| Item 1B.Item 1B. | Unresolved Staff Comments. |
None. | Item 2.Properties.The Company's principal executive offices are located in Orlando, Florida within an MtronPTI operating facility. MtronPTI's operations are located in Orlando, Florida, Yankton, South Dakota, Yantai, China and Noida, India. MtronPTI also has sales offices in Sacramento, California, Eindhoven, The Netherlands, Hong Kong and Shanghai, China.
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The Company's principal executive offices are located in Orlando, Florida within an MtronPTI operating facility. MtronPTI's operations are located in Orlando, Florida, Yankton, South Dakota, Yantai, China and Noida, India. MtronPTI also has sales offices in Hong Kong and Shanghai, China.
MtronPTI owns one building in Orlando, Florida, containing approximately 71,000 square feet on approximately seven acres of land. MtronPTI owns two buildings in Yankton, South Dakota, containing a combined total of approximately 32,000 square feet on approximately 11 acres of land, which property is subject to security deeds relating to loans. The Company leases approximately 13,000 square feet of office and manufacturing space in Noida, India, approximately 1,200 square feet of office space in Hong Kong, approximately 400 square feet of office space in Shanghai, China, and approximately 1,100 share feet of office space in Yantai, China.MtronPTI owns one building in Orlando, Florida, containing approximately 71,000 square feet on approximately seven acres of land. MtronPTI owns two buildings in Yankton, South Dakota, containing a combined total of approximately 32,000 square feet on approximately 11 acres of land, which property is subject to security deeds relating to loans. The Company leases approximately 13,000 square feet of office and manufacturing space in Noida, India, approximately 700 square feet of office space in Hong Kong, approximately 400 square feet of office space in Shanghai, China, approximately 60 square feet of office space in Yantai, China, approximately 400 square feet of office space in Sacramento, California and approximately 400 square feet of office space in Eindhoven, The Netherlands. It is the Company's opinion that the facilities referred to above are in good operating condition, suitable, and adequate for present uses. | Item 3.Item 3. | Legal Proceedings. |
None. | Item 4.Item 4. | Mine Safety Disclosures. |
Not applicable.
Not applicable. | Item 5. | Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Item 5.Market for the Registrant's Common Equity Related Stockholder Matters
Our common stock is traded on the NYSE MKT, under the symbol "LGL." Based upon information furnished by our transfer agent, at March 28, 2014, we had approximately 565 holders of record of our common stock. The following table sets forth the high and Issuer Purchaseslow sales prices for our common stock for the periods indicated as reported by the NYSE MKT: Fiscal Year 2014 | | High | | | Low | | First Quarter (1) | | $ | 6.00 | | | $ | 4.71 | | | | | | | | | | | Fiscal Year 2013 | | High | | | Low | | First Quarter | | $ | 5.98 | | | $ | 5.11 | | Second Quarter | | | 6.94 | | | | 4.91 | | Third Quarter | | | 6.74 | | | | 5.03 | | Fourth Quarter | | | 6.52 | | | | 4.70 | | | | | | | | | | | Fiscal Year 2012 | | High | | | Low | | First Quarter | | $ | 9.14 | | | $ | 6.87 | | Second Quarter | | | 7.60 | | | | 6.40 | | Third Quarter | | | 6.89 | | | | 5.25 | | Fourth Quarter | | | 6.45 | | | | 4.76 | |
(1) | From January 1, 2014 through March 28, 2014. |
Stock Repurchase Program On August 29, 2011, the Board authorized the Company to repurchase up to 100,000 shares of Equity Securities.its common stock in accordance with applicable securities laws. This authorization increased the total number of shares authorized and available for repurchase under the Company's existing share repurchase program to 540,000 shares, at such times, amounts and prices as the Company shall deem appropriate. There is no expiration date for this program. As of December 31, 2013, the Company has repurchased a total of 79,664 shares of common stock under this program at a cost of $572,000, which shares are currently held in treasury. |
The following table presents information related to our repurchases of our common stock during the quarter ended December 31, 2013: Period | | Total Number of Shares Purchased (1) | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | | Maximum Number of Shares that May Yet Be Purchased Under the Programs | | | | | | October 1, 2013 to October 31, 2013 | | | 9,263 | | | $ | 6.06 | | | | 9,263 | | | | 465,758 | | November 1, 2013 to November 30, 2013 | | | 5,422 | | | | 5.52 | | | | 5,422 | | | | 460,336 | | December 1, 2013 to December 31, 2013 | | | -- | | | | -- | | | | -- | | | | 460,336 | | | | | 14,685 | | | $ | 5.86 | | | | 14,685 | | | | -- | |
Market for Common Equity
Our common stock is traded on the NYSE MKT, under the symbol "LGL." Based upon information furnished by our transfer agent, at March 26, 2013, we had approximately 598 holders of record of our common stock. The following table sets forth the high and low sales prices for our common stock for the periods indicated as reported by the NYSE MKT:
Fiscal Year 2013 | | High | | | Low | | First Quarter (1) | | $ | 5.98 | | | $ | 5.11 | | | | | | | | | | | Fiscal Year 2012 | | High | | | Low | | First Quarter | | $ | 9.14 | | | $ | 6.87 | | Second Quarter | | | 7.60 | | | | 6.40 | | Third Quarter | | | 6.89 | | | | 5.25 | | Fourth Quarter | | | 6.45 | | | | 4.76 | | | | | | | | | | | Fiscal Year 2011 | | High | | | Low | | First Quarter | | $ | 25.85 | | | $ | 12.93 | | Second Quarter | | | 14.06 | | | | 9.36 | | Third Quarter | | | 10.80 | | | | 6.14 | | Fourth Quarter | | | 8.87 | | | | 6.59 | |
(1) | All of the shares purchased during the quarter ended December 31, 2013, were purchased under our publicly announced repurchase program described above. |
(1) | From January 1, 2013 through March 26, 2013. |
Stock Repurchase Program
On August 29, 2011, the Board authorized the Company to repurchase up to 100,000 shares of its common stock in accordance with applicable securities laws. This authorization increased the total number of shares authorized and available for repurchase under the Company's existing share repurchase program to 540,000 shares, at such times, amounts and prices as the Company shall deem appropriate. As of December 31, 2012, the Company has repurchased a total of 50,454 shares of common stock under this program at a cost of $405,000, which shares are currently held in treasury. There were no shares of common stock repurchased under this program during the fourth quarter of 2012.18
Dividend Policy The Board has adhered to a practice of not paying cash dividends. This policy takes into account our long-term growth objectives, including our anticipated investments for organic growth, potential technology acquisitions or other strategic ventures, and stockholders' desire for capital appreciation of their holdings. In addition, the covenants under MtronPTI's credit facility effectively place certain limitations on its ability to make certain payments to its parent, including but not limited to payments of dividends and other distributions, which effectively could limit the Company's ability to pay cash dividends to stockholders. No cash dividends have been paid to the Company's stockholders since January 30, 1989, and none are expected to be paid for the foreseeable future.
Item 6. Selected Financial Data. You should read the following selected consolidated financial data together with ''Management's Discussion and Analysis of Financial Condition and Results of Operations'' and our consolidated financial statements and the related notes included elsewhere in this report. The selected statement of operations data for the years ended December 31, 20122013 and 2011,2012, and the selected balance sheet data as of December 31, 20122013 and 2011,2012, are derived from our audited financial statements included elsewhere in this report. The selected statement of operations data for the years ended December 31, 2011, 2010 2009 and 2008,2009, and the selected balance sheet data as of December 31, 2011, 2010 2009 and 2008,2009, are derived from our audited financial statements not included in this report. These financial statements have been prepared in accordance with U.S. generally accepted accounting principles. Our historical results may not be indicative of the operating results to be expected in any future period. | | Year ended December 31, | | | | (in thousands, except share and per share data) | | | | | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | Revenues | | $ | 29,706 | | | $ | 35,682 | | | $ | 46,656 | | | $ | 31,301 | | | $ | 40,179 | | Operating income (loss) (a) | | | (1,782 | ) | | | 674 | | | | 6,759 | | | | (2,154 | ) | | | (810 | ) | Income (loss) before income taxes | | | (1,844 | ) | | | 567 | | | | 6,478 | | | | (2,503 | ) | | | (1,155 | ) | Benefit (provision) for income taxes | | | 524 | | | | (185 | ) | | | 2,945 | | | | (19 | ) | | | (127 | ) | Net income (loss) | | $ | (1,320 | ) | | $ | 382 | | | $ | 9,423 | | | $ | (2,522 | ) | | $ | (1,282 | ) | | | | | | | | | | | | | | | | | | | | | | Weighted average number of shares used in basic and diluted EPS calculation | | | 2,593,741 | | | | 2,572,825 | | | | 2,248,180 | | | | 2,200,010 | | | | 2,174,173 | | | | | | | | | | | | | | | | | | | | | | | Per common share: | | | | | | | | | | | | | | | | | | | | | Basic and diluted net income (loss) per common share | | $ | (0.51 | ) | | $ | 0.15 | | | $ | 4.19 | | | $ | (1.15 | ) | | $ | (0.59 | ) | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | | | (in thousands) | | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | Cash and cash equivalents | | $ | 8,625 | | | $ | 13,709 | | | $ | 4,147 | | | $ | 3,816 | | | $ | 5,325 | | | | | | | | | | | | | | | | | | | | | | | Working capital | | | 16,624 | | | | 18,118 | | | | 12,829 | | | | 5,466 | | | | 9,970 | | | | | | | | | | | | | | | | | | | | | | | Total assets (b) | | | 29,593 | | | | 32,421 | | | | 23,725 | | | | 18,568 | | | | 22,652 | | | | | | | | | | | | | | | | | | | | | | | Total long-term debt (including current portion) | | | 58 | | | | 400 | | | | 669 | | | | 3,289 | | | | 4,057 | | | | | | | | | | | | | | | | | | | | | | | Stockholders' equity (b) (c) | | $ | 24,614 | | | $ | 25,593 | | | $ | 18,696 | | | $ | 9,010 | | | $ | 11,332 | |
| | Year ended December 31, | | | | (in thousands, except share and per share data) | | | | | | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | Revenues | | $ | 26,201 | | | $ | 29,706 | | | $ | 35,682 | | | $ | 46,656 | | | $ | 31,301 | | Operating (loss) income (a) | | | (4,164 | ) | | | (1,782 | ) | | | 674 | | | | 6,759 | | | | (2,154 | ) | (Loss) income before income taxes | | | (4,271 | ) | | | (1,844 | ) | | | 567 | | | | 6,478 | | | | (2,503 | ) | (Provision) benefit for income taxes | | | (3,948 | ) | | | 524 | | | | (185 | ) | | | 2,945 | | | | (19 | ) | Net (loss) income | | $ | (8,219 | ) | | $ | (1,320 | ) | | $ | 382 | | | $ | 9,423 | | | $ | (2,522 | ) | | | | | | | | | | | | | | | | | | | | | | Weighted average number of shares used in basic and diluted EPS calculation | | | 2,595,362 | | | | 2,593,741 | | | | 2,572,825 | | | | 2,248,180 | | | | 2,200,010 | | | | | | | | | | | | | | | | | | | | | | | Per common share: | | | | | | | | | | | | | | | | | | | | | Basic and diluted net (loss) income per common share | | $ | (3.17 | ) | | $ | (0.51 | ) | | $ | 0.15 | | | $ | 4.19 | | | $ | (1.15 | ) | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | | | (in thousands) | | | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | Cash and cash equivalents | | $ | 7,183 | | | $ | 8,625 | | | $ | 13,709 | | | $ | 4,147 | | | $ | 3,816 | | | | | | | | | | | | | | | | | | | | | | | Working capital | | | 12,446 | | | | 16,624 | | | | 18,118 | | | | 12,829 | | | | 5,466 | | | | | | | | | | | | | | | | | | | | | | | Total assets (b) | | | 21,263 | | | | 29,593 | | | | 32,421 | | | | 23,725 | | | | 18,568 | | | | | | | | | | | | | | | | | | | | | | | Total long-term debt (including current portion) | | | — | | | | 58 | | | | 400 | | | | 669 | | | | 3,289 | | | | | | | | | | | | | | | | | | | | | | | Stockholders' equity (b) (c) | | $ | 16,755 | | | $ | 24,614 | | | $ | 25,593 | | | $ | 18,696 | | | $ | 9,010 | |
Notes: (a) | Operating (loss) income (loss) is revenues less operating expenses, which excludes investment income, interest expense, gain on sale of land and equipment, other income and taxes. Included are asset impairment charges. |
(b) 2009 and 2008, includeincludes retrospective adjustments due to change in accounting principle from LIFO to FIFO. (c) | No cash dividends have been declared during the periods presented. |
| Item 7.Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
You should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial position, business and financing plans. These statements involve risks and uncertainties. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under the headings "Forward-Looking Statements" and "Risk Factors." In this section, the Company's primary market segments are referred to as Internet Communications Technology ("ICT") and as Aerospace and Defense ("Aero/Defense"). In several of the Company's prior filings and other disclosure, management referred to these market segments as Telecommunications, or "Telecom", and Military, Instrumentation, Space and Avionics, or "MISA", respectively. The Company has not changed its primary market segments or the composition thereof, but is using ICT and Aero/Defense to refer to those market segments in order to utilize more widely accepted market or industry descriptions.
Results of Operations.Operations 2013 Compared to 2012 Consolidated Revenues and Gross Margin Total revenues for the year ended December 31, 2013, were $26,201,000, a decrease of 11.8% from revenues of $29,706,000 in 2012. Net loss for the year ended December 31, 2013, was ($8,219,000), compared to ($1,320,000) in 2012. Basic and diluted loss per share was ($3.17) for the year ended December 31, 2013, compared with ($0.51) for the year ended December 31, 2012. The decrease in 2013 revenues was primarily due to reduced demand and price compression in the Internet Communications Technology ("ICT") market segment, and to a lesser degree, reduced demand from existing customers within the Aerospace and Defense ("Aero/Defense") market segment. The competitive environment of the frequency control industry, as well as effects of the U.S. budget sequestration and related government spending uncertainty continue to impact business levels. In the year ended December 31, 2013, consolidated gross margin, which is consolidated revenues less manufacturing cost of sales, as a percentage of revenues was 26.1%, consistent with 2012. At December 31, 2013, MtronPTI's order backlog was $8,601,000, which was an increase of 1.8% compared to a backlog of $8,446,000 at September 30, 2013. The order backlog includes amounts based on signed contracts as well as other agreements we have determined are legally binding and likely to proceed. Although order backlog represents only firm orders that are considered to be fulfilled within the 12 months following receipt of the order, cancellations or scope adjustments may and do occur. The order backlog is adjusted quarterly to reflect project cancellations, deferrals, revised project scope and cost, and sales of subsidiaries, if any. The Company expects to fill substantially its entire current order backlog within the next twelve months, but cannot provide assurance as to the portion of the order backlog to be fulfilled in a given period. Operating Loss Operating loss of ($4,164,000) for the year ended December 31, 2013, was an increase of $2,382,000 from an operating loss for the year ended December 31, 2012 of ($1,782,000). The increase was attributable to the 11.8% reduction in revenues for 2013 as compared to 2012, an increase in engineering, selling and administrative expenses of $821,000, primarily driven by strategic investments in both demand creation and research and development efforts, and the restructuring charge of $648,000 related to the restructuring plan to realign our customer support operations across all of our locations in an effort to gain efficiencies. Interest Expense, Net Interest expense, net, was $43,000 for the year ended December 31, 2013, which was a decrease of $46,000 from $89,000 for the year ended December 31, 2012. The decrease was due to a reduction in the year-over-year average outstanding balance on MtronPTI's credit facilities. Income Taxes The Company must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to the tax provision in a subsequent period. Based on the Company's assessment of the uncertainty surrounding the realization of the favorable U.S. tax attributes in future tax returns in accordance with the provisions of ASC 740, Income Taxes ("ASC 740"), the Company has determined that a full valuation allowance against our otherwise recognizable U.S. net deferred tax assets is required. The Company has recorded a full valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the ability to realize deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. |
You should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial position, business and financing plans. These statements involve risks and uncertainties. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under the headings "Forward-Looking Statements" and "Risk Factors."
Results of Operations
2012 Compared to 2011
Consolidated Revenues and Gross Margin
In the year ended December 31, 2012, consolidated revenues decreased by $5,976,000, or 16.7%, to $29,706,000, from $35,682,000 in 2011. The decrease is primarily due to reduced demand from existing customers for existing products in our Internet Communications Technology ("ICT") and Military, Aerospace and Instrumentation ("MAI") market segments, as well as the effects of weakness in the global macroeconomic environment. The noticeable decline began with the natural disaster that affected Japan, and then began to compound in the second half of 2011 with the combined effects of the U.S. budget sequestration and related government spending uncertainty, as well as the continuing instability of the economies within the Eurozone. These systemic effects, which were not foreseeable, may have led to delays in infrastructure spending and relative weakness in macroeconomic growth, and may have disrupted our customers' infrastructure investment cycles. It remains unclear whether there has been a permanent impairment to spending levels within the markets we serve. The Company is focusing research and development efforts on the development of products that will serve additional segments of the timing and frequency control markets, such as wireless infrastructure, energy exploration, homeland security, avionics and military personnel protection, and continuing its efforts to gain market share with new and existing customers in all of its geographic regions.
In the year ended December 31, 2012, consolidated gross margin, which is consolidated revenues less manufacturing cost of sales, as a percentage of revenues decreased to 26.1% from 30.2% for 2011. The decrease primarily is due to the 16.7% decrease in revenues from the comparable period in 2011, which eroded gross margin by spreading fixed infrastructure costs over a smaller revenue base. The Company believes that its efforts to gain market share and to improve its manufacturing and supply chain efficiency will benefit operating margins in future periods.
At December 31, 2012, MtronPTI's order backlog was $8,703,000, which was an increase of 0.8% compared to a backlog of $8,634,000 at December 31, 2011. The increase in the order backlog was primarily due to a modest increase in order activity from our existing customers in the MAI market segment. The backlog of unfilled orders includes amounts based on signed contracts as well as other agreements we have determined are legally binding and likely to proceed. Although backlog represents only firm orders that are considered likely to be fulfilled within the 12 months following receipt of the order, cancellations or scope adjustments may and do occur.
The order backlog is adjusted quarterly to reflect project cancellations, deferrals, revised project scope and cost, and sales of subsidiaries, if any. The Company expects to fill substantially its entire current order backlog within the next twelve months, but cannot provide assurance as to the portion of the order backlog to be fulfilled in a given period.
Operating (Loss) Income
Operating loss of ($1,782,000) for the year ended December 31, 2012 was a decrease of $2,456,000 from operating income for the year ended December 31, 2011 of $674,000. The decrease was attributable to the 16.7% reduction in revenues for 2012 as compared to 2011, and a 4.1 percentage point decrease in consolidated gross margin as a percentage of revenues, offset by a decrease in engineering, selling and administrative expenses of $568,000, primarily due to the consolidation of certain administrative functions into the Company's headquarters in Orlando, Florida, and a decrease in sales commissions paid as a result of the lower level of revenues.
Interest Expense, Net
Interest expense, net, was $89,000 for the year ended December 31, 2012, which was a decrease of $20,000 from $109,000 for the year ended December 31, 2011. The decrease was primarily due to offsetting interest income relating to the Company's note receivable obtained in the sale of property by Lynch Systems, Inc. in 2011.
Income Taxes
The Company must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to the tax provision in a subsequent period.
Income tax benefit (provision) for the years ended December 31, 2012 and 2011, was $524,000 and ($185,000), respectively. The valuation allowance was $307,000 at December 31, 2012, which reflects a net increase of $44,000 over December 31, 2011. The Company's overall effective tax rate was 28.4% and 32.6% for the years ended December 31, 2012 and 2011, respectively. The change was primarily the result of a shift in the distribution of earnings (losses) between U.S. and foreign operations, a reduction in tax credits in 2012 from the expiration of tax credits for research activities for 2012, and a change in estimated tax credits related to research activities in 2009 and 2010.
As of December 31, 2012, the Company has not provided for U.S. federal and state income taxes on approximately $589,000 of undistributed earnings of Piezo Technology India Private Ltd. in India since such earnings are considered permanently reinvested outside the U.S. If in the future, the Company decides to repatriate earnings from Piezo Technology India Private Ltd., the Company would incur incremental U.S. federal and state income taxes. However, the Company's intent is to keep these funds permanently reinvested outside of the U.S. and current plans do not demonstrate a need to repatriate them to fund U.S. operations.
Net (Loss) Income
Net loss for the year ended December 31, 2012, was ($1,320,000) compared with net income for the year ended December 31, 2011, of $382,000. This decrease in net income can be attributed to the following: (i) a 4.1 percentage point decrease in gross margin; and (ii) a 16.7% decrease in revenues for 2012 as compared to 2011. Basic and diluted net loss per share for 2012 was ($0.51) compared with net income per share of $0.15 for 2011.
