity declares an Interested Shareholder’s duty to purchase securities under this section unenforceable, the Corporation shall offer to purchase such securities for cash at the price determined by the application of subsection (1) above.
C. Definitions
For the purposes of this Article, certain terms are defined as follows:
1. “Business Combination” means:
1.1 Any merger or consolidation of the Corporation or any direct or indirect subsidiary, partnership, trust or other business entity of the Corporation with or into an Interested Shareholder or subsidiary. Affiliate or Associate of an Interested Shareholder, or any other corporation, person or other entity; or
1.2 Any sale, lease, exchange, mortgage, pledge, transfer or other disposition, whether in one transaction or a series of transactions, to or with an Interested Shareholder or subsidiary, Affiliate or Associate of an Interested Shareholder, of assets of the Corporation or any direct or indirect subsidiary, partnership, trust or other business entity of the Corporation, which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the Corporation; or
1.3 Any sale, lease, exchange, mortgage, pledge, transfer or other disposition, whether in one transaction or a series of transactions, to the Corporation or any subsidiary, partnership, trust or other business entity of the Corporation of any assets in exchange for voting securities or securities convertible into or exchangeable for voting securities, or options, warrants or rights to purchase voting securities or securities convertible into or exchangeable for voting securities, of the Corporation or any subsidiaries of the Corporation by an Interested Shareholder or subsidiary, Affiliate or Associate of an Interested Shareholder; or
1.4 Any reclassification of securities of the Corporation, recapitalization or other transaction which has the effect, directly or indirectly, of increasing the voting power of an Interested Shareholder or a subsidiary, Affiliate or Associate of an Interested Shareholder; or
1.5 Any receipt by an Interested Shareholder or a subsidiary, Affiliate or Associate of an Interested Shareholder, except proportionately as a shareholder, of the benefit, directly or indirectly of any loans, advances, guarantees, pledges, or other financial benefits provided by or through the Corporation or any direct or indirect subsidiary, partnership, trust or other business entity of the Corporation, except proportionately as a shareholder; or
1.6 Any merger or other action by an Interested Shareholder which results in the termination of the Corporation’s existence as a corporation formed under the Ohio Revised Code; or
1.7 The adoption of any plan or proposal for the partial or complete liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder.
2. “Interested Shareholder” means any corporation, person or other entity which is the beneficial owner, directly or indirectly, of outstanding voting securities of the Corporation representing 15% or more of the votes then entitled to be voted in the election of the Directors of the Corporation; provided, however, that the term “Interested Shareholder” shall not include any corporation, person, or entity who (a) was an Interested Shareholder as of the effective date of this Article SEVENTH or (b) acquired said securities from a person described in (a) above by gift, inheritance or in a transaction in which no consideration was exchanged.
Any corporation, person or other entity will be deemed to be the beneficial owner of any voting securities:
(a) Which it owns directly, whether or not of record; or
(b) Which it (i) has the right to acquire, whether such right is exercisable immediately or after the passage of time and whether or not such right is exercisable only after specified conditions are met, pursuant to any agreement or arrangement or understanding or upon exercise of conversion rights, exchange rights, warrants or options or otherwise or (ii) has the right to vote pursuant to any agreement or arrangement or understanding; or
(c) Which are beneficially owned, directly or indirectly, including securities deemed to be owned through application of clause (b) above, by a subsidiary, “Affiliate” or “Associate”; or
(d) Which are beneficially owned, directly or indirectly, including securities deemed owned through application of clause (b) above, by any other corporation, person or other entity with which the Interested Shareholder or any of its Affiliates or Associates, has any agreement or arrangement or understanding for the purpose of acquiring, holding, voting or disposing of voting securities of the Corporation.
3. An “Affiliate” or a corporation, person or other entity “affiliated” with a specified corporation, person or other entity means a corporation, person or other entity that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with the corporation, person or other entity specified. The term “Associate”, when used to indicate a relationship with any corporation, person or other entity means (a) any corporation or organization other than the Corporation or subsidiaries of the Corporation, of which such corporation, person or other entity is an officer or partner or is, directly or indirectly, the beneficial owner of Ten Percent (10%) or more of any class of voting securities, (b) any trust or other estate in which such corporation, person or other entity has a substantial beneficial interest or as to which such corporation, person or other entity served as trustee or in similar fiduciary capacity and (c) any relative or spouse of such person, or relative of such spouse, who has the same home of such person or who was a director or officer of the corporation or organization or any of its parents or subsidiaries.
4. “Disinterested Director” means any member of the Board of Directors who is not an Interested Shareholder, Affiliate or Associate of an Interested Shareholder or any of their Affiliates or Associates.