Liquidity and Capital Resources
The Company's cash and cash equivalents, and investments in marketable securities at December 31, 2012, totaled $8,669,000, a decrease of $5,080,000 compared to $13,749,000 at December 31, 2011. Specifically, cash and cash equivalents decreased by $5,084,000, from $13,709,000 at December 31, 2011 to $8,625,000 at December 31, 2012. At December 31, 2012, MtronPTI had approximately $1,249,000 outstanding and available borrowing capacity of $251,000 under its revolving line of credit with JPMorgan Chase Bank, N.A. ("Chase"), compared with $3,026,000 outstanding and available borrowing capacity of $389,000 at December 31, 2011.
Cash used by operating activities was ($469,000) in 2012, compared to cash provided by operating activities of $2,321,000 in 2011. The decrease was due primarily to a net loss of ($1,320,000) for 2012, as compared to net income of $382,000 for 2011, and a deferred tax benefit of ($576,000), an increase in other assets of ($402,000), and an increase in accounts receivable of ($41,000) for 2012, compared to a deferred tax provision of $5,000, an increase in other assets of ($115,000), and a decrease in accounts receivable of $1,473,000 for 2011. The decrease was partially offset by an increase in trade accounts payable, accrued compensation and commissions expense, and other accrued liabilities of $270,000 for the year ended December 31, 2012, compared to a decrease of ($895,000) for the year ended December 31, 2011.
Cash used in investing activities was ($906,000)The Company recorded an income tax (provision) benefit for the years ended December 31, 2013 and 2012 of ($3,948,000) and $524,000, respectively. The valuation allowance was $5,968,000 at December 31, 2013, which reflects a net increase of $5,661,000 over December 31, 2012. The Company's overall effective tax rate was 40.1% and 28.4% for the years ended December 31, 2013 and 2012, respectively, before the effect of the change in valuation allowance. The change was primarily the result of a shift in the distribution of earnings (losses) between U.S. and foreign operations and the retroactive restoration of the 2012 research and development tax credit of $94,000 during the year ended December 31, 2012, compared to ($1,694,000) during the year ended December 31, 2011. The decrease was due primarily to a reduction in spending on software to replace the Company's enterprise resource planning systems, which project was substantially completed in 2012. Cash used by financing activities was ($3,709,000) for the year ended December 31, 2012, compared with cash provided by financing activities of $8,935,000 for the year ended December 31, 2011. The change was due primarily to net repayments on notes payable to bank of ($1,777,000) for the year ended December 31, 2012, compared to net borrowings of $3,026,000 for the same period in 2011, and an increase in restricted cash of ($1,500,000) which was assigned to Chase as additional security for MtronPTI's obligations under its loan agreement with Chase (the "Chase Loan Agreement"), and due to the Company's completion of its public offering of 350,000 shares of common stock in February 2011, resulting in net proceeds of $6,562,000.
At December 31, 2012, the Company's consolidated working capital was $16,624,000, compared to $18,118,000 at December 31, 2011. At December 31, 2012, the Company had current assets of $21,603,000, current liabilities of $4,979,000 and a ratio of current assets to current liabilities of 4.34 to 1.00. At December 31, 2011, the Company had current assets of $24,946,000, current liabilities of $6,828,000 and a ratio of current assets to current liabilities of 3.65 to 1.00. The decrease in working capital was the result of a decrease in cash and cash equivalents of $5,084,000, an increase in restricted cash of $1,500,000, and an increase in accounts payable of $697,000, a decrease of $1,777,000 in note payable to the bank, a decrease in current maturities of long-term debt of $342,000 and a decrease in other accrued expenses of $336,000 as of December 31, 2012, compared to December 31, 2011.
On June 30, 2011, MtronPTI entered into the Chase Loan Agreement with Chase. The Chase Loan Agreement currently provides for a revolving line of credit in the amount of $1,500,000, to be used solely for working capital needs (the "Chase Revolving Loan"). The Chase Revolving Loan bears interest at the greater of (x) Chase's prime rate or (y) the one-month LIBOR rate plus 2.50% per annum (the "CB Rate"), with interest due and payable on a monthly basis and the outstanding principal balance plus all accrued but unpaid interest due and payable on June 30, 2013. The Chase Loan Agreement previously provided for a term loan in the amount of $536,000 (the "Chase Term Loan"), which was repaid in full on February 7, 2013. The Chase Term Loan bore interest at 5.00% per annum, with principal and interest due and payable in monthly installments of $29,500. The Chase Loan Agreement also previously provided for a commercial line of credit in the amount of $2,000,000 (the "Chase Commercial Loan"), which expired on June 30, 2012 and was not renewed. The Chase Commercial Loan bore interest at the CB Rate, with interest due and payable on a monthly basis and the outstanding principal balance plus all accrued but unpaid interest due and payable on June 30, 2012. There was no amount outstanding under the Chase Commercial Loan at the time it expired on June 30, 2012, or at December 31, 2011.
All outstanding obligations of MtronPTI under the Chase Loan Agreement are collateralized by a first priority security interest in all of the assets of MtronPTI, excluding real property. Additionally, in connection with the Chase Loan Agreement, PTI entered into a separate agreement with Chase providing that PTI would not mortgage or otherwise encumber certain real property it owns in Florida while any credit facility is outstanding under the Chase Loan Agreement.
The Chase Loan Agreement contains a variety of affirmative and negative covenants, including, but not limited to, a financial covenant that MtronPTI maintain tangible net worth not less than $8,000,000.
On June 28, 2012, MtronPTI entered into a First Amendment to Master Loan Agreement with Chase, which amended the Chase Loan Agreement to delete financial covenants relating to the maintenance of minimum levels of net income and a minimum debt service coverage ratio. On May 15, 2012, MtronPTI made a cash collateral deposit of $4,000,000 with Chase as additional security for its obligations under the Chase Loan Agreement and entered into an Assignment of Deposit agreement with Chase providing Chase with a security interest in the account holding the deposit.
On September 28, 2012, MtronPTI entered into a Second Amendment to Master Loan Agreement with Chase, which (i) amended the minimum tangible net worth covenant to set the amount at not less than $8,000,000, (ii) provided for the renewal and reduction of the Chase Revolving Loan to $1,500,000 and (iii) adjusted the requirements for calculating the Chase Revolving Loan borrowing base. In connection with the reduction of the Chase Revolving Loan, Chase reduced the amount of cash collateral deposit secured by the Assignment of Deposit agreement to $1,500,000.
The amount of the cash collateral deposit with Chase is included in restricted cash in the accompanying consolidated balance sheet as of December 31, 2012. The related Assignment of Deposit agreement restricts MtronPTI's ability to withdraw any portion of the deposit and does not allow MtronPTI to assign the deposit or any part thereof.
As of December 31, 2012, MtronPTI was in compliance with all covenants under the Chase Loan Agreement.
On February 4, 2011, the Company completed a public offering of 350,000 shares of common stock at $20.00 per share. The aggregate number of shares sold reflects and includes the exercise in full by the underwriter of its over-allotment option to purchase 45,652 additional shares of common stock. The Company received net proceeds of $6,404,000 from the offering, after deducting the underwriting discounts and commissions and offering expenses. These proceeds have been and will continue to be used for general corporate purposes, including working capital and potential technology acquisitions or other strategic ventures. The offering was made pursuant to a shelf registration statement filed with the SEC on September 23, 2010, and amended on October 25, 2010, which became effective on November 4, 2010 (Registration No. 333-169540), and a prospectus supplement, dated January 31, 2011, filed with the SEC on February 2, 2011. ThinkEquity LLC acted as the sole underwriter with respect to the offering.
The Company believes that existing cash and cash equivalents, cash generated from operations and available borrowings on its revolving line of credit will be sufficient to meet its ongoing working capital and capital expenditure requirements for the next 12 months. However, the Company may need to seek additional capital to fund future growth in its business, to provide flexibility to respond to dynamic market conditions, or to fund its strategic growth objectives.
The Board has adhered to a practice of not paying cash dividends. This policy takes into account our long-term growth objectives, including our anticipated investments for organic growth, potential technology acquisitions or other strategic ventures, and stockholders' desire for capital appreciation of their holdings. In addition, the tangible net worth financial covenant under the Chase Loan Agreement effectively places certain limitations on MtronPTI's ability to make certain payments to its parent, including but not limited to payments of dividends and other distributions, which effectively could limit the Company's ability to pay cash dividends to stockholders. No cash dividends have been paid to the Company's stockholders since January 30, 1989, and none are expected to be paid for the foreseeable future.
As of December 31, 2013, the Company has not provided for U.S. federal and state income taxes on approximately $556,000 of undistributed earnings of Piezo Technology India Private Ltd. in India since such earnings are considered permanently reinvested outside the U.S. If in the future, the Company decides to repatriate earnings from Piezo Technology India Private Ltd., the Company would incur incremental U.S. federal and state income taxes. However, the Company's intent is to keep these funds permanently reinvested outside of the U.S. and current plans do not demonstrate a need to repatriate them to fund U.S. operations. Net Loss Net loss for the year ended December 31, 2013, was ($8,219,000) compared with ($1,320,000) for the year ended December 31, 2012. This increase in net loss can be attributed to the following: (i) the 11.8% decrease in revenues for 2013 as compared to 2012; (ii) the increase in the valuation allowance of $5,661,000 against the Company's deferred tax assets as of December 31, 2013; and (iii) the restructuring charge of $648,000 related to the restructuring plan to realign our customer support operations across all of our locations in an effort to gain efficiencies. Basic and diluted net loss per share for 2013 was ($3.17) compared with ($0.51) for 2012. Liquidity and Capital Resources The Company's cash and cash equivalents, and investments in marketable securities at December 31, 2013, totaled $7,244,000, a decrease of $1,425,000 compared to $8,669,000 at December 31, 2012. Specifically, cash and cash equivalents decreased by $1,442,000, from $8,625,000 at December 31, 2012 to $7,183,000 at December 31, 2013. At December 31, 2013, MtronPTI had approximately $1,181,000 outstanding, and available borrowing capacity of $319,000 under its revolving line of credit with JPMorgan Chase Bank, N.A. ("Chase"), compared with $1,249,000 outstanding, and available borrowing capacity of $251,000 at December 31, 2012. Cash used in operating activities was ($664,000) in 2013, compared to ($469,000) in 2012. The increase was due primarily to a net loss of ($8,219,000), a deferred tax provision of $3,922,000, depreciation of $913,000, stock-based compensation of $575,000, restructuring charges of $329,000, offset by a noncash increase for impairment of property, plant and equipment of $249,000, a decrease in accounts receivable of $1,113,000, a decrease in other assets of $341,000, a decrease in inventories of $720,000 and a decrease in trade accounts payable, accrued compensation and commissions expense and other accrued liabilities ($345,000) for 2013, compared to a net loss of ($1,320,000), a deferred tax benefit of ($576,000), depreciation of $729,000, stock-based compensation of $428,000, an increase in accounts receivable of ($41,000), an increase in other assets of ($402,000), a decrease in inventories of $327,000, and an increase in trade accounts payable, accrued compensation and commissions expense and other accrued liabilities of $270,000 for 2012. Cash used in investing activities was ($420,000) during the year ended December 31, 2013, compared to ($906,000) during the year ended December 31, 2012. The decrease was due primarily to a reduction in spending on software to replace the Company's enterprise resource planning systems, which project was substantially completed in 2012. Cash used in financing activities was ($358,000) for the year ended December 31, 2013, compared with ($3,709,000) for the year ended December 31, 2012. The change was due primarily to net repayments on notes payable to bank of ($68,000) for the year ended December 31, 2013, compared to ($1,777,000) for the year ended December 31, 2012, warrant dividend issuance costs of ($65,000) for the year ended December 31, 2013, and an increase in restricted cash of ($1,500,000) for the year ended December 31, 2012, which was assigned to Chase as additional security for MtronPTI's obligations under its loan agreement with Chase (the "Chase Loan Agreement"), and a reduction in principal payments from ($342,000) in 2012 to ($58,000) in 2013. At December 31, 2013, the Company's consolidated working capital was $12,446,000, compared to $16,624,000 at December 31, 2012. At December 31, 2013, the Company had current assets of $16,954,000, current liabilities of $4,508,000 and a ratio of current assets to current liabilities of 3.76 to 1.00. At December 31, 2012, the Company had current assets of $21,603,000, current liabilities of $4,979,000 and a ratio of current assets to current liabilities of 4.34 to 1.00. The reduction in working capital is driven by the Company's efforts to manage working capital requirements to match the reduced level of operating activities. On June 30, 2011, MtronPTI entered into a loan agreement with Chase, which was amended on June 28, 2012, September 28, 2012, June 30, 2013 and September 19, 2013 (the "Chase Loan Agreement"). The Chase Loan Agreement provides for a revolving line of credit in the amount of $1,500,000, to be used solely for working capital needs (the "Chase Revolving Loan") and matures on June 30, 2014, provided that the Chase Loan Agreement may be extended for up to three 12-month renewal terms upon written request by MtronPTI and approval by Chase. The Chase Revolving Loan bears interest at the greater of (x) Chase's prime rate or (y) the one-month LIBOR rate plus 2.50% per annum (3.25% at December 31, 2013), with interest due and payable on a monthly basis and the outstanding principal balance plus all accrued but unpaid interest due and payable on the maturity date. At December 31, 2013, MtronPTI had approximately $1,181,000 outstanding, and available borrowing capacity of approximately $319,000 under the Chase Revolving Loan. All outstanding obligations of MtronPTI under the Chase Loan Agreement are collateralized by a first priority security interest in all of the assets of MtronPTI, excluding real property. Additionally, in connection with the Chase Loan Agreement, PTI entered into a separate agreement with Chase providing that PTI would not mortgage or otherwise encumber certain real property it owns in Florida while any credit facility is outstanding under the Chase Loan Agreement. As additional security for MtronPTI's obligations under the Chase Loan Agreement, MtronPTI has made a cash collateral deposit of $1,500,000 with Chase and entered into an Assignment of Deposit agreement with Chase providing Chase with a security interest in the account holding the deposit. The amount of the cash collateral deposit with Chase is included in restricted cash in the accompanying consolidated balance sheet as of December 31, 2013. The related Assignment of Deposit agreement restricts MtronPTI's ability to withdraw any portion of the deposit and does not allow MtronPTI to assign the deposit or any part thereof.
The Chase Loan Agreement also contains a variety of affirmative and negative covenants, including, but not limited to, a financial covenant that MtronPTI maintain tangible net worth not less than $6,000,000. As of December 31, 2013, MtronPTI was not in compliance with the tangible net worth covenant under the Chase Loan Agreement. Based on the definition of tangible net worth under the Chase Loan Agreement, MtronPTI had tangible net worth of $5,142,000 as of December 31, 2013, as compared to the minimum requirement of $6,000,000. Chase has waived non-compliance with this covenant as of December 31, 2013, in accordance with the terms of a letter agreement dated March 5, 2014. The Company believes that existing cash and cash equivalents, cash generated from operations and available borrowings on its revolving line of credit will be sufficient to meet its ongoing working capital and capital expenditure requirements for the next 12 months. However, the Company may need to seek additional capital to fund future growth in its business, to provide flexibility to respond to dynamic market conditions, or to fund its strategic growth objectives. The Board has adhered to a practice of not paying cash dividends. This policy takes into account our long-term growth objectives, including our anticipated investments for organic growth, potential technology acquisitions or other strategic ventures, and stockholders' desire for capital appreciation of their holdings. In addition, the tangible net worth financial covenant under the Chase Loan Agreement effectively places certain limitations on MtronPTI's ability to make certain payments to its parent, including but not limited to payments of dividends and other distributions, which effectively could limit the Company's ability to pay cash dividends to stockholders. No cash dividends have been paid to the Company's stockholders since January 30, 1989, and none are expected to be paid for the foreseeable future. Critical Accounting Policies The Company's significant accounting policies are described in Note A to the Consolidated Financial Statements. The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to the carrying value of inventories, the likelihood of collecting its outstanding accounts receivable, value of stock based compensation, and the provision for income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the past, actual results have not been materially different from the Company's estimates. However, results may differ from these estimates under different assumptions or conditions. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements. | Item 7A.Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable. | Item 8.Item 8. | Financial Statements and Supplementary Data. |
See the financial statements included at the end of this report beginning on page 45. See the financial statements included at the end of this report beginning on page 35.
| Item 9.Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None. | Item 9A. | Controls and Procedures. |
Item 9A.Evaluation of Disclosure Controls and Procedures.Procedures
|
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company's principal executive officer and principal financial officer evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on their evaluation of the Company's disclosure controls and procedures, the Company's principal executive officer and principal financial officer, with the participation of the Company's management, have concluded that the Company's disclosure controls and procedures were effective as of December 31, 2012, to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (b) accumulated and communicated to management, including the Company's principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.
Management's Annual Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2012.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal controls over financial reporting during our fourth quarter ended December 31, 2012,As of the end of the period covered by this report, the Company's principal executive officer and principal financial officer evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on their evaluation of the Company's disclosure controls and procedures, the Company's principal executive officer and principal financial officer, with the participation of the Company's management, have concluded that the Company's disclosure controls and procedures were effective as of December 31, 2013, to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (b) accumulated and communicated to management, including the Company's principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure. Management's Annual Report on Internal Controls Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2013, based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2013. Changes in Internal Control Over Financial Reporting There were no changes in the Company's internal controls over financial reporting during our fourth quarter ended December 31, 2013, or in other factors that could significantly affect these controls, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Attestation Report of our Registered Public Accounting Firm This annual report does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting. Our management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this annual report. | Item 9B.Item 9B. | Other Information. |
On March 26, 2013, the Company's Board of Directors appointed Donald H. Hunter to serve as a member of the Board of Directors effective immediately. Mr. Hunter is currently Principal of Donald Hunter LLC, a consulting practice based in Wellesley, MA, and previously served as the Chief Operating Officer and Chief Financial Officer of Harbor Global Company Limited, a public company that owned international investment management and natural resources subsidiaries.
None. | Item 10. | Directors and Executive Officers and Corporate Governance. |
Item 10.Directors
The following table sets forth information regarding our non-employee directors, including their business experience for the past five years (and, in some instances, for prior years) and Executive Officers and Corporate Governance.their specific experience, qualifications, attributes or skills that led to the conclusion that they should serve as directors. |
Directors
The following table sets forth information regarding the members of the Board, including their business experience for the past five years (and, in some instances, for prior years) and their specific experience, qualifications, attributes or skills that led to the conclusion that they should serves as directors.
Name | Age | Director Since | Offices and Positions Held With the Company, Business Experience and Principal Occupation for the Last Five Years, and Directorships in Public Corporations and Investment Companies | Marc Gabelli | 44 | 2004 | Chairman of the Board, The LGL Group, Inc. (September 2004 to present); Managing Partner, Horizon Research (January 2013 to present), a firm that provides investment management and research services; Chief Executive Officer, Gabelli Securities International Ltd. (1994 to present), a global alternative asset management platform and merchant advisor; Managing Director and President, GGCP, Inc. (1999 to present), a private corporation that makes investments for its own account; Managing Member, Commonwealth Management Partners LLC (2008 to present), which is the managing member of Venator Global LLC, which is the general partner of Venator Merchant Fund, LP, an investment management vehicle; Director, IFIT Group, a Zurich based financial services administration firm; and Director and Managing Partner, GAMA Funds Holdings GmbH. Mr. Gabelli's qualifications to serve include his extensive knowledge of the Company's business and industry due to his longstanding service on the Board, as well as his financial expertise and leadership experience as an executive of various investment firms. | James Abel | 67 | 2011 | Interim President and Chief Executive Officer, CPI Corporation (February 2012 to present); Director, CPI Corporation (April 2004 to present), a leader in the portrait photography industry; President and Chief Executive Officer, Financial Executives International (May 2008 to February 2009), an organization representing senior financial executives in dealing with the regulatory agencies involved with corporate financial reporting and internal controls; Chief Financial Officer (December 1990 to December 2007) and Director (December 2002 to December 2007), Lamson & Sessions Co., a diversified manufacturer and distributor of a broad line of thermoplastic electrical, consumer, telecommunications and engineered sewer products for major domestic markets. Mr. Abel shares with the Board his significant financial expertise and experience with manufacturing operations. | Michael Chiu | 44 | 2010 | Director of Operations (March 2013 to present), Automation Engineering Incorporated, manufacturer of robotics and automation equipment; Chief Executive Officer, Gecko Health Innovations (June 2012 to February 2013); Chief Executive Officer, Respirgames, Inc. (November 2011 to March 2013), an early-stage medical device startup; Technology and business consultant (June 2010 to March 2013); President and Chief Technology Officer, Trophos Energy (September 2008 to May 2010), a venture-backed bio-energy company; Business Unit Manager, Teradyne, Inc. (May 2005 to April 2007), a semiconductor automated test equipment supplier; Various roles in marketing, product development and engineering at Teradyne Inc. (1994 to April 2007). Dr. Chiu holds a Ph.D. in engineering and an MBA, both from the Massachusetts Institute of Technology. He brings to the Board his experience in management and operations as well as background in product development, engineering and research. | Vincent Enright | 69 | 2011 | Director and Chairman of the Audit Committee for certain funds managed by Gabelli Funds, LLC (1991 to present), a mutual fund manager; Senior Vice President and Chief Financial Officer, KeySpan Corporation (1994 to 1998), a New York Stock Exchange ("NYSE") public utility company; Director, Echo Therapeutics (2008 to present), a medical devices company; Director, Aphton Corporation (September 2004 to November 2006), a biopharmaceutical company. Mr. Enright brings to the Board his significant financial expertise, including his experiences as a public company Chief Financial Officer and as a director and Chairman of the Audit Committee of various investment funds. | Timothy Foufas | 44 | 2007 | Managing Partner, Plato Foufas & Co. LLC (2005 to present), a financial services company; President, Levalon Properties LLC (2007 to present), a real estate property management company; Senior Vice President, Bayshore Management Co. LLC (2005 to 2006), a real estate property management company; Director of Investments, Liam Ventures Inc. (2000 to 2005), a private equity investment firm; Director, ICTC Group, Inc. (2010 to present), a rural local exchange carrier headquartered in Nome, ND. Mr. Foufas brings to the Board his management skills and expertise in financial, investment and real estate matters. | Patrick J. Guarino | 70 | 2006 | Lead Independent Director, The LGL Group, Inc. (August 2012 to present); Managing Partner, August Properties LLC (2005 to present), a private investment company with real estate and securities holdings; Managing Partner, Independent Board Advisory Services, LLC (2002 to 2005), a corporate governance consulting firm; Retired Executive Vice President, Ultramar Diamond Shamrock Corporation (1996 to 2000), a NYSE, Fortune 200, international petroleum refining and marketing company; Senior Vice President and General Counsel, Ultramar Corporation (1992 to 1996), a NYSE, Fortune 200, international petroleum and marketing company; Senior Vice President and General Counsel, Ultramar PLC (1986 to 1992), a London Stock Exchange listed international, integrated oil company. Mr. Guarino brings to the Board valuable knowledge of and fluency with legal and corporate governance matters, and the perspective of a former General Counsel of a public company. | Manjit Kalha | 37 | 2011 | Managing Partner, Horizon Research (August 2012 to present), a firm that provides investment management and research services; Chief Executive Officer, Horizon AMC (June 2008 to present), a firm that provides investment management and consulting services; Chief Executive Officer and Director, Jeet Associates Private Limited (December 2006 to present), a consulting firm based in New Delhi that provides business strategy, finance, and taxation advisory services; Co-founder and Chief Operating Officer, Radiant Polymers Private Limited (2001 to 2006), a manufacturing company of high quality specialty plastic components. Mr. Kalha shares with the Board his experience in management and manufacturing operations, and an extensive knowledge of global financial markets. | Donald H. Hunter | 56 | 2013 | Principal, Donald Hunter LLC (April 2007 to present), a consulting practice based in Wellesley, MA; Chief Operating Officer and Chief Financial Officer, Harbor Global Company Limited (October 2000 to December 2006), a public company that owned international investment management and natural resources subsidiaries; Chief Operating Officer, Pioneer Global Investments, a former Division of the Pioneer Group, Inc. (August 1998 to October 2000), a company that provided investment management services and owned several natural resources investments; Manager of International Finance, the Pioneer Group, Inc. (January 1991 to August 1998). Mr. Hunter brings to the board financial, operating, corporate development, international and mergers and acquisition experience. |
24Name | Age | Director Since | Offices and Positions Held With the Company, Business Experience and Principal Occupation for the Last Five Years, and Directorships in Public Corporations and Investment Companies | Marc Gabelli | 45 | 2004 | Chairman of the Board, The LGL Group, Inc. (September 2004 to present); Managing Partner, Horizon Research (January 2013 to present), an investment management and research services provider; Chief Executive Officer, Gabelli Securities International Ltd. (1994 to present), a global alternative asset management platform and merchant advisor; Managing Director and President, GGCP, Inc. (1999 to present), a private corporation that makes investments for its own account; Managing Member, Commonwealth Management Partners LLC (2008 to present), which is the managing member of Venator Global LLC, which is the general partner of Venator Merchant Fund, LP, an investment management vehicle; Director, IFIT Group, a Zurich based financial services administration firm; and Director and Managing Partner, GAMA Funds Holdings GmbH. Mr. Gabelli's qualifications to serve include his extensive knowledge of the Company's business and industry due to his longstanding service on the Board, as well as his financial expertise and leadership experience as an executive of various investment firms. | James Abel | 68 | 2011 | Interim President and Chief Executive Officer, CPI Corporation (February 2012 to April 2013); Director, CPI Corporation (April 2004 to April 2013), a leader in the portrait photography industry; President and Chief Executive Officer, Financial Executives International (May 2008 to February 2009), an organization representing senior financial executives in dealing with the regulatory agencies involved with corporate financial reporting and internal controls; Chief Financial Officer (December 1990 to December 2007) and Director (December 2002 to December 2007), Lamson & Sessions Co., a diversified manufacturer and distributor of a broad line of thermoplastic electrical, consumer, telecommunications and engineered sewer products for major domestic markets. Currently, Mr. Abel serves as a member of the Board of Directors of Ampco-Pittsburgh Corporation (NYSE: AP), a leading producer of forged and cast rolling mill rolls for the worldwide steel and aluminum industries, and a producer of air and liquid processing equipment. Mr. Abel shares with the Board his significant financial expertise and experience with manufacturing operations. | Michael Chiu | 45 | 2010 | Chief Operating Officer (March 2013 to present), Automation Engineering Incorporated, manufacturer of robotics and automation equipment; Chief Executive Officer, Gecko Health Innovations (June 2012 to February 2013); Chief Executive Officer, Respirgames, Inc. (November 2011 to March 2013), an early-stage medical device startup; Technology and business consultant (June 2010 to March 2013); President and Chief Technology Officer, Trophos Energy (September 2008 to May 2010), a venture-backed bio-energy company; Business Unit Manager, Teradyne, Inc. (May 2005 to April 2007), a semiconductor automated test equipment supplier; Various roles in marketing, product development and engineering at Teradyne Inc. (1994 to April 2007). Dr. Chiu holds a Ph.D. in engineering and an MBA, both from the Massachusetts Institute of Technology. He brings to the Board his experience in management and operations as well as background in product development, engineering and research. | Vincent Enright | 70 | 2011 | Director and Chairman of the Audit Committee for certain funds managed by Gabelli Funds, LLC (1991 to present), a mutual fund manager; Senior Vice President and Chief Financial Officer, KeySpan Corporation (1994 to 1998), a New York Stock Exchange ("NYSE") public utility company; Director, Echo Therapeutics (2008 to present), a medical devices company; Director, Aphton Corporation (September 2004 to November 2006), a biopharmaceutical company. Mr. Enright brings to the Board his significant financial expertise, including his experiences as a public company Chief Financial Officer and as a director and Chairman of the Audit Committee of various investment funds. | Timothy Foufas | 45 | 2007 | Managing Partner, Plato Foufas & Co. LLC (2005 to present), a financial services company; President, Levalon Properties LLC (2007 to present), a real estate property management company; Senior Vice President, Bayshore Management Co. LLC (2005 to 2006), a real estate property management company; Director of Investments, Liam Ventures Inc. (2000 to 2005), a private equity investment firm; Director, ICTC Group, Inc. (2010 to 2013), a rural local exchange carrier headquartered in Nome, ND. Mr. Foufas brings to the Board his management skills and expertise in financial, investment and real estate matters. | Patrick J. Guarino | 71 | 2006 | Lead Independent Director, The LGL Group, Inc. (August 2012 to present); Managing Partner, August Properties LLC (2005 to present), a private investment company with real estate and securities holdings; Managing Partner, Independent Board Advisory Services, LLC (2002 to 2005), a corporate governance consulting firm; Retired Executive Vice President, Ultramar Diamond Shamrock Corporation (1996 to 2000), a NYSE, Fortune 200, international petroleum refining and marketing company; Senior Vice President and General Counsel, Ultramar Corporation (1992 to 1996), a NYSE, Fortune 200, international petroleum and marketing company; Senior Vice President and General Counsel, Ultramar PLC (1986 to 1992), a London Stock Exchange listed international, integrated oil company. Mr. Guarino brings to the Board valuable knowledge of and fluency with legal and corporate governance matters, and the perspective of a former General Counsel of a public company. | Donald H. Hunter | 57 | 2013 | Principal, Donald Hunter LLC (April 2007 to present), a consulting practice based in Wellesley, MA; Chief Operating Officer and Chief Financial Officer, Harbor Global Company Limited (October 2000 to December 2006), a public company that owned international investment management and natural resources subsidiaries; Chief Operating Officer, Pioneer Global Investments, a former Division of the Pioneer Group, Inc. (August 1998 to October 2000), a company that provided investment management services and owned several natural resources investments; Manager of International Finance, the Pioneer Group, Inc. (January 1991 to August 1998). Currently, Mr. Hunter serves as a member of the Board of Directors and Audit Committee of Columbia Laboratories (Nasdaq: CBRX), a provider of pharmaceutical development, clinical trial manufacturing, and advanced analytical and consulting services to the pharmaceutical industry. Mr. Hunter brings to the Board financial, operating, corporate development, international and mergers and acquisition experience. | Manjit Kalha | 38 | 2011 | Managing Partner, Horizon Research (August 2012 to present), a firm that provides investment management and research services; Chief Executive Officer, Horizon AMC (June 2008 to present), a firm that provides investment management and consulting services; Chief Executive Officer and Director, Jeet Associates Private Limited (December 2006 to present), a consulting firm based in New Delhi that provides business strategy, finance, and taxation advisory services; Co-founder and Chief Operating Officer, Radiant Polymers Private Limited (2001 to 2006), a manufacturing company of high quality specialty plastic components. Mr. Kalha shares with the Board his experience in management and manufacturing operations, and an extensive knowledge of global financial markets. |
Executive Officers The following table sets forth information regarding our executive officers, including their business experience for the past five years and prior years. Name | Age | Officers and Positions Held With the Company, Business Experience and Principal Occupation for the Last Five Years | Gregory P. Anderson | 53Name | Age | Officers and Positions Held With the Company, Business Experience and Principal Occupation for the Last Five Years | Gregory P. Anderson | 54 | President and Chief Executive Officer, The LGL Group, Inc. (July 2009 to present); Vice President of Operations of MtronPTI (December 2000 to June 2009), Chief Executive Officer and Chairman of the Board of Directors of The LGL Group, Inc.'s subsidiary, M-tron Industries, Ltd. (July 2009 to present); President and Chairman of the Board of The LGL Group, Inc.'s subsidiary, Piezo Technology, Inc. (July 2009 to present); and Chairman of the Board of the LGL Group, Inc.'s subsidiary, Piezo Technology India Private Ltd. (July 2009 to present). | Michael J. Ferrantino, Sr. | 71 | Executive Vice Chairman of the Board, The LGL Group, Inc. (October 2013 to present); Executive Chairman of the Board, M-tron Industries, Inc. (October 2013 to present); President and Chief Executive Officer, Valpey-Fisher Corporation (September 2002 to November 2009), a provider of electronic components used in communications, medical, defense and aerospace, industrial and computer applications for OEMs and contract manufacturers worldwide; President – Micro Networks Division, Integrated Circuit Systems, Inc. (January 2002 to September 2002), a supplier of precision timing devices for optical networking, wireless infrastructure and high end network servers using surface acoustic wave and RF technology; President and Chief Executive Officer, Micro Networks Corporation (pre-2000 to January 2002); and Chairman of the Board of Directors of Micro Networks Corporation (April 2000 to January 2002). Currently, Mr. Ferrantino serves as the Chairman of the Board of Directors for Spectra Analysis Instruments, Inc., a developer and manufacturer of next-generation molecular analysis instrumentation. Mr. Ferrantino's qualifications to serve include his extensive knowledge and leadership experience in the RF/microwave integrated system and frequency control industries. | R. LaDuane Clifton | 41 | Chief Financial Officer, The LGL Group, Inc. (December 2012 to present); Chief Accounting Officer, The LGL Group, Inc. (March 2010 to December 2012); Member of Audit Committee of Community First Credit Union of Florida, a credit union with more than $1 billion in assets (September 2008 to July 2010); Corporate Controller of The LGL Group, Inc. (August 2009 to March 2010); Chief Financial Officer of a21, Inc. (August 2008 to August 2009), a publicly-held holding company with businesses in stock photography and an online retailer and manufacturer of framed art; Corporate Controller of a21, Inc. (March 2007 to August 2008); Auditor at KPMG LLP (August 2004 to March 2007), an international accounting firm. | James L. Williams | 60 | Corporate Controller, The LGL Group, Inc. (January 2013 to present); Director of Insurance Accounting, ABM Industries, Inc. (October 2009 to October 2011), a publicly-held facility management services provider; Chief Financial Officer, Southeastern US Insurance, Inc. (August 2006 to February 2009), a privately owned insurance company writing workers' compensation insurance. |
Family Relationships There are no family relationships among our executive officers and directors. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the Company's directors, executive officers and holders of more than 10% of the Company's common stock to file with the SEC and NYSE MKT initial reports of ownership and reports of changes in the ownership of common stock and other equity securities of the Company. Such persons are required to furnish the Company with copies of all Section 16(a) filings. Based solely upon a review of the copies of the forms furnished to the Company, the Company believes that its directors, officers and holders of more than 10% of the Company's common stock complied with all applicable filing requirements during the 2013 fiscal year. Code of Ethics The Company adopted a code of ethics as part of its Business Conduct Policy, which applies to all of its employees, including its principal executive, financial and accounting officers. The Company's Business Conduct Policy is available at www.lglgroup.com. Audit Committee The Audit Committee of the Board (the "Audit Committee") consists of Messrs. Abel, Foufas, Hunter and Kalha. The Board has determined that all Audit Committee members are financially literate and independent under applicable NYSE MKT listing standards. Mr. Hunter serves as Chairman of the Board of Directors of The LGL Group, Inc.'s subsidiary, M-tron Industries, Ltd. (July 2009 to present); President and Chairman of the Board of The LGL Group, Inc.'s subsidiary, Piezo Technology, Inc. (July 2009 to present); and Chairman of the Board of the LGL Group, Inc.'s subsidiary, Piezo Technology India Private Ltd. (July 2009 to present). | R. LaDuane Clifton | 40 | Chief Financial Officer, The LGL Group, Inc. (December 2012 to present); Chief Accounting Officer, The LGL Group, Inc. (March 2010 to December 2012); Member of Audit Committee, of Community First Credit Union of Florida (September 2008 to July 2010); Corporate Controller of The LGL Group, Inc. (August 2009 to March 2010); Chief Financial Officer of a21, Inc. (August 2008 to August 2009), a publicly-held holding company with businesses in stock photography and an online retailer and manufacturer of framed art; Corporate Controller of a21, Inc. (March 2007 to August 2008); Auditor at KPMG LLP (August 2004 to March 2007), an international accounting firm.
| James L. Williams | 59 | Corporate Controller, The LGL Group, Inc. (January 2013 to present); Director of Insurance Accounting, ABM Industries, Inc. (October 2009 to October 2011), a publicly-held facility management services provider; Chief Financial Officer, Southeastern US Insurance, Inc. (August 2006 to February 2009), a privately owned insurance company writing workers' compensation insurance. |
Family Relationships
There are no family relationships among our executive officers and directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors, executive officers and holders of more than 10% of the Company's common stock to file with the SEC and NYSE MKT initial reports of ownership and reports of changes in the ownership of common stock and other equity securities of the Company. Such persons are required to furnish the Company with copies of all Section 16(a) filings.
Based solely upon a review of the copies of the forms furnished to the Company, the Company believes that its directors, officers and holders of more than 10% of the Company's common stock complied with all applicable filing requirements during the 2012 fiscal year, except that on March 5, 2012, each of Mr. Anderson and Mr. Clifton filed a Form 4 disclosing his receipt of a restricted stock award from the Company on February 29, 2012.
Code of Ethics
The Company adopted a code of ethics as part of its Business Conduct Policy, which applies to all of its employees, including its principal executive, financial and accounting officers. The Company's Business Conduct Policy is available at www.lglgroup.com.
Audit Committee
The Audit Committee of the Board (the "Audit Committee") consists of Messrs. Abel, Enright, Foufas and Kalha. The Board has determined that all Audit Committee members are financially literate and independent under applicable NYSE MKT listing standards. Mr. Enright serves as Chairman of the Audit Committee, and the Board has determined that he qualifies as the Audit Committee financial expert, as defined under the Exchange Act.
Lead Independent Director
In August 2012, the Board established the position of Lead Independent Director, a permanent, rotating position with a term of not less than one-year, which includes the following responsibilities:
‒ | Serve as chairman of any special committees of independent directors which may be needed from time to time; |
‒ | Communicate to the Chairman of the Board the views of the independent directors and the Board has determined that he qualifies as the Audit Committee financial expert, as defined under the Exchange Act.Lead Independent Director In August 2012, the Board established the position of Lead Independent Director, a permanent, rotating position with a term of not less than one-year, which includes the following responsibilities: ‒ | Serve as chairman of any special committees of independent directors which may be needed from time to time; |
‒ | Communicate to the Chairman of the Board the views of the independent directors and the Board committees; |
‒ | Assist in assuring compliance with the Company's corporate governance policies and recommend revisions to these policies; |
‒ | Recommend to the Chairman of the Board, if deemed necessary, the retention of consultants who report directly to the Board; |
‒ | Call meetings of the independent directors and chair executive sessions of the Board at which no members of management are present; |
‒ | Serve as a liaison between the Board and stockholders; |
‒ | Consult with the Chairman of the Board and other members of the Board as to recommendations on membership and chairpersons of all the Board committees and discuss such recommendations with the Nominating Committee and the Board; and |
‒ | Fulfill other duties as needed from time to time as requested by the Chairman of the Board. |
‒ | Assist in assuring compliance with the Company's corporate governance policies and recommend revisions to these policies; |
‒ | Recommend to the Chairman ofOn August 9, 2012, the Board if deemed necessary, the retention of consultants who report directlyappointed Patrick Guarino to the Board; |
‒ | Call meetings of the independent directors and chair executive sessions of the Board at which no members of management are present; |
‒ | Serveserve as a liaison between the Board and stockholders; |
‒ | Consult with the Chairman of the Board and other members of the Board as to recommendations on membership and chairpersons of all the Board committees and discuss such recommendations with the Nominating Committee and the Board; and |
‒ | Fulfill other duties as needed from time to time as requested by the Chairman of the Board. | Lead Independent Director.