5. “Disinterested Shareholder” means the owner of voting securities other than those beneficially owned by an Interested Shareholder.
D. Director Approval
1. The provisions of Section A of this Article shall not be applicable if the Business Combination shall have been approved by a majority of the Disinterested Directors prior to the consummation of such Business Combination.
2. The provisions of Section B of this Article shall not be applicable if the transaction or series of transactions by which a corporation, person or other entity became an Interested Shareholder shall have been approved by a majority of the Disinterested Directors.
E. Amendments to Article SEVENTH
The affirmative vote of majority of the Disinterested Directors and the affirmative vote of the holders of outstanding voting securities of the Corporation entitled to exercise two-thirds of the voting power of the Corporation and the affirmative vote of two-thirds of the voting securities beneficially owned by Disinterested Shareholders shall be required to amend any provisions of this Article SEVENTH.
Eighth: No shareholder shall have the right to vote cumulatively in the election of Directors.
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 FY22
LONG-TERM INCENTIVE PLAN
Effective: October 6, 2021
LSI INDUSTRIES INC.
FY22
LONG-TERM INCENTIVE PLAN
Effective: October 6, 2021
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 2022 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 October 6, 2021 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, 2024 (FY24). 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 FY24 if the FY24 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 “1” hereto. |
2.1 |
PSU Performance and Payout Matrix. Attached as Exhibit “2” is the LTIP Payout Matrix. Below is a summary of the Matrix: |
Payout % |
2024 RONA |
2024 EBITDA Cumulative $ (000s) |
||||||||||
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 “3” hereto.
3. |
Restricted Stock Units. The Company may grant restricted stock units (RSUs) to the Employees. RSUs are time-based and vest one-third on each of the anniversary dates of the grant date. The form of RSU Award Agreement is set forth as Exhibit “4” hereto. |
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 and 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 FY22 LTIP are set forth in the Compensation Committee resolution whereby this FY22 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 FY22 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, 2021 and ending June 30, 2024. The Company’s Adjusted EBITDA will be as reported in the Company’s Annual Report on Form 10-K for FY24 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, |
3. |
“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 an agreement approved by the Company’s Compensation Committee provides for vesting in other circumstances, such as Company terminating Participant’s employment without Cause or Participant terminating employment for Good Reason, 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 EVP 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 2019 Omnibus 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 NEO on the grant date, and receives such Company common shares, will be subject to the stock ownership guidelines with respect to the net after tax shares received upon exercise of the stock options or vesting of RSUs and PSUs. |
L. |
The Company reserves the right to require each grantee to execute and deliver to the Company a non-compete/non-solicitation agreement, in the form satisfactory to Company, 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. |
N. |
In the event of a conflict between this LTIP and any Supplemental Benefits and/or Change in Control Agreement (“Employment Related Agreements”) between the Company and an Employee, the Employment Related Agreements shall control. |
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 2022
SHORT TERM INCENTIVE PLAN
Effective : October 6, 2021
LSI INDUSTRIES INC.
FISCAL YEAR 2022
SHORT TERM INCENTIVE PLAN
Effective October 6, 2021
The Fiscal Year 2022 Short Term Incentive Plan (STIP) is designed to motivate executives to achieve the LSI Industries Inc. (Company) fiscal year 2022 (FY22) 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 FY22 STIP provides for the payment of cash incentive awards to executive’s if the stated Adjusted EBITDA and Net Sales metrics set forth herein are achieved.
1. |
Bonus Potential. The bonus potential is a percentage payout based on the Company’s attainment of the FY22 financial metrics for Adjusted EBITDA and Net Sales. The STIP sets for a Threshold (or minimum), Target and Maximum goals to be achieved in FY22 for each metric. If the threshold amount is not achieved for any performance metric, there shall be no payout under such metric. The 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: [***]
2. |
Performance Mix. The STI payout shall be based eighty percent (80%) on achievement of the Adjusted EBITDA metric and twenty percent (20%) on achievement of the Net Sales metric. |
3. |
Payout Potential by Executive. The Compensation Committee has assigned each executive 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 executive’s base salary or annual hourly wages. An executive 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 50% of Target and the Maximum is paid at 150% of Target.
The actual LTIP award payout will be interpolated between the percentages set forth in Exhibit “1” based on actual results.
4. |
Retention of Discretion. The Compensation Committee maintains the discretion to award additional bonuses. |
5. |
Examples. Examples of the manner in which the payout shall be calculated under the FY22 STIP are set forth on the attached Exhibit “3”. |
6. |
General Terms and Conditions. The following terms and conditions govern the STIP: |
A. |
The STIP covers all executives of the Company and its subsidiaries except for certain sales executives who participate in individual commission-based or quota-based bonus plans unique to such executives’ sales territory or vertical. An executive 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 executive’s bonus for special objectives or subjective circumstances. An executive 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 FY22 and as approved by the Compensation Committee.