On August 9, 2012, the Board appointed Patrick Guarino to serve as Lead Independent Director.
| Item 11. | Executive Compensation. |
Item 11.Executive Compensation.Summary Compensation Table
The following table sets forth information with respect to compensation earned by the named executive officers: Name and Principal Position | Year | Salary ($) | | | Bonus ($) | | | Stock Awards(1) ($) | | | Option Awards(1) ($) | | | All Other Compensation ($) | | | Total ($) | | Gregory P. Anderson | 2013 | | 206,154 | (2) | | | 5,658 | (3) | | | 17,325 | (4) | | | 33,550 | (5) | | | 42,472 | (6) | | | 305,159 | | Chief Executive Officer | 2012 | | 211,530 | (2) | | | 11,667 | (3) | | | 18,003 | (7) | | | 60,979 | (8) | | | 43,616 | (9) | | | 345,795 | | | | | | | | | | | | | | | | | | | | | | | | | | | R. LaDuane Clifton | 2013 | | 169,442 | (10) | | | 4,200 | (11) | | | 12,950 | (4) | | | 11,184 | (5) | | | — | | | | 197,776 | | Chief Financial Officer | 2012 | | 167,476 | (10) | | | 8,750 | (11) | | | 13,504 | (7) | | | 36,587 | (8) | | | — | | | | 226,317 | | | | | | | | | | | | | | | | | | | | | | | | | | | James L. Williams | 2013 | | 110,000 | | | | — | | | | — | | | | — | | | | 13,337 | (12) | | | 123,337 | | Corporate Controller | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Reflects the aggregate grant date fair value of stock awards or option awards granted in the applicable year, computed in accordance with Financial Accounting Standard Board Standards Codification Topic 718. For a discussion of the assumptions and methodologies used to calculate these amounts, please see Note E – Stock-Based Compensation in the accompanying Notes to Consolidated Financial Statements. |
Summary Compensation Table
The following table sets forth information with respect to compensation earned by the named executive officers:
Name and Principal Position | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards(1) ($) | | | Option Awards(1) ($) | | | All Other Compensation ($) | | | Total ($) | | Gregory P. Anderson | 2012 | | | 200,000 | | | | 11,667 | (2) | | | 18,003 | (3) | | | 60,979 | (4) | | | 55,146 | (5) | | | 345,795 | | Chief Executive Officer | 2011 | | | 200,000 | | | | 9,000 | (2) | | | - | | | | 245,944 | (6) | | | 46,877 | (7) | | | 501,821 | | | | | | | | | | | | | | | | | | | | | | | | | | | | R. LaDuane Clifton | 2012 | | | 150,644 | | | | 8,750 | (8) | | | 13,504 | (3) | | | 36,587 | (4) | | | 16,832 | (9) | | | 226,317 | | Chief Financial Officer | 2011 | | | 150,000 | | | | 6,750 | (8) | | | - | | | | 98,378 | (6) | | | 2,392 | (10) | | | 257,520 | |
(1) | Reflects the aggregate grant date fair value of stock awards or option awards granted in the applicable year, computed in accordance with Financial Accounting Standard Board Standards Codification Topic 718. For a discussion of the assumptions and methodologies used to calculate these amounts, please see Note E – Stock-Based Compensation in the accompanying Notes to Consolidated Financial Statements.(2) | Mr. Anderson's salary includes one-time payouts of paid time-off ("PTO") of $6,154 and $11,530, for 2013 and 2012, respectively. |
(2) | On, December 21, 2012, the Company awarded Mr. Anderson a discretionary cash bonus of $11,667 as a bonus payment for 2012. On March 9, 2012 and December 30, 2011, the Company awarded Mr. Anderson discretionary cash bonuses of $1,000 and $8,000, respectively, as bonus payments for 2011. |
(3) | On February28
(3) | On, March 29, 2013, and December 21, 2012, the Company awarded Mr. Anderson a discretionary cash bonus of $ 5,658 and $11,667, respectively, as a bonus payment for 2013 and 2012, the Company granted Mr. Anderson and Mr. Clifton 2,133 and 1,600 restricted shares of common stock, respectively, as a bonus payment for 2011 under the 2011 Incentive Plan with a grant date fair value of $18,003 and $13,504, respectively. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(4) | On August 9, 2012, the Company granted Mr. Anderson and Mr. Clifton discretionary awards of options to purchase 25,000 and 15,000 shares of common stock, respectively, under the 2011 Incentive Plan with a grant date fair value of $60,979 and $36,587, respectively. The options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(5) | Mr. Anderson was reimbursed for $32,773 of living expenses incurred in connection with performing his duties at the corporate headquarters in Orlando, FL. This amount also includes a reimbursement for the personal income tax expense arising from these expenses. Mr. Anderson also received a one-time payout of paid time-off ("PTO") in the amount of $11,530. |
(6) | On March 14, 2011, the Company granted Mr. Anderson and Mr. Clifton each a discretionary award of options to purchase a total of 25,000 shares and 10,000 shares, respectively, of the Company's common stock under the 2001 Equity Incentive Plan with a grant date fair value of $245,944 and $98,378, respectively. These stock options have an exercise price of $22.50 and vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date; refer to Notes A and E to the Company's Financial Statements for valuation assumptions. |
(7) | Mr. Anderson was reimbursed for living expenses incurred in connection with performing his duties at the corporate headquarters in Orlando, FL. This amount also includes a reimbursement for the personal income tax expense arising from these expenses. Mr. Anderson also received a one-time payout of PTO in the amount of $15,384 and a 401(k) Company match of $4,681. |
(8) | On December 21, 2012, the Company awarded Mr. Clifton a discretionary cash bonus of $8,750 as a bonus payment for 2012. On March 9, 2012 and December 30, 2011, the Company awarded Mr. Clifton discretionary cash bonuses of $750 and $6,000, respectively, as bonus payment for 2011. |
(9) | Mr. Clifton received a one-time payout of PTO in the amount of $15,941. |
(10) | Mr. Clifton received a one-time payout of PTO in the amount of $6,347 and a 401(k) Company match in the amount of $411. |
Employment Agreements
Gregory P. Anderson
Effective July 2, 2009, the Company entered into an Employment Agreement with Mr. Anderson to serve as the Company's President and Chief Executive Officer on an "at will" basis. On November 10, 2011, the Company entered into a new employment agreement with Mr. Anderson (the "Anderson Employment Agreement"), effective as of November 2, 2011, to continue serving as the Company's President and Chief Executive Officer. Under the Anderson Employment Agreement, Mr. Anderson receives an annual base salary of $200,000 and is eligible to receive annual bonuses based upon the achievement of certain management objectives determined by the Compensation Committee of the Board (the "Compensation Committee"). The Anderson Employment Agreement expires on November 2, 2013.
Pursuant to the Anderson Employment Agreement, if Mr. Anderson's employment is terminated by the Company for cause (as defined under the Anderson Employment Agreement) or by Mr. Anderson other than for good reason (as defined under the Anderson Employment Agreement), Mr. Anderson will receive his base salary through the date of termination. If Mr. Anderson's employment is terminated as a result of his death or disability, Mr. Anderson or his estate (as applicable) will receive his base salary through the date of termination and any earned but unpaid portion of his annual bonus. If Mr. Anderson's employment is terminated by the Company for reasons other than those stated above or by Mr. Anderson for good reason, or upon the expiration of the term of the Anderson Employment Agreement, Mr. Anderson will receive his base salary through the date of termination and $100,000 in severance payments ($50,000 payable in three equal monthly installments during the first three months after termination and the remaining $50,000 payable six months after termination), all of his unvested restricted shares of the Company's common stock will vest (50% to vest six months after termination and the remaining 50% to vest one year after termination), and a portion of his unvested stock options deemed by the Compensation Committee to have been earned prior to termination will vest (such determination to be made as soon as reasonably practicable after the third anniversary of the grant date of any such options).
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding equity awards held by named executive officers as of December 31, 2012:
| | Option Awards | | Stock Awards | | Name | | Number of securities underlying unexercised options (#) exercisable | | | Number of securities underlying unexercised options (#) unexercisable | | | Option exercise price ($) | | Option expiration date | | Number of shares of stock that have not vested (#) | | | Market value of shares of stock that have not vested ($) | | Gregory P. Anderson | | | 7,500 | (1) | | | 17,500 | (1) | | | 22.50 | | 3/14/16 | | | | | | | | | | - | | | | 25,000 | (2) | | | 10.00 | | 8/09/17 | | | | | | | | | | | | | | | | | | | | | | | 1,440 | (3) | | | 7,560 | (3) | | | | | | | | | | | | | | | | | 2,133 | (4) | | | 11,198 | (4) | | | | | | | | | | | | | | | | | | | | | | | R. LaDuane Clifton | | | 3,000 | (1) | | | 7,000 | (1) | | | 22.50 | | 3/14/16 | | | | | | | | | | | | - | | | | 15,000 | (2) | | | 10.00 | | 8/09/17 | | | | | | | | | | | | | | | | | | | | | | | | | 832 | (3) | | | 4,368 | (3) | | | | | | | | | | | | | | | | | 1,600 | (4) | | | 8,400 | (4) |
(1) | On March 14, 2011, the Company granted Mr. Anderson and Mr. Clifton, options to purchase 25,000 shares and 10,000 shares, respectively, of common stock under the 2001 Equity Incentive Plan with a grant date fair value of $245,944 and $98,378,(4) | On March 26, 2013, the Company granted Mr. Anderson and Mr. Clifton 2,982 and 2,229 restricted shares of common stock, respectively, as a bonus payment for 2012 under the 2011 Incentive Plan with a grant date fair value of $17,325 and $12,950, respectively. The options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(2) | On August 9, 2012, the Company granted Mr. Anderson and Mr. Clifton, options to purchase 25,000 shares and 15,000 shares, respectively, of common stock under the 2011 Incentive Plan with a grant date fair value of $60,979 and $36,587, respectively. The options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(3) | On December 15, 2010, the Company granted Mr. Anderson and Mr. Clifton, 3,598 restricted shares and 2,080 restricted shares, respectively, of common stock as a bonus payment for 2010 under the 2001 Equity Incentive Plan with a grant date fair value of $18.90 per share. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(4) | On February 29, 2012, the Company granted Mr. Anderson and Mr. Clifton, 2,133 restricted shares and 1,600 restricted shares, respectively, of common stock as a bonus payment for 2011 under the 2011 Incentive Plan with a grant date fair value of $8.44 per share. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
28
(5) | On March 26, 2013, the Company granted Mr. Anderson and Mr. Clifton discretionary awards of options to purchase 14,399 and 4,800 shares of common stock, respectively, under the 2011 Incentive Plan with a grant date fair value of $33,550 and $11,184, respectively. The options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(6) | Mr. Anderson was reimbursed for $31,470 of living expenses incurred in connection with performing his duties at the corporate headquarters in Orlando, FL. This amount also includes a reimbursement for the personal income tax expense arising from these expenses. |
(7) | On February 29, 2012, the Company granted Mr. Anderson and Mr. Clifton 2,133 and 1,600 restricted shares of common stock, respectively, as a bonus payment for 2011 under the 2011 Incentive Plan with a grant date fair value of $18,003 and $13,504, respectively. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
Director Compensation(8) | On August 9, 2012, the Company granted Mr. Anderson and Mr. Clifton discretionary awards of options to purchase 25,000 and 15,000 shares of common stock, respectively, under the 2011 Incentive Plan with a grant date fair value of $60,979 and $36,587, respectively. The options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
The following table sets forth information with respect to compensation earned by or awarded to each Director of the Company who is not a named executive officer and who served on the Board during the fiscal year ended December 31, 2012:(9) | Mr. Anderson was reimbursed for $32,773 of living expenses incurred in connection with performing his duties at the corporate headquarters in Orlando, FL. This amount also includes a reimbursement for the personal income tax expense arising from these expenses. |
(10) | Mr. Clifton's salary includes one-time payouts of PTO of $4,442 and $16,832, for 2013 and 2012, respectively. |
(11) | On March 29, 2013, and December 21, 2012, the Company awarded Mr. Clifton a discretionary cash bonus of $4,200 and $8,750, respectively, as a bonus payment for 2013 and 2012, respectively. |
(12) | Mr. Williams was reimbursed for costs incurred in connection with relocating to the Company's headquarters in Orlando, Florida in the amount of $13,337. |
Employment Agreements Gregory P. Anderson On October 4, 2013, the Company entered into a new employment agreement with Mr. Anderson (the "Anderson Employment Agreement") under which Mr. Anderson will continue to serve as the Company's President and Chief Executive Officer, effective as of November 2, 2013 (the "Effective Date"). Under the Anderson Employment Agreement, Mr. Anderson receives an annual base salary of $200,000 and is eligible to receive annual bonuses based upon the achievement of certain management objectives determined by the Compensation Committee of the Board. The term of the Anderson Employment Agreement is two years, starting on the Effective Date.
Pursuant to the Anderson Employment Agreement, if Mr. Anderson's employment is terminated by the Company for cause (as defined under the Anderson Employment Agreement) or by Mr. Anderson other than for good reason (as defined under the Anderson Employment Agreement), Mr. Anderson will receive his base salary through the date of termination. If Mr. Anderson's employment is terminated as a result of his death or disability, Mr. Anderson or his estate (as applicable) will receive his base salary through the date of termination and any earned but unpaid portion of his annual bonus. If Mr. Anderson's employment is terminated by the Company for reasons other than those stated above or by Mr. Anderson for good reason, or upon the expiration of the term of the Anderson Employment Agreement, Mr. Anderson will receive his base salary through the date of termination and $100,000 in severance payments ($50,000 payable in three equal monthly installments during the first three months after termination and the remaining $50,000 payable six months after termination), all of his unvested restricted shares of the Company's common stock will vest (50% to vest six months after termination and the remaining 50% to vest one year after termination), and a portion of his unvested stock options deemed by the Compensation Committee to have been earned prior to termination will vest (such determination to be made as soon as reasonably practicable after the third anniversary of the grant date of any such options).
Michael J. Ferrantino, Sr. On October 1, 2013, the Company entered into an offer letter with Michael J. Ferrantino, Sr. Mr. Ferrantino is employed by the Company on an "at will" basis and is paid a monthly draw of $12,000, or $144,000 annually, earned against Annual Incentive Payments (as defined below). In addition, he is eligible to receive annual incentive payments (the "Annual Incentive Payments") based on the increase in the economic value of the Company ("EV") over the prior fiscal year, starting with the fiscal year ending December 31, 2013. The total amount of the Annual Incentive Payments payable for any fiscal year shall be the greater of (x) $144,000 or (y) 3.0% of the increase in EV over the prior fiscal year; provided, however, that such amount shall not exceed $1,000,000 for any fiscal year and the Annual Incentive Payments for the fiscal year ending December 31, 2013, shall be pro-rated based on the number of days remaining in the fiscal year following the commencement of his employment with the Company.
Outstanding Equity Awards at Fiscal Year-End The following table sets forth information regarding equity awards held by named executive officers as of December 31, 2013: | | Option Awards | | Stock Awards | | Name | | Number of securities underlying unexercised options (#) exercisable | | | Number of securities underlying unexercised options (#) unexercisable | | | Option exercise price ($) | | Option expiration date | | Number of shares of stock that have not vested (#) | | | Market value of shares of stock that have not vested ($) | | Gregory P. Anderson | | | — | | | | 14,399 | (1) | | | 7.26 | | 3/26/18 | | | | | | | | | | 7,500 | (2) | | | 17,500 | (2) | | | 10.00 | | 8/09/17 | | | | | | | | | | 15,000 | (3) | | | 10,000 | (3) | | | 22.50 | | 3/14/16 | | | | | | | | | | | | | | | | | | | | | | | 2,982 | (4) | | | 16,133 | (4) | | | | | | | | | | | | | | | | | 1,493 | (5) | | | 8,077 | (5) | | | | | | | | | | | | | | | | | | | | | | | R. LaDuane Clifton | | | — | | | | 4,800 | (1) | | | 7.26 | | 3/26/18 | | | | | | | | | | | | 4,500 | (2) | | | 10,500 | (2) | | | 10.00 | | 8/09/17 | | | | | | | | | | | | 6,000 | (3) | | | 4,000 | (3) | | | 22.50 | | 3/14/16 | | | | | | | | | | | | | | | | | | | | | | | | | 2,229 | (4) | | | 12,058 | (4) | | | | | | | | | | | | | | | | | 1,120 | (5) | | | 6,059 | (5) | | | | | | | | | | | | | | | | | | | | | | | James L. Williams | | | — | | | | — | | | | — | | — | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | |
Name | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($)(1) | | | Total ($) | | Marc Gabelli | | | 102,709 | | | | 10,004 | | | | 112,713 | | James Abel | | | 25,000 | | | | 10,004 | | | | 35,004 | | Michael Chiu | | | 25,500 | | | | 10,004 | | | | 35,504 | | Vincent Enright | | | 25,750 | | | | 10,004 | | | | 35,754 | | Timothy Foufas | | | 25,000 | | | | 10,004 | | | | 35,004 | | Patrick J. Guarino | | | 39,791 | | | | 10,004 | | | | 49,795 | | Manjit Kalha | | | 23,500 | | | | 10,004 | | | | 33,504 | | Paul Kaminski(2) | | | 15,000 | | | | — | | | | 15,000 | |
(1) | On March 26, 2013, the Company granted Mr. Anderson and Mr. Clifton, options to purchase 14,399 shares and 4,800 shares, respectively, of common stock under the Company's 2011 Incentive Plan (the "2011 Incentive Plan") with a grant date fair value of $33,550 and $11,184, respectively. These options have an exercise price of $7.26, which reflected a 25% premium compared to the closing price on the date of grant. These options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(2) | On August 9, 2012, the Company granted Mr. Anderson and Mr. Clifton, options to purchase 25,000 shares and 15,000 shares, respectively, of common stock under the 2011 Incentive Plan with a grant date fair value of $60,979 and $36,587, respectively. These options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(3) | On March 14, 2011, the Company granted Mr. Anderson and Mr. Clifton, options to purchase 25,000 shares and 10,000 shares, respectively, of common stock under the Company's 2001 Equity Incentive Plan (the "2001 Equity Incentive Plan") with a grant date fair value of $245,944 and $98,378, respectively. These options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(4) (5) | On March 26, 2013, the Company granted Mr. Anderson and Mr. Clifton, 2,982 restricted shares and 2,229 restricted shares, respectively, of common stock as a bonus payment for 2012 under the 2011 Incentive Plan with a grant date fair value of $5.81 per share. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. On February 29, 2012, the Company granted Mr. Anderson and Mr. Clifton, 2,133 restricted shares and 1,600 restricted shares, respectively, of common stock as a bonus payment for 2011 under the 2011 Incentive Plan with a grant date fair value of $8.44 per share. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
Director Compensation The following table sets forth information with respect to compensation earned by or awarded to each director who is not a named executive officer and who served on the Board during the fiscal year ended December 31, 2013: Name | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($) | | | Total ($) | | Marc Gabelli | | | 85,250 | | | | 10,003 | | | | 95,253 | | Michael J. Ferrantino, Sr. | | | — | | | | 10,003 | | | | 10,003 | | Patrick J. Guarino | | | 59,500 | | | | 10,003 | | | | 69,503 | | James Abel | | | 25,750 | | | | 10,003 | | | | 35,753 | | Michael Chiu | | | 24,750 | | | | 10,003 | | | | 34,753 | | Vincent Enright | | | 26,000 | | | | 10,003 | | | | 36,003 | | Timothy Foufas | | | 25,750 | | | | 10,003 | | | | 35,753 | | Donald H. Hunter | | | 22,000 | | | | 20,003 | | | | 42,003 | | Manjit Kalha | | | 25,750 | | | | 10,003 | | | | 35,753 | |
In 2013, directors who were not employees received (i) a retainer of $20,000 ($10,000 in cash and $10,000 in stock whose value was based on the closing price of the Company's common stock on the grant date); (ii) a fee of $1,000 for each meeting of the Board attended in person or telephonically that had a duration of at least one hour; and (iii) a fee of $750 for each Audit Committee, Compensation Committee, and Nominating Committee meeting attended in person or telephonically that had a duration of at least one hour. In addition, the Audit Committee Chairman received a $3,000 annual cash retainer, the Nominating Committee Chairman received a $1,000 annual cash retainer and the Compensation Committee Chairman received a $2,000 annual retainer. The Chairman of the Board received an annual retainer of $65,000, and the Lead Independent Director received an annual retainer of $35,000 for 2013. Directors who were employees of the Company were not compensated for services as a member of the Board or any committee thereof. On December 17, 2012,12, 2013, the Company's then-current directors received grants of 1,9501,969 shares of restricted common stock as 50% of their base compensation for fiscal 20132014 ($10,000). The number of shares granted to each director was determined by dividing the dollar amount of base compensation paid in the form of the share grant by the closing price of the Company's common stock on the grant date. Such shares were granted under the 2011 Incentive Plan, vested immediately on the grant date, and are transferable only if a director maintains a minimum ownership level of 1,000 shares of the Company's common stock. |
(2) | Mr. Kaminski did not stand for re-election Additionally, on May 10, 2013, Donald H. Hunter (appointed to the Board atof Directors on March 26, 2013) received a grant of 2,008 restricted shares of the 2012 Annual Meeting heldCompany's common stock to as a portion of his base director compensation for 2013 ($10,000).The standard compensation arrangements for our directors have not changed from 2013 to 2014, except that the (i) Chairman of the Board and the Lead Independent Director have elected not to be paid their annual retainers of $65,000 and $35,000, respectively, for those roles, and (ii) directors who are employees of the Company now receive a retainer of $10,000 in stock whose value is based on July 13, 2012. | the closing price of the Company's common stock on the grant date.A director who is an employee of the Company is not compensated for services as a member of the Board or any committee thereof. None of the Company's directors is an employee of the Company. In 2012, directors who were not employees received (i) a retainer of $5,000 ($2,500 in cash and $2,500 in restricted stock whose value was based on trading price at date of grant) per quarter; (ii) a fee of $1,000 for each meeting of the Board attended in person or telephonically that had a duration of at least one hour; and (iii) a fee of $750 for each Audit Committee, Compensation Committee, and Nominating Committee meeting attended in person or telephonically that had a duration of at least one hour. In addition, the Audit Committee Chairman received a $3,000 annual cash retainer, the Nominating Committee Chairman received a $1,000 annual cash retainer and the Compensation Committee Chairman received a $2,000 annual retainer. Effective August 9, 2012, the Chairman of the Board's annual fee was reduced from $100,000 to $65,000 (paid in quarterly installments), and the Lead Independent Director received an annual retainer of $35,000, pro-rated for 2012 based upon actual time served in such capacity (paid in quarterly installments).
On December 30, 2011, the Company's then-current directors received grants of 1,365 shares of restricted common stock as 50% of their base compensation for fiscal 2012 ($10,000). The number of shares granted to each director was determined by dividing the dollar amount of base compensation paid in the form of the share grant by the closing price of the Company's common stock on the grant date. Such shares were granted under the 2011 Incentive Plan, vested immediately on the grant date, and are transferable only if a director maintains a minimum ownership level of 1,000 shares of the Company's common stock.
The standard compensation arrangements for our directors have not changed from 2012 to 2013.
On December 17, 2012, the Company's then-current directors received grants of 1,950 shares of restricted common stock as 50% of their base compensation for fiscal 2013 ($10,000). The number of shares granted to each director was determined by dividing the dollar amount of base compensation paid in the form of the share grant by the closing price of the Company's common stock on the grant date. Such shares were granted under the 2011 Incentive Plan, vested immediately on the grant date, and are transferable only if a director maintains a minimum ownership level of 1,000 shares of the Company's common stock.
| Item 12. | Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Item 12.Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
The following table sets forth information regarding the number of shares of our common stock beneficially owned on March 26, 2013,The following table sets forth information regarding the number of shares of our common stock beneficially owned on March 28, 2014, by:
‒ | Each person who is known by us to beneficially own 5% or more of our common stock; |
‒ | Each of our directors and named executive officers; and |
‒ | All of our directors and executive officers, as a group. |
‒ | All Except as otherwise set forth below, the address of each of the persons listed below is: The LGL Group, Inc., 2525 Shader Road, Orlando, FL 32804. Unless otherwise indicated, the common stock beneficially owned by a holder includes shares owned by a spouse, minor children and relatives sharing the same home, as well as entities owned or controlled by such holder, and also includes shares subject to options to purchase our directorscommon stock exercisable within 60 days after March 28, 2014. Unless otherwise indicated, the stockholders listed in the table have sole voting and executive officers, as a group. |
Except as otherwise set forth below, the address of each of the persons listed below is: The LGL Group, Inc., 2525 Shader Road, Orlando, FL 32804. Unless otherwise indicated, the common stock beneficially owned by a holder includes shares owned by a spouse, minor children and relatives sharing the same home, as well as entities owned or controlled by the named person, and also includes shares subject to options to purchase our common stock exercisable within 60 days after March 26, 2013. Unless otherwise indicated, the stockholders listed in the table have sole voting and investment power with respect to their shares.
| | Common Stock Beneficially Owned(1) | | Name and Address of Beneficial Owner | | Shares | | | % | | 5% or Greater Stockholders: | | | | | | | Mario J. Gabelli | | | 432,317 | (2) | | | 16.6 | | John V. Winfield | | | 132,335 | (3) | | | 5.1 | | | | | | | | | | | Directors and Named Executive Officers: | | | | | | | | | Marc Gabelli | | | 382,221 | (4) | | | 14.7 | | James Abel | | | 3,315 | | | | * | | Michael Chiu | | | 5,094 | | | | * | | Vincent Enright | | | 4,315 | | | | * | | Timothy Foufas | | | 14,035 | | | | * | | Patrick J. Guarino | | | 16,035 | | | | * | | Manjit Kalha | | | 3,315 | | | | * | | Donald H. Hunter | | | — | | | | * | | Gregory P. Anderson | | | 28,641 | (5) | | | 1.1 | | R. LaDuane Clifton | | | 13,435 | (6) | | | * | | All executive officers and directors as a group (11 persons) | | | 470,406 | (7) | | | 18.1 | |
investment power with respect to their shares.
| | Common Stock Beneficially Owned(1) | | Name and Address of Beneficial Owner | | Shares | | % | | 5% or Greater Stockholders: | | | | | | Mario J. Gabelli | | 466,137 | (2) | 17.4 | | John V. Winfield | | 132,335 | (3) | 5.0 | | | | | | | | Directors and Named Executive Officers: | | | | | | Marc Gabelli | | 394,190 | (4) | 15.0 | | Michael J. Ferrantino, Sr. | | 1,969 | | * | | Patrick J. Guarino | | 18,004 | | * | | Gregory P. Anderson | | 50,461 | (5) | 1.9 | | R. LaDuane Clifton | | 23,375 | (6) | * | | James L. Williams | | — | | — | | James Abel | | 5,284 | | * | | Michael Chiu | | 7,063 | | * | | Vincent Enright | | 6,284 | | * | | Timothy Foufas | | 16,004 | | * | | Donald H. Hunter | | 3,977 | | * | | Manjit Kalha | | 5,284 | | * | | All executive officers and directors as a group (12 persons) | | 531,895 | (7) | 19.9 | |
* Less than 1% of outstanding shares. (1) | The applicable percentage of ownership for each beneficial owner is based on 2,605,7192,672,544 shares of common stock outstanding as of March 26, 2013.28, 2014. Shares of common stock issuable upon exercise of options, warrants or other rights beneficially owned that are exercisable within 60 days are deemed outstanding for the purpose of computing the percentage ownership of the person holding such securities and rights and all executive officers and directors as a group. |
(2) | Includes (i) 238,261244,261 shares of common stock owned directly by Mario J. Gabelli; (ii) 96,756 shares owned by MJG-IV Limited Partnership, of which Mr. Gabelli is the general partner and has an approximate 5% interest; and (iii) 97,300117,900 shares owned by GGCP, Inc., of which Mr. Gabelli is the chief executive officer, a director and controlling shareholder.shareholder; and 7,220 shares owned by GAMCO Asset Management Inc., of which Mr. Gabelli is the chief executive officer. Mr. Gabelli disclaims beneficial ownership of the shares owned by MJG-IV Limited Partnership, GGCP, Inc. and GGCP,GAMCO Asset Management Inc., except to the extent of his pecuniary interest therein. Mr. Gabelli's business address is 401 Theodore Fremd Avenue, Rye, New York 10580-1430. This disclosure is based solely on information in a Statement of Changes in Beneficial Ownership on Form 4 filed by Mr. Gabelli with the SEC on December 19, 2012. |
(3) | Includes (i) 124,135 shares of common stock owned directly by Mr. Winfield and (ii) 8,200 shares of common stock owned by The InterGroup Corporation, of which Mr. Winfield is President, Chief Executive Officer and Chairman of the Board. Mr. Winfield's business address is 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. Based solely on information contained in a Schedule 13D filed with the SEC on April 30, 2010, by Mr. Winfield and The InterGroup Corporation. |
33
(4) | Includes (i) 16,31918,288 shares of common stock owned directly by Marc Gabelli; (ii) 15,00025,000 shares issuable upon the exercise of options held by Mr. Gabelli; and (iii) 350,902 shares beneficially ownedheld by Venator Merchant Fund, L.P. ("Venator Fund") and. Venator Global, LLC ("Venator Global"). Venator Global,, which is the sole general partner of Venator Fund, ismay be deemed to havebeneficially own the securities owned by Venator Fund. Mr. Gabelli, who is the President and Sole Member of Venator Global, may be deemed to beneficially own the securities owned by Venator Fund. Mr. Gabelli disclaims beneficial ownership of the securities owned beneficially by Venator Fund. Mr. Gabelli isFund, except to the President and ownerextent of Venator Global. | his pecuniary interest therein.(5) | Includes 13,641 shares of common stock and 15,00036,820 shares issuable upon the exercise of options. |
(6) | Includes 7,435 shares of common stock and 6,00015,940 shares issuable upon the exercise of options. |
(7) | Includes 429,195454,135 shares of common stock and 36,00077,760 shares issuable upon the exercise of options. Reflects beneficial ownershipEquity Compensation Plan Information The following table provides information as of one executive officer who is notDecember 31, 2013, about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans (including individual arrangements): Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | Equity compensation plans approved by security holders(1) | | | 177,861 | | | $ | 15.33 | | | | 349,565 | | Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | | Total | | | 177,861 | | | $ | 15.33 | | | | 349,565 | |
(1)The 2001 Equity Incentive Plan was originally approved by our stockholders on May 2, 2002, an amendment to the 2001 Equity Incentive Plan was approved by our stockholders on May 26, 2005, and the 2001 Equity Incentive Plan was terminated pursuant to a named executive officer and is therefore not specifically identified inBoard resolution on August 4, 2011. No additional shares of common stock are authorized for issuance under the table. |
Equity Compensation Plan Information
The following table provides information as of December 31, 2012, about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans (including individual arrangements):
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | Equity compensation plans approved by security holders(1) | | | 130,000 | | | $ | 18.65 | | | | 428,290 | | Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | | Total | | | 130,000 | | | $ | 18.65 | | | | 428,290 | |
(1)Our 2001 Equity Incentive Plan was originally approved by our stockholders on May 2, 2002, an amendment to the 2001 Equity Incentive Plan was approved by our stockholders on May 26, 2005, and the 2001 Equity Incentive Plan was terminated pursuant to a Board resolution on August 4, 2011. No additional shares of common stock are authorized for issuance under the 2001 Equity Incentive Plan. Options to purchase 90,000 shares of common stock issued under the 2001 Equity Incentive Plan were outstanding as of December 31, 2012. Our 2011 Incentive Plan was approved by our stockholders on August 4, 2011. 500,000 shares of common stock are authorized for issuance under the 2011 Incentive Plan. Options to purchase 40,000 shares of common stock issued under the 2011 Incentive Plan were outstanding as of December 31, 2012.2001 Equity Incentive Plan. Options to purchase 87,000 shares of common stock issued under the 2001 Equity Incentive Plan were outstanding as of December 31, 2013. The 2011 Incentive Plan was approved by our stockholders on August 4, 2011. 500,000 shares of common stock are authorized for issuance under the 2011 Incentive Plan. Options to purchase 90,861 shares of common stock issued under the 2011 Incentive Plan were outstanding as of December 31, 2013.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Transactions with Related Persons, Promoters and Certain Control Persons Except as described below, since January 1, 2012, there were no transactions that are required to be described under Item 13.Certain Relationships404(a) of Regulation S-K promulgated by the SEC. All transactions between us and Related Transactions,any of our officers, directors, director nominees, principal stockholders or their immediate family members are to be approved by the Audit Committee, and are to be on terms no less favorable to us than we could obtain from unaffiliated third parties. Such policy and procedures are set forth in a resolution of the Board.
On September 19, 2013, the Company entered into a Registration Rights Agreement, dated as of September 19, 2013 (the "Registration Rights Agreement"), with Venator Merchant Fund L.P., or Venator Fund. Venator Fund is an investment limited partnership controlled by the Company's Chairman of the Board, Marc Gabelli, who is the President and Sole Member of Venator Global, LLC, which is the sole general partner of Venator Fund. The Registration Rights Agreement required the Company to prepare and file with the SEC, within 30 days after the date thereof, a registration statement to register for resale the shares of the Company's common stock, warrants to purchase common stock, and shares of common stock issuable upon exercise of the warrants, owned by Venator Fund. The Company also agreed to use its reasonable best efforts to cause such registration statement to become effective as promptly thereafter as reasonably possible and to maintain the effectiveness of such registration statement for a minimum period of two years, which period may be extended as provided in the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Company agreed to pay all expenses incurred in connection with the registration of such securities. In accordance with the Registration Rights Agreement, the Company filed a Registration Statement on Form S-3 with the SEC on September 19, 2013, which was declared effective on November 7, 2013. Director Independence.Independence |
Transactions with Related Persons, Promoters and Certain Control Persons
Since January 1, 2012, there were no transactions that are required to be described under Item 404(a) of Regulation S-K promulgated by the SEC. All transactions between us and any of our officers, directors, director nominees, principal stockholders or their immediate family members are to be approved by the Audit Committee, and are to be on terms no less favorable to us than we could obtain from unaffiliated third parties. Such policy and procedures are set forth in a resolution of the Board.
Director Independence
As required under NYSE MKT rules, a majority of the members of a listed company's board of directors must qualify as "independent," as affirmatively determined by such board of directors. The Board has determined that all of the Company's directors, other than Mr.As required under NYSE MKT rules, a majority of the members of a listed company's board of directors must qualify as "independent," as affirmatively determined by such board of directors. The Board has determined that all of the Company's directors, other than Messrs. Gabelli and Ferrantino, are independent within the meaning of NYSE MKT rules. In determining that Mr. Kalha is independent, the Board considered that Mr. Kalha and Mr. Gabelli are partners in a joint venture, which relationship the Board determined would not interfere with Mr. Kalha's independence, as defined by NYSE MKT rules. Item 14. Principal Accountant Fees and Services. Fees Billed During Fiscal 20122013 and 20112012 Audit Fees Aggregate audit fees for the years ended December 31, 2013 and 2012, were $224,000 and 2011, were $191,000, and $186,165, respectively, and include fees billed by McGladrey LLP as the Company's independent registered public accounting firm for the years ended December 31, 20122013 and 2011.2012. Audit fees include services relating to auditing the Company's annual financial statements, reviewing the Company's financial statements included in the Company's quarterly reports on Form 10-Q, comfort letterand procedures related to certain financing arrangements, and the review ofperformed in connection with registration statements. Audit-Related Fees McGladrey LLP did not render any audit-related services during 20122013 or 2011.2012. Tax Fees McGladrey LLP did not render any tax services during 20122013 or 2011.2012. All Other Fees McGladrey LLP did not render any other services during 20122013 or 2011.2012. Pre-Approval Policies and Procedures The Audit Committee policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm are reflected in the Audit Committee Charter. The Audit Committee Charter provides that the Audit Committee shall pre-approve all audit and non-audit services provided by the independent registered public accounting firm and shall not engage the independent registered public accounting firm to perform the specific non-audit services proscribed by law or regulation. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any Audit Committee member to whom pre-approval authority is delegated must be presented to the full Audit Committee at its next scheduled meeting. If any services other than audit services are rendered by our independent registered public accounting firm, the Audit Committee determines whether such services are compatible with maintaining our independent registered public accounting firm's independence. All services performed by our independent registered public accounting firm were pre-approved by the Audit Committee.
| Item 15. | Exhibits and Financial Statement Schedules |
(a) Exhibits and List of documents filed as part of this report: 1.Financial Statement SchedulesStatements: ‒ | Report of Independent Registered Public Accounting Firm |
(a)List of documents filed as part of this report:‒ | Consolidated Balance Sheets: December 31, 2013 and 2012 |
1.Financial Statements:
‒ | Report of Independent Registered Public Accounting Firm |
‒ | Consolidated Balance Sheets:‒ | Consolidated Statements of Operations: Years ended December 31, 2013 and 2012 |
‒ | Consolidated Statements of Comprehensive Loss: Years ended December 31, 2013 and 2012 |
‒ | Consolidated Statements of Stockholders' Equity: Years ended December 31, 2013 and 2012 |
‒ | Consolidated Statements of Cash Flows: Years ended December 31, 2013 and 2012 and 2011 |
‒ | Consolidated Statements of Operations: Years ended December 31, 2012 and 2011 |
‒ | Consolidated Statements of Comprehensive Income (Loss): Years ended December 31, 2012 and 2011 |
‒ | Consolidated Statements of Stockholders' Equity: Years ended December 31, 2012 and 2011 |
‒ | Consolidated Statements of Cash Flows: Years ended December 31, 2012 and 2011 |
‒ | Notes to Consolidated Financial Statements |
2. Financial Statement Schedules: None 3. Exhibit Index The following is a list of exhibits filed as part of this Form 10-K: Exhibit No. | | | | 3.1 | | Certificate of Incorporation of The LGL Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on August 31, 2007). | | 3.2 | | The LGL Group, Inc. By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on August 31, 2007). | | 4.1 | | Warrant Agreement, dated as of July 30, 2013, by and among The LGL Group, Inc., Computershare Inc. and Computershare Trust Company, N.A. (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 14, 2013). | | 10.1 | | The LGL Group, Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K filed with the SEC on April 1, 1996). | | 10.2 | | The LGL Group, Inc. 2001 Equity Incentive Plan adopted December 10, 2001 (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 filed with the SEC on December 29, 2005). | | 10.3 | | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its directors (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | 10.4 | | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its executive officers (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | 10.5 | | The LGL Group, Inc. 2011 Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.6 | | Form of Stock Option Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.7 | | Form of Restricted Stock Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.8 | | Form of Indemnification Agreement by and between The LGL Group, Inc. and its executive officers and directors (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | 10.9 | | Employment Agreement, dated as of November 10, 2011, by and between The LGL Group, Inc. and Gregory P. Anderson (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on November 14, 2011). | | 10.10 | | Offer of Employment Letter, effective as of October 1, 2013, by and between The LGL Group, Inc. and Michael J. Ferrantino (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 7, 2013). | | 10.11 | | Employment Agreement, effective as of November 2, 2013, by and between The LGL Group, Inc. and Greg Anderson (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on October 7, 2013). | | 10.12 | | Master Loan Agreement, dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2011). | | 10.13 | | First Amendment to Master Loan Agreement, dated as of June 28, 2012, by and between M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 2, 2012). | | 10.14 | | Second Amendment to Master Loan Agreement, dated as of September 28, 2012, by and between M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2012). | | 10.15 | | Third Amendment to Master Loan Agreement, dated as of September 19, 2013, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on September 23, 2013). | | 10.16 | | Form of Revolving Loan Note, by M-tron Industries, Inc. and Piezo Technology, Inc. for the benefit of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2012). | | 10.17 | | Promissory Note (Term Loan), dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2011). | | 10.18 | | Second Renewal Revolving Promissory Note, dated as of June 30, 2013, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 2, 2013) | | 10.19 | | Assignment of Deposit Agreement, dated May 15, 2012, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on July 7, 2011). | | 10.20 | | Registration Rights Agreement, dated as of September 19, 2013, by and between the Company and Venator Merchant Fund L.P. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on September 19, 2013). | | 21.1 | | Subsidiaries of The LGL Group, Inc.* | | 23.1 | | Consent of Independent Registered Public Accounting Firm – McGladrey LLP.* | | 31.1 | | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | 31.2 | | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | 32.1 | | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | | 32.2 | | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | 101.INS | | XBRL Instance Document** | 101.SCH | | XBRL Taxonomy Extension Schema Document** | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document** | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document** | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document** | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document** |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Exchange Act and otherwise are not subject to liability under those sections. |
The exhibits listed above have been filed separately with the SEC in conjunction with this Annual Report on Form 10-K filed with the SEC on April 1, 1996). | | 10.2 | | The LGL Group, Inc. 2001 Equity Incentive Plan adopted December 10, 2001 (incorporatedor have been incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 filed with the SEC on December 29, 2005). | | 10.3 | | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its directors (incorporated by reference to Exhibit 10.10 to the Company'sinto this Annual Report on Form 10-K filed with10-K. Upon request, the SEC on March 24, 2011). | | 10.4 | | FormCompany will furnish to each of Restricted Stock Agreement (2001 Equity Incentive Plan) by and betweenits stockholders a copy of any such exhibit. Requests should be addressed to the Corporate Secretary, The LGL Group, Inc. and each of its executive officers (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | 10.5 | | The LGL Group, Inc. 2011 Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.6 | | Form of Stock Option Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.7 | | Form of Restricted Stock Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.8 | | Form of Indemnification Agreement by and between The LGL Group, Inc. and its executive officers and directors (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | 10.9 | | Employment Agreement, dated as of November 10, 2011, by and between The LGL Group, Inc. and Gregory P. Anderson (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on November 14, 2011). | | 10.10 | | Master Loan Agreement, dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2011). | | 10.11 | | First Amendment to Master Loan Agreement, dated as of June 28, 2012, by and between M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 2, 2012). | | 10.12 | | Second Amendment to Master Loan Agreement, dated as of September 28, 2012, by and between M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2012). | | 10.13 | | Form of Revolving Loan Note, by M-tron Industries, Inc. and Piezo Technology, Inc. for the benefit of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2012). | | 10.14 | | Promissory Note (Term Loan), dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2011). | | 10.15 | | Assignment of Deposit Agreement, dated May 15, 2012, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on July 7, 2011). | | 21.1 | | Subsidiaries of The LGL Group, Inc.* | | 23.1 | | Consent of Independent Registered Public Accounting Firm – McGladrey LLP.* | | 31.1 | | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | 31.2 | | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | 32.1 | | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | | 32.2 | | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | 101.INS | | XBRL Instance Document** | 101.SCH | | XBRL Taxonomy Extension Schema Document** | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document** | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document** | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document** | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document** |
2525 Shader Road, Orlando, Florida, 32804.
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Exchange Act and otherwise are not subject to liability under those sections. |
The exhibits listed above have been filed separately with the SEC in conjunction with this Annual Report on Form 10-K or have been incorporated by reference into this Annual Report on Form 10-K. Upon request, the Company will furnish to each of its stockholders a copy of any such exhibit. Requests should be addressed to the Corporate Secretary, The LGL Group, Inc., 2525 Shader Road, Orlando, Florida, 32804.