“Net Sales” is the number reported as such in the Company’s financial statements on Form 10-K for FY22 and as approved by the Compensation Committee.
“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. Executives hired after July 1st and before April 1st will have their STIP prorated to the number of days employed in the fiscal year. Executives hired after March 31st will not be eligible to participate in the STIP. |
E. |
At the discretion of the CEO in consultation with the EVP 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 executive 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 executive (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 executive’s actual base salary paid on the last day of FY22 shall be used to calculate the incentive amount that may be awarded under the STIP. |
EXHIBIT “1”- STIP PAYOUT MATRIX
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EXHIBIT “3”- EXAMPLES
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EXAMPLE 1
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EXAMPLE 2
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EXAMPLE 3
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Exhibit 10.3
FY22 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 _________, 2022 (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 Thirty-Four Percent (33%) of the Restricted Units, on the first anniversary of the Grant Date (the “First Vesting Date”); (ii) with respect to Thirty-Three Percent (33%) of the Restricted Units, on the second anniversary of the Grant Date (the “Second Vesting Date”); and (iii) with respect to Thirty-Three Percent (34%) 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 another document approved by the Company’s Compensation Committee 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 agreement shall apply.
(b) Retirement. If the Participant retires from the Company at any time prior to the first anniversary of this Agreement all Restricted Units granted hereunder are forfeited. If Participant retires after the first anniversary of the date of grant after and at such time satisfies the Normal Retirement Criteria (defined below), all the unvested Restricted Units herein shall vest in full. The Normal Retirement Criteria will be satisfied if the Participant separates from employment with the Company and the Participant (x) retires from the Company, (y) is at least 62 years of age at the time of such retirement, and (z) has at least five 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 twelve (12) 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 acknowledgement (solely by execution of the is Agreement) of the enforceability of, and compliance with, the Restrictive Covenant and Confidentiality Agreement previously executed by the Participant in favor of the Company (“Restrictive Covenant Agreement”), which Executive by written or electronic execution of this Agreement reaffirms the validity and enforceability of the Restrictive Covenant Agreement. If such Participant (i) does not agree (whether electronically or otherwise) within ninety (90) days from the date of the Restricted Unit Award to this Agreement or (ii) at any time challenges the validity or enforceability of the Restrictive Covenant Agreement or does not comply with the Restrictive Covenant Agreement, 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.
(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 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.
3. |
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. |
4. |
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. |
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) 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.
[Remainder of page left blank; signature page follows.]
By accepting this Agreement through the online acceptance tool on Principal 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:/s/ Thomas A. Caneris | |||
TITLE:Executive Vice President Human Resources | |||
PARTICIPANT | |||
Name: |
Exhibit 10.4
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. [***]
FY22 GRANT
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 2022 Long Term Incentive Plan (the “LTIP”) hereby irrevocably grants you (the “Participant”), on October 6, 2022 (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 2022, 2023 and 2024 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, 2021 and shall terminate on June 30, 2024 (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 62 with 5 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.
3. |
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, 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 an Agreement approved by the Compensation Committee, 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.
4. |
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”). Participant hereby ratifies and confirms the 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.
5. 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.
6. 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.
7. 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.
[Remainder of page left blank; signature page follows.]
By accepting this Agreement through the online acceptance tool on Principal 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: | /s/ Thomas A. Caneris | ||
Name: Thomas A. Caneris | |||
Title: EVP Human Resources | |||
PARTICIPANT | |||
Name: |
Appendix A
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 [***] Million 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:
P Cumulative Adjusted EBITDA Performance Level (50% of Earned PSUs) |
Payout Level |
|
[***] |
[***] |
|
[***] |
[***] |
|
[***] |
[***] |
|
[***] |
[***] |
P RONA Performance Level (50% of Earned PSUs) |
Payout Level |
|
[***] |
[***] |
|
[***] |
[***] |
|
[***] |
[***] |
|
[***] |
[***] |
PSU Grant: Three Year |
||||||||||||
Payout % |
RONA 2024 |
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: February 4, 2022 |
/s/ James A. Clark |
||
Principal Executive Officer |
|||
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: February 4, 2022 |
/s/ James E. Galeese |
||
Principal Financial Officer |
|||
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 December 31, 2021 (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 |
|||
James A. Clark |
|||
Chief Executive Officer and President |
|||
Date: February 4, 2022 |
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 December 31, 2021 (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 |
|||
James E. Galeese |
|||
Executive Vice President and Chief Financial Officer |
|||
Date: February 4, 2022 |
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.