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. | | THE LGL GROUP, INC. | | | | | | | April 1, 2013 | | THE LGL GROUP, INC. | | | | | | | March 31, 2014 | | By: | /s/ Gregory P. Anderson | | | | Gregory P. Anderson | | | | President and Chief Executive Officer (Principal Executive Officer) | | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE | CAPACITY | DATE | | | | /s/ Gregory P. Anderson | President and Chief Executive Officer | March 31, 2014 | GREGORY P. ANDERSON | (Principal Executive Officer) | | /s/ R. LaDuane Clifton | Chief Financial Officer | March 31, 2014 | R. LADUANE CLIFTON | (Principal Financial Officer) | | /s/ James L. Williams | Corporate Controller | March 31, 2014 | JAMES L. WILLIAMS | (Principal Accounting Officer) | | /s/ Marc J. Gabelli | Chairman of the Board of Directors | March 31, 2014 | MARC J. GABELLI | (Non-Executive) | | /s/ Michael J. Ferrantino, Sr. | Vice-Chairman of the Board of Directors | March 31, 2014 | MICHAEL J. FERRANTINO, SR. | (Executive) | | | | | /s/ Patrick J. Guarino | Director | March 31, 2014 | PATRICK J. GUARINO | (Lead Independent Director) | | /s/ James Abel | Director | March 31, 2014 | JAMES ABEL | | | /s/ Michael Chiu | Director | March 31, 2014 | MICHAEL CHIU | | | /s/ Vincent Enright | Director | March 31, 2014 | VINCENT ENRIGHT | | | /s/ Timothy Foufas | Director | March 31, 2014 | TIMOTHY FOUFAS | | | /s/ Donald H. Hunter | Director | March 31, 2014 | DONALD H. HUNTER | | | /s/ Manjit Kalha | Director | March 31, 2014 | MANJIT KALHA | | | |
/s/ Gregory P. Anderson
| President and Chief Executive Officer | April 1, 2013 | GREGORY P. ANDERSON | (Principal Executive Officer) | | /s/ R. LaDuane Clifton
| Chief Financial Officer38 | April 1, 2013 | R. LADUANE CLIFTON | (Principal Financial Officer) |
| /s/ James L. Williams
| Corporate Controller
| April 1, 2013 | JAMES L. WILLIAMS | (PrincipalReport of Independent Registered Public Accounting Officer) | | /s/ Marc J. Gabelli
| Firm Chairman of
To the Board of Directors | April 1, 2013 | MARC J. GABELLI | (Non-Executive) and Stockholders
The LGL Group, Inc. |
|
We have audited the accompanying consolidated balance sheets of The LGL Group, Inc. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The LGL Group, Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Patrick J. Guarino | Director | April 1, 2013 | PATRICK J. GUARINOMcGladrey LLP
| (Lead Independent Director) | | /s/ James Abel
| Director | April 1, 2013 | JAMES ABEL
| | | /s/ Michael Chiu
| Director | April 1, 2013 | MICHAEL CHIU
| | | /s/ Vincent Enright
| Director | April 1, 2013 | VINCENT ENRIGHTOrlando, Florida
March 31, 2014 | | | /s/ Timothy Foufas
| Director | April 1, 2013 | TIMOTHY FOUFAS
| | | /s/ Donald H. Hunter
| Director | April 1, 2013 | DONALD H. HUNTER
| THE LGL GROUP, INC. | CONSOLIDATED BALANCE SHEETS | /s/ Manjit Kalha
| Director | April 1,(Dollars in Thousands)
| | December 31, | | ASSETS | | 2013 | | | 2012 | | Current Assets: | | | | | | | Cash and cash equivalents (Note A) | | $ | 7,183 | | | $ | 8,625 | | Restricted cash (Note C) | | | 1,500 | | | | 1,500 | | Accounts receivable, less allowances of $42 and $79, respectively (Note A) | | | 3,237 | | | | 4,350 | | Inventories, net (Notes A and B) | | | 4,629 | | | | 5,349 | | Deferred income taxes (Notes A and F) | | | — | | | | 1,114 | | Prepaid expenses and other current assets | | | 405 | | | | 665 | | Total Current Assets | | | 16,954 | | | | 21,603 | | Property, Plant and Equipment (Note A) | | | | | | | | | Land | | | 633 | | | | 640 | | Buildings and improvements | | | 3,908 | | | | 3,785 | | Machinery and equipment | | | 15,980 | | | | 15,655 | | Gross property, plant and equipment | | | 20,521 | | | | 20,080 | | Less: accumulated depreciation | | | (16,535 | ) | | | (15,373 | ) | Net property, plant, and equipment | | | 3,986 | | | | 4,707 | | Deferred income taxes, net (Notes A and F) | | | — | | | | 2,808 | | Other assets, net | | | 323 | | | | 475 | | Total Assets | | $ | 21,263 | | | $ | 29,593 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | Current Liabilities: | | | | | | | | | Note payable to bank (Note C) | | $ | 1,181 | | | $ | 1,249 | | Accounts payable | | | 1,978 | | | | 2,452 | | Accrued compensation and commissions expense | | | 992 | | | | 1,011 | | Other accrued expenses | | | 357 | | | | 209 | | Current maturities of long-term debt (Note C) | | | — | | | | 58 | | Total Current Liabilities | | | 4,508 | | | | 4,979 | | Long-term debt, net of current portion (Note C) | | | — | | | | — | | Total Liabilities | | | 4,508 | | | | 4,979 | | Commitments and Contingencies (Notes C and K) | | | — | | | | — | | Stockholders' Equity | | | | | | | | | Common stock, $0.01 par value - 10,000,000 shares authorized; 2,674,448 shares issued and 2,594,784 shares outstanding at December 31, 2013, and 2,648,059 shares issued and 2,597,605 shares outstanding at December 31, 2012 | | �� | 27 | | | | 26 | | Additional paid-in capital | | | 28,593 | | | | 28,084 | | Accumulated deficit | | | (11,338 | ) | | | (3,119 | ) | Treasury stock | | | (572 | ) | | | (405 | ) | Accumulated other comprehensive income (Note G) | | | 45 | | | | 28 | | Total Stockholders' Equity | | | 16,755 | | | | 24,614 | | Total Liabilities and Stockholders' Equity | | $ | 21,263 | | | $ | 29,593 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
| | Years Ended December 31, | | | | 2013 | | | 2012 | | REVENUES | | $ | 26,201 | | | $ | 29,706 | | Costs and expenses: | | | | | | | | | Manufacturing cost of sales | | | 19,374 | | | | 21,966 | | Engineering, selling and administrative | | | 10,343 | | | | 9,522 | | Restructuring charges (Note N) | | | 648 | | | | — | | OPERATING LOSS | | | (4,164 | ) | | | (1,782 | ) | Other income (expense): | | | | | | | | | Interest expense, net | | | (43 | ) | | | (89 | ) | Other (expense) income, net | | | (64 | ) | | | 27 | | Total Other Expense | | | (107 | ) | | | (62 | ) | LOSS BEFORE INCOME TAXES | | | (4,271 | ) | | | (1,844 | ) | Income tax (provision) benefit (Note F) | | | (3,948 | ) | | | 524 | | | | | | | | | | | NET LOSS | | $ | (8,219 | ) | | $ | (1,320 | ) | | | | | | | | | | Weighted average number of shares used in basic and diluted EPS calculation | | | 2,595,362 | | | | 2,593,741 | | BASIC AND DILUTED NET (LOSS) INCOME PER COMMON SHARE (Note A) | | $ | (3.17 | ) | | $ | (0.51 | ) |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
| | Years Ended December 31, | | | | 2013 | | | 2012 | | NET LOSS | | $ | (8,219 | ) | | $ | (1,320 | ) | Other comprehensive income: | | | | | | | | | Unrealized gain on available-for-sale securities, net | | | 17 | | | | 3 | | TOTAL OTHER COMPREHENSIVE INCOME | | | 17 | | | | 3 | | COMPREHENSIVE LOSS | | $ | (8,202 | ) | | $ | (1,317 | ) |
See accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
| | Shares of Common Stock Outstanding | | | Common Stock | | | Additional Paid-In Capital | | | Accumulated Deficit | | | Treasury Stock | | | Accumulated Other Comprehensive Income | | | Total | | Balance at December 31, 2011 | | | 2,592,734 | | | $ | 26 | | | $ | 27,656 | | | $ | (1,799 | ) | | $ | (315 | ) | | $ | 25 | | | $ | 25,593 | | Net loss | | | — | | | | — | | | | — | | | | (1,320 | ) | | | — | | | | — | | | | (1,320 | ) | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | 3 | | Stock-based compensation | | | 19,871 | | | | — | | | | 428 | | | | — | | | | — | | | | — | | | | 428 | | Purchase of common stock for treasury | | | (15,000 | ) | | | — | | | | — | | | | — | | | | (90 | ) | | | — | | | | (90 | ) | Balance at December 31, 2012 | | | 2,597,605 | | | | 26 | | | | 28,084 | | | | (3,119 | ) | | | (405 | ) | | | 28 | | | | 24,614 | | Net loss | | | — | | | | — | | | | — | | | | (8,219 | ) | | | — | | | | — | | | | (8,219 | ) | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 17 | | | | 17 | | Stock-based compensation | | | 26,400 | | | | 1 | | | | 574 | | | | — | | | | — | | | | — | | | | 575 | | Purchase of common stock for treasury | | | (29,221 | ) | | | — | | | | — | | | | — | | | | (167 | ) | | | — | | | | (167 | ) | Warrant dividend issuance costs | | | 0 | | | | 0 | | | | (65 | ) | | | 0 | | | | 0 | | | | 0 | | | | (65 | ) | Balance at December 31, 2013 | | | 2,594,784 | | | $ | 27 | | | $ | 28,593 | | | $ | (11,338 | ) | | $ | (572 | ) | | $ | 45 | | | $ | 16,755 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
| | Years Ended December 31, | | | | 2013 | | | 2012 | | OPERATING ACTIVITIES | | | | | | | Net loss | | $ | (8,219 | ) | | $ | (1,320 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | Depreciation | | | 913 | | | | 729 | | Amortization of finite-lived intangible assets | | | 77 | | | | 76 | | Impairment of property, plant and equipment | | | 249 | | | | 0 | | Impairment of note receivable | | | 11 | | | | 40 | | Gain on disposal of property, plant and equipment | | | (21 | ) | | | 0 | | Stock-based compensation | | | 575 | | | | 428 | | Deferred income tax provision (benefit) | | | 3,922 | | | | (576 | ) | Changes in operating assets and liabilities: | | | | | | | | | Decrease (increase) in accounts receivable, net | | | 1,113 | | | | (41 | ) | Decrease in inventories, net | | | 720 | | | | 327 | | Decrease (increase) in other assets | | | 341 | | | | (402 | ) | (Decrease) increase in trade accounts payable, accrued compensation and commissions expense and other accrued liabilities | | | (345 | ) | | | 270 | | Net cash used in operating activities | | | (664 | ) | | | (469 | ) | | | | | | | | | | INVESTING ACTIVITIES | | | | | | | | | Capital expenditures | | | (448 | ) | | | (906 | ) | Proceeds from disposal of property, plant and equipment | | | 28 | | | | 0 | | Net cash used in investing activities | | | (420 | ) | | | (906 | ) | | | | | | | | | | FINANCING ACTIVITIES | | | | | | | | | Net repayments on note payable to bank | | | (68 | ) | | | (1,777 | ) | Increase in restricted cash | | | — | | | | (1,500 | ) | Purchase of treasury stock | | | (167 | ) | | | (90 | ) | Warrant dividend issuance costs | | | (65 | ) | | | 0 | | Principal payments of long-term debt | | | (58 | ) | | | (342 | ) | Net cash used in financing activities | | | (358 | ) | | | (3,709 | ) | | | | | | | | | | Decrease in cash and cash equivalents | | | (1,442 | ) | | | (5,084 | ) | Cash and cash equivalents at beginning of year | | | 8,625 | | | | 13,709 | | Cash and cash equivalents at end of year | | $ | 7,183 | | | $ | 8,625 | | | | | | | | | | | Supplemental Disclosure: | | | | | | | | | Cash paid for interest | | $ | 36 | | | $ | 95 | | Cash paid for income taxes | | $ | 21 | | | $ | 157 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.Accounting and Reporting Policies
Organization The LGL Group, Inc., incorporated in 1928 under the laws of the State of Indiana and reincorporated under the laws of the State of Delaware in 2007, is a holding company with subsidiaries engaged in manufacturing custom-designed, highly engineered electronic components. Information on the operations for its single segment and by geographic area of The LGL Group, Inc. and Subsidiaries (the "Company") is included in footnote "L. Segment Information."
As of December 31, 2013, | MANJIT KALHA | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
The LGL Group, Inc.
We have audited the accompanying consolidated balance sheets of The LGL Group, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The LGL Group, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ McGladrey LLP
Orlando, Florida
April 1, 2013
THE LGL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
| | December 31, | | ASSETS | | 2012 | | | 2011 | | Current Assets: | | | | | | | Cash and cash equivalents (Note A) | | $ | 8,625 | | | $ | 13,709 | | Restricted Cash (Note C) | | | 1,500 | | | | — | | Accounts receivable, less allowances of $79 and $131, respectively (Note A) | | | 4,350 | | | | 4,309 | | Inventories, net (Notes A and B) | | | 5,349 | | | | 5,676 | | Deferred income taxes (Notes A and F) | | | 1,114 | | | | 960 | | Prepaid expenses and other current assets | | | 665 | | | | 292 | | Total Current Assets | | | 21,603 | | | | 24,946 | | Property, Plant and Equipment (Note A) | | | | | | | | | Land | | | 640 | | | | 640 | | Buildings and improvements | | | 3,785 | | | | 3,620 | | Machinery and equipment | | | 15,655 | | | | 15,001 | | Gross property, plant and equipment | | | 20,080 | | | | 19,261 | | Less: accumulated depreciation | | | (15,373 | ) | | | (14,731 | ) | Net property, plant, and equipment | | | 4,707 | | | | 4,530 | | Deferred income taxes, net (Notes A and F) | | | 2,808 | | | | 2,385 | | Other assets, net | | | 475 | | | | 560 | | Total Assets | | $ | 29,593 | | | $ | 32,421 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | Current Liabilities: | | | | | | | | | Note payable to bank (Note C) | | $ | 1,249 | | | $ | 3,026 | | Accounts payable | | | 2,452 | | | | 1,755 | | Accrued compensation and commissions expense | | | 1,011 | | | | 1,102 | | Other accrued expenses | | | 209 | | | | 545 | | Current maturities of long-term debt (Note C) | | | 58 | | | | 400 | | Total Current Liabilities | | | 4,979 | | | | 6,828 | | Long-term debt, net of current portion (Note C) | | | — | | | | — | | Total Liabilities | | | 4,979 | | | | 6,828 | | Commitments and Contingencies (Notes C and K) | | | | | | | | | Stockholders' Equity | | | | | | | | | Common stock, $0.01 par value - 10,000,000 shares authorized; 2,648,059 shares issued and 2,597,605 shares outstanding at December 31, 2012, and 2,628,188 shares issued and 2,592,734 shares outstanding at December 31, 2011 | | | 26 | | | | 26 | | Additional paid-in capital | | | 28,084 | | | | 27,656 | | Accumulated deficit | | | (3,119 | ) | | | (1,799 | ) | Treasury stock | | | (405 | ) | | | (315 | ) | Accumulated other comprehensive income (Note G) | | | 28 | | | | 25 | | Total Stockholders' Equity | | | 24,614 | | | | 25,593 | | Total Liabilities and Stockholders' Equity | | $ | 29,593 | | | $ | 32,421 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
| | Years Ended December 31, | | | | 2012 | | | 2011 | | REVENUES | | $ | 29,706 | | | $ | 35,682 | | Costs and expenses: | | | | | | | | | Manufacturing cost of sales | | | 21,966 | | | | 24,918 | | Engineering, selling and administrative | | | 9,522 | | | | 10,090 | | OPERATING (LOSS) INCOME | | | (1,782 | ) | | | 674 | | Other income (expense): | | | | | | | | | Interest expense, net | | | (89 | ) | | | (109 | ) | Other income, net | | | 27 | | | | 2 | | Total Other Expense | | | (62 | ) | | | (107 | ) | (LOSS) INCOME BEFORE INCOME TAXES | | | (1,844 | ) | | | 567 | | Income tax benefit (provision) (Note F) | | | 524 | | | | (185 | ) | | | | | | | | | | NET(LOSS) INCOME | | $ | (1,320 | ) | | $ | 382 | | | | | | | | | | | Weighted average number of shares used in basic and diluted EPS calculation | | | 2,593,741 | | | | 2,572,825 | | BASIC AND DILUTED NET (LOSS) INCOME PER COMMON SHARE (Note A) | | $ | (0.51 | ) | | $ | 0.15 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
| | Years Ended December 31, | | | | 2012 | | | 2011 | | NET (LOSS) INCOME | | $ | (1,320 | ) | | $ | 382 | | Other comprehensive income: | | | | | | | | | Unrealized gain on available-for-sale securities | | | 3 | | | | 5 | | Deferred gain on swap liability on hedge contracts | | | — | | | | 58 | | TOTAL OTHER COMPREHENSIVE INCOME | | | 3 | | | | 63 | | COMPREHENSIVE (LOSS) INCOME | | $ | (1,317 | ) | | $ | 445 | | | | | | | | | | |
See accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
| | Shares of Common Stock Outstanding | | | Common Stock | | | Additional Paid-In Capital | | | Accumulated Deficit | | | Treasury Stock | | | Accumulated Other Comprehensive (Loss) Income | | | Total | | Balance at December 31, 2010 | | | 2,267,260 | | | $ | 22 | | | $ | 20,893 | | | $ | (2,181 | ) | | $ | — | | | $ | (38 | ) | | $ | 18,696 | | Net income | | | — | | | | — | | | | — | | | | 382 | | | | — | | | | — | | | | 382 | | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 63 | | | | 63 | | Stock-based compensation | | | 10,928 | | | | — | | | | 363 | | | | — | | | | — | | | | — | | | | 363 | | Issuance of new shares for capital offering, net of related expenses | | | 350,000 | | | | 4 | | | | 6,400 | | | | — | | | | — | | | | — | | | | 6,404 | | Purchase of common stock for treasury | | | (35,454 | ) | | | — | | | | — | | | | — | | | | (315 | ) | | | — | | | | (315 | ) | Balance at December 31, 2011 | | | 2,592,734 | | | | 26 | | | | 27,656 | | | | (1,799 | ) | | | (315 | ) | | | 25 | | | | 25,593 | | Net income | | | — | | | | — | | | | — | | | | (1,320 | ) | | | — | | | | — | | | | (1,320 | ) | Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | 3 | | Stock-based compensation | | | 19,871 | | | | — | | | | 428 | | | | — | | | | — | | | | — | | | | 428 | | Purchase of common stock for treasury | | | (15,000 | ) | | | — | | | | — | | | | — | | | | (90 | ) | | | — | | | | (90 | ) | Balance at December 31, 2012 | | | 2,597,605 | | | $ | 26 | | | $ | 28,084 | | | $ | (3,119 | ) | | $ | (405 | ) | | $ | 28 | | | $ | 24,614 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
| | Years Ended December 31, | | | | 2012 | | | 2011 | | OPERATING ACTIVITIES | | | | | | | Net (loss) income | | $ | (1,320 | ) | | $ | 382 | | Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | | | | | | | | Depreciation | | | 729 | | | | 699 | | Amortization of finite-lived intangible assets | | | 76 | | | | 144 | | Write-down of note receivable | | | 40 | | | | — | | Gain on disposal of Lynch property | | | — | | | | (6 | ) | Stock-based compensation | | | 428 | | | | 363 | | Deferred income tax (benefit) provision | | | (576 | ) | | | 5 | | Changes in operating assets and liabilities: | | | | | | | | | (Increase) decrease in accounts receivable, net | | | (41 | ) | | | 1,473 | | Decrease in inventories, net | | | 327 | | | | 271 | | Increase in other assets | | | (402 | ) | | | (115 | ) | Increase (decrease) in trade accounts payable, accrued compensation and commissions expense and other accrued liabilities | | | 270 | | | | (895 | ) | Net cash provided by (used in) operating activities | | | (469 | ) | | | 2,321 | | | | | | | | | | | INVESTING ACTIVITIES | | | | | | | | | Capital expenditures | | | (906 | ) | | | (1,694 | ) | Net cash used in investing activities | | | (906 | ) | | | (1,694 | ) | | | | | | | | | | FINANCING ACTIVITIES | | | | | | | | | Net borrowings (repayments) on note payable to bank | | | (1,777 | ) | | | 3,026 | | Increase in restricted cash | | | (1,500 | ) | | | — | | Proceeds from issuance of common stock | | | — | | | | 6,562 | | Payment of expenses related to the public offering | | | — | | | | (69 | ) | Purchase of treasury stock | | | (90 | ) | | | (315 | ) | Proceeds from long-term debt | | | — | | | | 548 | | Principal payments of long-term debt | | | (342 | ) | | | (817 | ) | Net cash provided by (used in) financing activities | | | (3,709 | ) | | | 8,935 | | | | | | | | | | | (Decrease) increase in cash and cash equivalents | | | (5,084 | ) | | | 9,562 | | Cash and cash equivalents at beginning of year | | | 13,709 | | | | 4,147 | | Cash and cash equivalents at end of year | | $ | 8,625 | | | $ | 13,709 | | | | | | | | | | | Supplemental Disclosure: | | | | | | | | | Cash paid for interest | | $ | 95 | | | $ | 91 | | Cash paid for income taxes | | $ | 157 | | | $ | 433 | | Non-cash Investing Activity: | | | | | | | | | Note receivable obtained in sale of property by Lynch Systems, net of costs | | $ | — | | | $ | 299 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.Accounting and Reporting Policies
Organization
The LGL Group, Inc., incorporated in 1928 under the laws of the State of Indiana and reincorporated under the laws of the State of Delaware in 2007, is a holding company with subsidiaries engaged in manufacturing custom-designed, highly engineered electronic components. Information on the operations for its single segment and by geographic area of The LGL Group, Inc. and Subsidiaries (the "Company") is included in Note L — "Segment Information."
As of December 31, 2012, the subsidiaries of the Company are as follows:
| Owned By The LGL Group, Inc. | M-tron Industries, Inc. | 100.0% | M-tron Industries, Ltd. | 99.9% | Piezo Technology, Inc. | 100.0% | Piezo Technology India Private Ltd. | 99.0% | Lynch Systems, Inc. | 100.0% |
The LGL Group, Inc. | Company operates through its principal subsidiary, M-tron Industries, Inc. | 100.0% | , which includes the operations of M-tron Industries, Ltd. | 99.9% | ("Mtron") and Piezo Technology, Inc. ("PTI"). The combined operations of Mtron and PTI and their subsidiaries are referred to herein as "MtronPTI." MtronPTI has operations in Orlando, Florida, Yankton, South Dakota, Yantai, China and Noida, India. MtronPTI also has sales offices in Sacramento, California, Eindhoven, The Netherlands, Hong Kong and Shanghai, China. | 100.0% | Piezo Technology India Private Ltd.
| 99.0% | During 2007, the Company sold the operating assets of Lynch Systems, Inc. ("Lynch Systems"), a subsidiary of the Company, to an unrelated party. | 100.0% |
The Company operates through its principal subsidiary, M-tron Industries, Inc., which includes the operations of M-tron Industries, Ltd. ("Mtron") and Piezo Technology, Inc. ("PTI"). The combined operations of Mtron and PTI are referred to herein as "MtronPTI." MtronPTI has operations in Orlando, Florida, Yankton, South Dakota, Yantai, China, and Noida, India. In addition, MtronPTI has sales offices in Hong Kong and Shanghai, China. During 2007, the Company sold the operating assets of Lynch Systems, Inc. ("Lynch Systems"), a subsidiary of the Company, to an unrelated third party.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and entities for which it has control. Material intercompany transactions and accounts have been eliminated in consolidation.
Uses of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly-liquid investments with a maturity of less than three months when purchased.
Accounts Receivable
Accounts receivable on a consolidated basis consist principally of amounts due from both domestic and foreign customers. Credit is extended based on an evaluation of the customer's financial condition and collateral is not required. In relation to export sales, the Company requires letters of credit supporting a significant portion of the sales price prior to production to limit exposure to credit risk. Certain credit sales are made to industries that are
41
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and entities for which it has control. Material intercompany transactions and accounts have been eliminated in consolidation.
Uses of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly-liquid investments with a maturity of less than three months when purchased.
Accounts Receivable
Accounts receivable on a consolidated basis consist principally of amounts due from both domestic and foreign customers. Credit is extended based on an evaluation of the customer's financial condition and collateral is not required. In relation to export sales, the Company requires letters of credit supporting a significant portion of the sales price prior to production to limit exposure to credit risk. Certain credit sales are made to industries that are subject to cyclical economic changes. The Company maintains an allowance for doubtful accounts at a level that management believes is sufficient to cover potential credit losses. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimates are based on historical collection experience, current trends, credit policy and relationship between accounts receivable and revenues. In determining these estimates, the Company examines historical write-offs of its receivables and reviews each customer's account to identify any specific customer collection issues. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payment, additional allowances might be required. The Company's failure to estimate accurately the losses for doubtful accounts and ensure that payments are received on a timely basis could have a material adverse effect on its business, financial condition and results of operations.
Inventories
Inventories are stated at the lower of cost or market value using the FIFO (first-in, first-out) method. The Company maintains a reserve for inventory based on estimated losses that result from inventory that becomes obsolete or for which the Company has excess inventory levels as of period end. In determining these estimates, the Company performs an analysis on current demand and usage for each inventory item over historical time periods. Based on that analysis, the Company reserves a percentage of the inventory amount within each time period based on historical demand and usage patterns of specific items in inventory.
Property, Plant and Equipment, Net
Property, plant and equipment are recorded at cost less accumulated depreciation and include expenditures for additions and major improvements. Maintenance and repairs are charged to operations as incurred. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 5 years to 35 years for buildings and improvements, and from 3 to 10 years for other fixed assets. Property, plant, and equipment are periodically reviewed for indicators of impairment. If any such indicators were noted, the Company would assess the appropriateness of the assets' carrying value and record any impairment at that time.
Depreciation expense from operations was approximately $913,000 for 2013 and $729,000 for 2012.
On July 28, 2011, the Company sold certain real property located in Bainbridge, Georgia for $333, paid in the form of a promissory note, dated August 1, 2011, in the principal amount of $323, bearing interest at a rate of 7% per annum, with all interest and principal due and payable on August 1, 2013.
In July 2013, the Company entered into an Amended and Restated Promissory Note with Bbridge Holdings, LLC, for $238, with an initial maturity date of July 28, 2016, and an interest rate of 3.25%. If not paid sooner, interest and principal are due on maturity. The promissory note is secured by the remaining Bainbridge Property, a portion of which was leased long term during 2013. Bbridge Holdings, LLC used a portion of the lease proceeds to pay down a portion of the note.
Warranties
The Company offers a standard 1-year warranty. The Company tests its products prior to shipment in order to ensure that they meet each customer's requirements based upon specifications received from each customer at the time its order is received and accepted. The Company's customers may request to return products for various reasons, including but not limited to the customers' belief that the products are not performing to specification. The Company's return policy states that it will accept product returns only with prior authorization and if the product does not meet customer specifications, in which case the product would be replaced or repaired. To accommodate the Company's customers, each request for return is reviewed, and if and when it is approved, a return materials authorization ("RMA") is issued to the customer. Each month the Company records a specific warranty reserve for approved RMAs covering products that have not yet been returned. The Company does not maintain a general warranty reserve because, historically, valid warranty returns resulting from a product not meeting specifications or being non-functional have been de minimis.
subject to cyclical economic changes. The Company maintains an allowance for doubtful accounts at a level that management believes is sufficient to cover potential credit losses.
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimates are based on historical collection experience, current trends, credit policy and relationship between accounts receivable and revenues. In determining these estimates, the Company examines historical write-offs of its receivables and reviews each customer's account to identify any specific customer collection issues. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payment, additional allowances might be required. The Company's failure to estimate accurately the losses for doubtful accounts and ensure that payments are received on a timely basis could have a material adverse effect on its business, financial condition and results of operations.
Inventories
Inventories are stated at the lower of cost or market value using the FIFO (first-in, first-out) method.
The Company maintains a reserve for inventory based on estimated losses that result from inventory that becomes obsolete or for which the Company has excess inventory levels as of period end. In determining these estimates, the Company performs an analysis on current demand and usage for each inventory item over historical time periods. Based on that analysis, the Company reserves a percentage of the inventory amount within each time period based on historical demand and usage patterns of specific items in inventory.
Property, Plant and Equipment, Net
Property, plant and equipment are recorded at cost less accumulated depreciation and include expenditures for additions and major improvements. Maintenance and repairs are charged to operations as incurred. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 5 years to 35 years for buildings and improvements, and from 3 to 10 years for other fixed assets. Property, plant, and equipment are periodically reviewed for indicators of impairment. If any such indicators were noted, the Company would assess the appropriateness of the assets' carrying value and record any impairment at that time.
Depreciation expense from operations was approximately $729,000 for 2012 and $699,000 for 2011.
On July 28, 2011, the Company sold certain real property located in Bainbridge, Georgia for $322,610, paid in the form of a promissory note, dated August 1, 2011, in the principal amount of $322,610, bearing interest at a rate of 7% per annum, with all interest and principal due and payable on August 1, 2013. The real property was formerly used in connection with the operations of Lynch Systems, a subsidiary of the Company whose operating assets were sold in 2007. The promissory note is secured by the real property sold, and if any portion of such real property is re-sold prior to the note's maturity (any such re-sale subject to the Company's written consent), the Company will recoup 85% of the net proceeds from such re-sale transaction, up to the principal amount of the note and all accrued interest thereon. The note receivable is carried at its estimated net realizable value.
Warranties
The Company offers a standard one-year warranty. The Company tests its products prior to shipment in order to ensure that they meet each customer's requirements based upon specifications received from each customer at the time its order is received and accepted. The Company's customers may request to return products for various reasons, including but not limited to the customers' belief that the products are not performing to specification. The Company's return policy states that it will accept product returns only with prior authorization and if the product does not meet customer specifications, in which case the product would be replaced or repaired. To accommodate the Company's customers, each request for return is reviewed, and if and when it is approved, a return materials authorization ("RMA") is issued to the customer. Each month the Company records a specific warranty reserve for approved RMAs covering products that have not yet been returned. The Company does not maintain a general warranty reserve because, historically, valid warranty returns resulting from a product not meeting specifications or being non-functional have been de minimis.
Intangible Assets
Intangible assets are included in "other assets" and are recorded at cost less accumulated amortization. Amortization is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range up to 10 years. The intangible assets consist of customer relationships and goodwill. The net carrying value of the amortizable intangible assets was $96,000 and $156,000 as of December 31, 2012 and 2011, respectively. Goodwill, which is not amortizable, was $40,000 as of December 31, 2012 and 2011.
The estimated aggregate amortization expense for intangible assets, excluding goodwill, for each of the remaining years of the estimated useful life is as follows (in thousands):
2013 | | | 58 | | 2014 | | | 38 | | Total | | $ | 96 | |
Revenue Recognition
The Company recognizes revenue from the sale of its product in accordance with the criteria in Accounting Standards Codification ("ASC") 605, Revenue Recognition, which are:
‒ | persuasive evidence that an arrangement exists; |
‒ | the seller's price to the buyer is fixed and determinable; and |
‒ | collectability is reasonably assured. |
The Company meets these conditions upon shipment because title and risk of loss passes to the customer at that time. However, the Company offers a limited right of return and/or authorized price protection provisions in its agreements with certain electronic component distributors who resell the Company's products to original equipment manufacturers or electronic manufacturing services companies. As a result, the Company estimates and records a reserve for future returns and other charges against revenue at the time of shipment consistent with the terms of sale. The reserve is estimated based on historical experience with each respective distributor.
The Company recognizes revenue related to transactions with a right of return and/or authorized price protection provisions when the following conditions are met:
‒ | seller's price to the buyer is fixed or determinable at the date of sale; |
‒ | buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product; |
‒ | buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product; |
‒ | buyer acquiring the product for resale has economic substance apart from that provided by the seller; |
‒ | seller does not have obligations for future performance; and |
‒ | the amount of future returns can be reasonably estimated. |
Shipping Costs
Amounts billed to customers related to shipping and handling are classified as revenue, and the Company's shipping and handling costs are included in manufacturing cost of sales.
Research and Development Costs
Research and development costs are charged to operations as incurred. Such costs were $2,005,000 in 2012 compared with $1,878,000 in 2011, and are included within engineering, selling and administrative expenses.
Advertising Expense
Advertising costs are charged to operations as incurred. Such costs were $42,000 in 2012, compared with $99,000 in 2011.
Stock-Based Compensation
The Company measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the requisite service period, typically the vesting period.
The Company estimates the fair value of stock options on the grant date using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. There is no expected dividend rate. Historical Company information was the basis for the expected volatility assumption as the Company believes that the historical volatility over the life of the option is indicative of expected volatility in the future. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates with a remaining term equal to the expected term of the option. The Company also estimates forfeitures at the time of grant and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on past history of actual performance, a zero forfeiture rate has been assumed. Restricted stock grants are granted at a value equal to the market price of the Company's common stock on the date of the grant.
Restricted stock awards are granted at a value equal to the market price of the Company's common stock on the date of the grant.
Earnings Per Share
The Company computes earnings per share in accordance with ASC 260, Earnings Per Share ("ASC 260"). Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share adjusts basic earnings per share for the effects of stock options and other potentially dilutive financial instruments, only in the periods in which the effects are dilutive. Shares of restricted stock granted to members of the Board of Directors (the "Board") as a portion of their director fees are deemed to be participating as defined by ASC 260 and therefore are included in the computation of basic earnings per share.
For the years ended December 31, 2012 and 2011, there were options to purchase 130,000 shares and 90,000 shares, respectively, of common stock that were excluded from the diluted earnings per share computation because the impact of the assumed exercise of such stock options would have been anti-dilutive, based on the fact that their exercise price exceeded the market price of the common stock as of December 31, 2012 and 2011.
Income Taxes
The Company's deferred income tax assets represent (a) temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, and (b) the tax effects of net operating loss carry-forwards. Based on estimates, the carrying value of the Company's net deferred tax assets assumes that it is more likely than not that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions to utilize these assets in lieu of cash payments for taxes due. The Company's judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. If, in the future, the Company experiences losses for a sustained period of time, the Company may not be able to conclude that it is more likely than not that the Company will be able to generate sufficient future taxable income to realize its deferred tax assets. If this occurs, the Company may be required to increase the valuation allowance against the deferred tax assets resulting in additional income tax expense. The Company recognizes interest and/or penalties, if any, related to income tax matters in income tax expense.
Concentration Risk
In 2012, MtronPTI's largest customer, an electronics contract manufacturing company, accounted for $2,914,000, or 9.8%, of the Company's total revenues, compared to $3,680,000, or 10.3%, in 2011.
In 2012, approximately 15.4% of MtronPTI's revenue was attributable to finished products that were manufactured by an independent contract manufacturer with production locations in both Korea and China, compared to 14.7% for 2011.
A significant portion of MtronPTI's accounts receivable is concentrated with a relatively small number of customers. As of December 31, 2012, MtronPTI's three largest customers accounted for approximately $1,880,000 of accounts receivable, or 42.4% compared to approximately $1,441,000, or 33.4% at the end of 2011. The increase in concentration of accounts receivable results primarily from an increase in sales to a major customer with extended credit terms. The Company carefully evaluates the creditworthiness of its customers in deciding to extend credit, and utilized letters of credit to further limit credit risk for export sales. As a result of these policies, the Company has experienced very low historical bad debt expense and believes the related risk to be minimal.
At various times throughout the year and at December 31, 2012, some deposits held at financial institutions were in excess of federally insured limits. The Company has not experienced any losses related to these balances and believes the related risk to be minimal.
Segment Information
The Company reports segment information in accordance with ASC 280, Disclosures about Segments of an Enterprise and Related Information ("ASC 280"). ASC 280 requires companies to report financial and descriptive information for each operating segment based on management's internal organizational decision-making structure. See Note L to the Consolidated Financial Statements - "Segment Information" - for the detailed presentation of the Company's business segment.
Impairments of Long-Lived Assets
Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Management assesses the recoverability of the carrying cost of the assets based on a review of projected undiscounted cash flows. If an asset is held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market information, including appraisals or broker's estimates, and/or projected discounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset.
Financial Instruments
Cash and cash equivalents, trade accounts receivable, short-term borrowings, trade accounts payable, and accrued expenses are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The carrying amount of the Company's borrowings under its revolving line of credit approximates fair value, as the obligation bears interest at a floating rate. The fair value of the Company's long-term debt approximates cost based on its short-term nature.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, investments and trade accounts receivable.
The Company maintains cash and cash equivalents and short-term investments with various financial institutions. The Company's policy is designed to limit exposure to any one institution. At times, such amounts may exceed federally insured limits.
Foreign Currency Translation
The assets and liabilities of international operations are re-measured at the exchange rates in effect at the balance sheet date for monetary assets and liabilities and at historical rates for non-monetary assets and liabilities, with the related re-measurement gains or losses reported within the consolidated statement of operations. The results of international operations are re-measured at the monthly average exchange rates. The Company's foreign subsidiaries and respective operations' functional currency is the U.S. dollar. The Company has determined this based upon the majority of transactions with customers as well as inter-company transactions and parental support being based in U.S. dollars. The Company has recognized a re-measurement loss of $88,000 in 2012, and a re-measurement loss of $26,000 in 2011, which is included within other income, net in the consolidated statements of operations.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update 2013-02 ("ASU 2013-02"), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The new amendments will require an organization to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income – but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period, and to cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. The updated disclosures will not impact the Company's financial position or results of operations.
In January 2013, the FASB issued Accounting Standards Update 2013-01 ("ASU 2013-01"), Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amended guidance addresses disclosure of offsetting financial assets and liabilities. It requires entities to add disclosures showing both gross and net information about instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. The updated disclosures will be implemented retrospectively and will not impact the Company's financial position or results of operations.
In July 2012, the FASB issued Accounting Standards Update 2012-02 ("ASU 2012-02"), Intangibles- Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This standard is effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. This standard provides for an optional qualitative assessment for the testing of indefinite-lived intangible asset impairment to determine whether it is more likely than not that such asset is impaired. If it is concluded that this is the case, it is necessary to perform the currently prescribed quantitative impairment test by comparing the fair value of the indefinite-lived intangible asset with its carrying value. Otherwise, the quantitative impairment test is not required. The Company has chosen to adopt this standard as of December 31, 2012, and it did not have an impact on the consolidated financial statements as the Company does not have indefinite-lived intangible assets other than goodwill.
B.Inventories
The Company reduces the value of its inventories to market value when the market value is believed to be less than the cost of the item. The inventory reserve for obsolescence as of December 31, 2012 and December 31, 2011 was $2,318,000 and $1,942,000, respectively.
| | December 31, | | | | 2012 | | | 2011 | | | | (in thousands) | | Raw materials | | $ | 2,468 | | | $ | 2,864 | | Work in process | | | 1,604 | | | | 1,384 | | Finished goods | | | 1,277 | | | | 1,428 | | Total Inventories, net | | $ | 5,349 | | | $ | 5,676 | |
C.Note Payable to Banks and Long-Term Debt
| | December 31, 2012 | | | December 31, 2011 | | Notes Payable: | | (in thousands) | | MtronPTI revolving loan with J.P. Morgan Chase Bank, N.A. ("Chase") due June 30, 2013. The loan bears interest at the greater of Chase's prime rate or the one-month LIBOR rate plus 2.50% per annum (3.25% at December 31, 2012), which is due and payable monthly. | | $ | 1,249 | | | $ | 3,026 | | | | | | | | | | | Long-Term Debt: | | | | | | | | | MtronPTI term loan with Chase due January 31, 2013. The note bears interest at a fixed rate of 5.00%. Principal and interest are due and payable in monthly installments of $29,500 | | | 58 | | | | 400 | | | | | | | | | | | Less: Current maturities | | | 58 | | | | 400 | | Long-Term Debt | | $ | — | | | $ | — | |
On June 30, 2011, certain of the Company's subsidiaries, together referred to as MtronPTI, entered into a loan agreement with Chase (the "Chase Loan Agreement"). The Chase Loan Agreement currently provides for a revolving line of credit in the amount of $1,500,000, to be used solely for working capital needs (the "Chase Revolving Loan"). The Chase Loan Agreement previously provided for a commercial line of credit in the amount of $2,000,000 (the "Chase Commercial Loan"), which expired on June 30, 2012 and was not renewed, and a term loan that was paid in full February 7, 2013. There was no amount outstanding under the Chase Commercial Loan at the time it expired on June 30, 2012, or at December 31, 2011.
At December 31, 2012, MtronPTI had $1,249,000 outstanding under the Chase Revolving Loan and available borrowing capacity of $251,000 under the Chase Revolving Loan.
All outstanding obligations of MtronPTI under the Chase Loan Agreement are collateralized by a first priority security interest in all of the assets of MtronPTI, excluding real property. Additionally, in connection with the Chase Loan Agreement, PTI entered into a separate agreement with Chase providing that PTI would not mortgage or otherwise encumber certain real property it owns in Florida while any credit facility is outstanding under the Chase Loan Agreement.
The Chase Loan Agreement also contains a variety of affirmative and negative covenants, including, but not limited to, a financial covenant that MtronPTI maintain tangible net worth not less than $8,000,000.
On June 28, 2012, MtronPTI entered into a First Amendment to Master Loan Agreement with Chase, which amended the Chase Loan Agreement to delete financial covenants relating to the maintenance of minimum levels of net income and a minimum debt service coverage ratio. On May 15, 2012, MtronPTI made a cash collateral deposit of $4,000,000 with Chase as additional security for its obligations under the Chase Loan Agreement and entered into an Assignment of Deposit agreement with Chase providing Chase with a security interest in the account holding the deposit.
On September 28, 2012, MtronPTI entered into a Second Amendment to Master Loan Agreement with Chase, which (i) amended the minimum tangible net worth covenant to set the amount at not less than $8,000,000, (ii) provided for the renewal and reduction of the Chase Revolving Loan to $1,500,000 and (iii) adjusted the requirements for calculating the Chase Revolving Loan borrowing base. In connection with the reduction of the Chase Revolving Loan, Chase reduced the amount of cash collateral deposit secured by the Assignment of Deposit agreement to $1,500,000.
The amount of the cash collateral deposit with Chase is included in restricted cash in the accompanying condensed consolidated balance sheet as of December 31, 2012. The related Assignment of Deposit agreement restricts MtronPTI's ability to withdraw any portion of the deposit and does not allow MtronPTI to assign the deposit or any part thereof.
As of December 31, 2012, MtronPTI was in compliance with all covenants under the Chase Loan Agreement.
D.Related Party Transactions
At December 31, 2012, the Company had $8,625,000 of cash and cash equivalents compared with $13,709,000 at December 31, 2011. Of this amount, $6,239,000 at December 31, 2012, compared with $10,087,000 at December 31, 2011, was invested in United States Treasury money market funds managed by a related entity (the "Fund Manager") which is related through two common directors. One of the Company's directors, who is also a 10% stockholder, currently serves as a director and executive officer of the Fund Manager. Another of the Company's directors serves as a director and audit committee member of the Fund Manager. The fund transactions in 2012 and 2011 were directed solely at the discretion of Company management.
E.Stock-Based Compensation
The Company measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the requisite service period, typically the vesting period.
On August 4, 2011, the Company's stockholders approved the 2011 Incentive Plan. 500,000 shares of common stock are authorized for issuance under the 2011 Incentive Plan. After the 2011 Incentive Plan was approved by the Company's stockholders on August 4, 2011, the 2001 Equity Incentive Plan was terminated pursuant to a Board resolution.
On August 9, 2012, the Board granted options to purchase a total of 40,000 shares of the Company's common stock to members of senior management. These stock options have an exercise price of $10.00, have a five-year life expiring on August 9, 2017, and vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. The weighted average grant date fair value was $2.44 and the total stock compensation related expense for this grant for the year ended December 31, 2012, was approximately $12,000. The unrecognized compensation expense related to these options of approximately $86,000 as of December 31, 2012, will be recognized over a weighted average period of 2.7 years.
On March 14, 2011, the Company granted options to purchase a total of 90,000 shares of the Company's common stock to members of senior management and directors. These stock options have an exercise price of $22.50, have a five-year life expiring on March 14, 2016, and vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. The weighted average grant date fair value was $9.82 and the total stock compensation related expense for this grant for the years ended December 31, 2012 and 2011, was approximately $265,000 and $211,000, respectively. The unrecognized compensation expense related to these options as of December 31, 2012, was $409,000 and will be recognized over a weighted average period of 1.2 years.
The following table summarizes the inputs to the option valuation model for the options granted during the years ended December 31, 2012 and 2011:
| 2012 | 2011 | Expected volatility | 79% | 91% | Dividend rate | 0% | 0% | Expected term (in years) | 3.45 | 3.45 | Risk-free rate | 0.38% | 1.11% | Forfeiture rate | 0% | 0% |
The Company bases expected volatility on the weighted average historical stock volatility. There is no dividend rate. The expected term utilizes historical data to estimate the period of time that the options are expected to remain unexercised. The Company bases risk-free rates on the U.S. Treasury zero-coupon rates with a remaining term equal to the expected term of the option. The Company also estimates forfeitures at the time of grant and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based upon past history of actual performance, a zero forfeiture rate has been assumed.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2012 as well as activity during the year then ended:
| | Number of Stock Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | | Outstanding at December 31, 2010 | | | — | | | $ | — | | | | — | | | $ | — | | Granted during 2011 | | | 90,000 | | | | 22.50 | | | | 3.2 | | | | — | | Exercised during 2011 | | | — | | | | — | | | | — | | | | — | | Forfeited during 2011 | | | — | | | | — | | | | — | | | | — | | Expired during 2011 | | | — | | | | — | | | | — | | | | — | | Outstanding at December 31, 2011 | | | 90,000 | | | | 22.50 | | | | 3.2 | | | | — | | Granted during 2012 | | | 40,000 | | | | 10.00 | | | | 4.6 | | | | — | | Exercised during 2012 | | | — | | | | — | | | | — | | | | — | | Forfeited during 2012 | | | — | | | | — | | | | — | | | | — | | Expired during 2012 | | | — | | | | — | | | | — | | | | — | | Outstanding at December 31, 2012 | | | 130,000 | | | $ | 18.65 | | | | 3.6 | | | $ | — | | Exercisable at December 31, 2012 | | | 27,000 | | | $ | 22.50 | | | | 3.2 | | | $ | — | |
Restricted stock awards are granted at a value equal to the market price of the Company's common stock on the date of the grant. On December 15, 2010, the Company granted a total of 12,647 restricted shares of common stock to 12 employees of the Company. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. On December 30, 2011, the Company granted a total of 10,928 restricted shares of common stock to its directors as a portion of their base director compensation for 2012. These shares vested immediately on the grant date. On February 29, 2012, the Company granted a total of 7,132 restricted shares to 14 employees of the Company. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. On December 17, 2012, the Company granted a total of 13,650 restricted shares of common stock to its directors as a portion of their base director compensation for 2013. These shares vested immediately on the grant date. Total stock compensation related expense for these grants for the years ended December 31, 2012 and 2011, was approximately $151,000 and $152,000, respectively. The unrecognized compensation expense related to these awards was approximately $132,000 as of December 31, 2012, which the Company will recognize over a weighted average period of 1.7 years. The total fair value of shares vested during the year ended December 31, 2012, was approximately $88,000.
The following table summarizes information about restricted stock grants outstanding at December 31, 2012 as well as activity during the year then ended:
| | Number of Stock Grants | | | Weighted Average Grant Date Fair Value per Share | | Outstanding non vested at December 31, 2010 | | | 12,647 | | | $ | 18.90 | | Granted during 2011 | | | 10,928 | | | | 7.33 | | Vested during 2011 | | | (14,714 | ) | | | 10.31 | | Forfeited during 2011 | | | — | | | | — | | Outstanding non vested at December 31, 2011 | | | 8,861 | | | | 18.90 | | Granted during 2012 | | | 20,782 | | | | 6.27 | | Vested during 2012 | | | (17,182 | ) | | | 7.96 | | Forfeited during 2012 | | | (918 | ) | | | 15.36 | | Outstanding non vested at December 31, 2012 | | | 11,543 | | | $ | 12.72 | |
The 2011 Incentive Plan had 428,290 shares remaining available for future issuance at December 31, 2012.
F.Income Taxes
The Company files consolidated federal income tax returns, which includes all U.S. subsidiaries.
The Company has a total federal net operating loss ("NOL") carry-forward of $6,223,000 as of December 31, 2012. This NOL carry-forward expires through 2032 if not utilized prior to that date. The Company has a total state NOL carry-forward of $14,817,000 as of December 31, 2012. These NOL carry-forwards expire through 2032 if not utilized prior to that date. The Company has research and development tax credit carry-forwards of approximately $994,000 at December 31, 2012, that can be used to reduce future income tax liabilities and expire principally between 2020 and 2031. The Company has foreign tax credit carry-forwards of approximately $359,000 at December 31, 2012, that are available to reduce future U.S. income tax liabilities subject to certain limitations. These foreign tax credit carry-forwards expire at various times between 2018 and 2020. Additionally, the Company has federal alternative minimum tax ("AMT") credits of approximately $111,000 at December 31, 2012, that are available to offset future federal alternative minimum tax liabilities, and have no expiration.
Deferred income taxes for 2012 and 2011 were provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Tax effects of temporary differences and carry-forwards at December 31, 2012 and 2011, are as follows:
| | December 31, 2012 | | | December 31, 2011 | | | | Deferred Tax | | | Deferred Tax | | | | Asset | | | Liability | | | Asset | | | Liability | | | | (in thousands) | | Inventory reserve | | $ | 1,022 | | | $ | — | | | $ | 737 | | | $ | — | | Fixed assets | | | — | | | | 443 | | | | — | | | | 528 | | Other reserves and accruals | | | 92 | | | | — | | | | 224 | | | | — | | Stock-based compensation | | | 173 | | | | — | | | | 77 | | | | — | | Undistributed foreign earnings | | | — | | | | 725 | | | | — | | | | 919 | | Other | | | — | | | | 35 | | | | — | | | | 57 | | Tax credit carry-forwards | | | 1,464 | | | | — | | | | 1,557 | | | | — | | Federal tax loss carry-forwards | | | 2,116 | | | | — | | | | 2,020 | | | | — | | State tax loss carry-forwards | | | 513 | | | | — | | | | — | | | | — | | Foreign tax loss carry-forwards | | | 52 | | | | — | | | | 497 | | | | — | | Total deferred income taxes | | | 5,432 | | | $ | 1,203 | | | | 5,112 | | | $ | 1,504 | | Valuation allowance | | | (307 | ) | | | | | | | (263 | ) | | | | | Net deferred tax assets | | $ | 5,125 | | | | | | | $ | 4,849 | | | | | |
At December 31, 2012, the net deferred tax assets of $3,922,000 presented in the Company's balance sheet comprises deferred tax assets of $5,125,000, offset by deferred tax liabilities of $1,203,000. At December 31, 2011, the net deferred tax assets of $3,345,000 presented in the Company's balance sheet comprises deferred tax assets of $4,849,000, offset by deferred tax liabilities of $1,504,000.
The provision (benefit) for income taxes is summarized as follows:
| | 2012 | | | 2011 | | | | (in thousands) | | Current: | | | | | | | Federal | | $ | — | | | $ | — | | State and local | | | 2 | | | | — | | Foreign | | | 50 | | | | 180 | | Total Current | | | 52 | | | | 180 | | | | | | | | | | | Deferred: | | | | | | | | | Federal | | | (527 | ) | | | 25 | | State and local | | | 3 | | | | (20 | ) | Foreign | | | (52 | ) | | | — | | Total Deferred | | | (576 | ) | | | 5 | | | | $ | (524 | ) | | $ | 185 | |
A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes:
| | 2012 | | | 2011 | | | | (in thousands) | | | | | | | | | Tax provision at expected statutory rate | | $ | (627 | ) | | $ | 193 | | State taxes, net of federal benefit | | | 6 | | | | (29 | ) | Permanent differences | | | 21 | | | | 17 | | Credits | | | — | | | | (217 | ) | Changes in estimated research and development credits | | | 93 | | | | — | | Foreign tax expense, and other | | | (16 | ) | | | 221 | | Change in valuation allowance for utilization of Georgia State net operating loss | | | (1 | ) | | | — | | Provision (benefit) for income taxes | | $ | (524 | ) | | $ | 185 | |
(Loss) income before income taxes from domestic operations was ($1,638,000) and ($473,000) in 2012 and 2011, respectively. Income (loss) before income taxes from foreign operations was $(206,000) and $1,075,000 in 2012 and 2011, respectively. At December 31, 2012, U.S. income taxes (benefit) have been provided on approximately ($315,000) of earnings (losses) of the Company's foreign subsidiaries, because these earnings (losses) are not considered to be indefinitely reinvested. As of December 31, 2012, earnings of non-U.S. subsidiaries considered to be indefinitely reinvested totaled $589,000.
Shipping Costs
Amounts billed to customers related to shipping and handling are classified as revenue, and the Company's shipping and handling costs are included in manufacturing cost of sales.
Research and Development Costs
Research and development costs are charged to operations as incurred. Such costs were $2,285,000 in 2013 compared with $2,005,000 in 2012, and are included within engineering, selling and administrative expenses.
Advertising Expense
Advertising costs are charged to operations as incurred. Such costs were $90,000 in 2013, compared with $42,000 in 2012, and are included within engineering, selling and administrative expenses.
Stock-Based Compensation
The Company measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the requisite service period, typically the vesting period. The Company estimates the fair value of stock options on the grant date using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. There is no expected dividend rate. Historical Company information was the basis for the expected volatility assumption as the Company believes that the historical volatility over the life of the option is indicative of expected volatility in the future. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates with a remaining term equal to the expected term of the option. The Company also estimates forfeitures at the time of grant and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on past history of actual performance, a five percent and zero percent forfeiture rate has been assumed for the years ended December 31, 2013 and 2012, respectively. Stock awards are made at a value equal to the market price of the Company's common stock on the date of the grant.
Earnings Per Share
The Company computes earnings per share in accordance with ASC 260, Earnings Per Share ("ASC 260"). Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share adjusts basic earnings per share for the effects of stock options and other potentially dilutive financial instruments, only in the periods in which the effects are dilutive. Shares of stock granted to members of the Board of Directors (the "Board") as a portion of their director fees are deemed to be participating as defined by ASC 260 and therefore are included in the computation of basic earnings per share.
For the years ended December 31, 2013 and 2012, there were options to purchase 177,861 shares and 130,000 shares, respectively, of common stock that were excluded from the diluted earnings per share computation because the impact of the assumed exercise of such stock options would have been anti-dilutive, based on the fact that their exercise price exceeded the market price of the common stock as of December 31, 2013 and 2012.
Income Taxes
The Company's deferred income tax assets represent (a) temporary differences between the financial statement carrying amount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, and (b) the tax effects of net operating loss carry-forwards. Based on the Company's assessment of the uncertainty surrounding the realization of the favorable U.S. tax attributes in future tax returns in accordance with the provisions of ASC 740, Income Taxes ("ASC 740"), the Company has determined that a full valuation allowance against our otherwise recognizable U.S. net deferred tax assets is required. The Company has recorded a full valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the ability to realize deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. The Company recognizes interest and/or penalties, if any, related to income tax matters in income tax expense.
Concentration Risk
In 2013, MtronPTI's largest customer, an electronics contract manufacturing company, accounted for $2,840,000, or 10.8% of the Company's total revenues, compared to $2,914,000, or 9.8%, in 2012.
In 2013, approximately 16.3% of MtronPTI's revenue was attributable to finished products that were manufactured by two independent contract manufacturers with production locations in both Korea and China, compared to 24.9%for 2012.
A significant portion of MtronPTI's accounts receivable is concentrated with a relatively small number of customers. As of December 31, 2013, three of MtronPTI's largest customers accounted for approximately $905,000 of accounts receivable, or 27.6% compared to approximately $1,880,000, or 42.4% at the end of 2012. The decrease in concentration of accounts receivable results primarily from a decrease in sales to these major customers. The Company carefully evaluates the creditworthiness of its customers in deciding to extend credit, and utilized letters of credit to further limit credit risk for export sales. As a result of these policies, the Company has experienced very low historical bad debt expense and believes the related risk to be minimal. At various times throughout the year and at December 31, 2013, some deposits held at financial institutions were in excess of federally insured limits. The Company has not experienced any losses related to these balances and believes the related risk to be minimal.
Segment Information
The Company reports segment information in accordance with ASC 280, Segment Information ("ASC 280"). ASC 280 requires companies to report financial and descriptive information for each operating segment based on management's internal organizational decision-making structure. See Note L to the Consolidated Financial Statements - "Segment Information" - for the detailed presentation of the Company's business segment.
Impairments of Long-Lived Assets
Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Long-lived assets are grouped with other assets to the lowest level to which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Management assesses the recoverability of the carrying cost of the assets based on a review of projected undiscounted cash flows. If an asset is held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market information, including appraisals or broker's estimates, and/or projected discounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset.
Financial Instruments
Cash and cash equivalents, trade accounts receivable, short-term borrowings, trade accounts payable, and accrued expenses are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The carrying amount of the Company's borrowings under its revolving line of credit approximates fair value, as the obligation bears interest at a floating rate. The fair value of the Company's long-term debt approximates cost based on its short-term nature. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents and trade accounts receivable. The Company maintains cash and cash equivalents and short-term investments with various financial institutions. The Company's policy is designed to limit exposure to any one institution. At times, such amounts may exceed federally insured limits.
Foreign Currency Translation
The assets and liabilities of international operations are re-measured at the exchange rates in effect at the balance sheet date for monetary assets and liabilities and at historical rates for non-monetary assets and liabilities, with the related re-measurement gains or losses reported within the consolidated statement of operations. The results of international operations are re-measured at the monthly average exchange rates. The Company's foreign subsidiaries and respective operations' functional currency is the U.S. dollar. The Company has determined this based upon the majority of transactions with customers as well as inter-company transactions and parental support being based in U.S. dollars. The Company has recognized a re-measurement loss of $86,000 in 2013, and a re-measurement loss of $88,000 in 2012, which is included within other income, net in the consolidated statements of operations.
Restructuring Charges The Company accounts for restructuring activities in accordance with ASC 420, Exit or Disposal Cost Obligations. Under the guidance for the cost of restructuring activities that do not constitute a discontinued operation, the liability for the current fair value of expected future costs associated with such restructuring activity shall be recognized in the period in which the liability is incurred. The Company segregates the costs of restructuring activities taken pursuant to a management approved restructuring plan. On October 17, 2013, management initiated a restructuring plan to realign our customer support operations across all of our locations with a target of reducing structural costs in an effort to gain efficiencies. Expenses related to this plan have resulted in a charge of approximately $648,000. For additional information see footnote "N. Restructuring Charges." Recently Issued Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This new guidance provides specific financial statement presentation requirements of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that an unrecognized tax benefit in those circumstances should be presented as a reduction to the deferred tax asset. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.
B.Inventories
The Company reduces the value of its inventories to market value when the market value is believed to be less than the cost of the item. The inventory reserve for obsolescence as of December 31, 2013 and December 31, 2012 was $2,586,000 and $2,318,000, respectively.
| December 31, | | | 2013 | | | 2012 | | | (in thousands) | | Raw materials | | $ | 1,834 | | | $ | 2,468 | | Work in process | | | 1,490 | | | | 1,604 | | Finished goods | | | 1,305 | | | | 1,277 | | Total Inventories, net | | $ | 4,629 | | | $ | 5,349 | |
C.Note Payable to Bank and Long-Term Debt
| | December 31, 2013 | | | December 31, 2012 | | Note Payable: | | (in thousands) | | MtronPTI revolving loan with J.P. Morgan Chase Bank, N.A. ("Chase") due June 30, 2014. The loan bears interest at the greater of Chase's prime rate or the one-month LIBOR rate plus 2.50% per annum (3.25% at December 31, 2013), which is due and payable monthly. | | $ | 1,181 | | | $ | 1,249 | | | | | | | | | | | Long-Term Debt: | | | | | | | | | MtronPTI term loan with Chase paid February 7, 2013. | | | - | | | | 58 | | | | | | | | | | | Less: Current maturities | | | - | | | | 58 | | Long-Term Debt | | $ | - | | | $ | - | |
On June 30, 2011, MtronPTI entered into a loan agreement with Chase, which was amended June 28, 2012, September 28, 2012, June 30, 2013 and September 19, 2013 (the "Chase Loan Agreement"). The Chase Loan Agreement provides for a revolving line of credit in the amount of $1,500,000, to be used solely for working capital needs (the "Chase Revolving Loan") and matures on June 30, 2014, provided that the Chase Loan Agreement may be extended for up to three 12-month renewal terms upon written request by MtronPTI and approval by Chase. The total borrowing capacity on the Chase Loan Agreement is subject to certain limitations on the borrowing base as defined in the Chase Loan Agreement.
At December 31, 2013, MtronPTI had approximately $1,181,000 outstanding under the Chase Revolving Loan and available borrowing capacity of approximately $319,000 under the Chase Revolving Loan.
All outstanding obligations of MtronPTI under the Chase Loan Agreement are collateralized by a first priority security interest in all of the assets of MtronPTI, excluding real property. Additionally, in connection with the Chase Loan Agreement, PTI entered into a separate agreement with Chase providing that PTI would not mortgage or otherwise encumber certain real property it owns in Florida while any credit facility is outstanding under the Chase Loan Agreement.
As additional security for MtronPTI's obligations under the Chase Loan Agreement, MtronPTI has made a cash collateral deposit of $1,500,000 with Chase and entered into an Assignment of Deposit agreement with Chase providing Chase with a security interest in the account holding the deposit. The amount of the cash collateral deposit with Chase is included in restricted cash in the accompanying consolidated balance sheet as of December 31, 2013. The related Assignment of Deposit agreement restricts MtronPTI's ability to withdraw any portion of the deposit and does not allow MtronPTI to assign the deposit or any part thereof.
The Chase Loan Agreement also contains a variety of affirmative and negative covenants, including, but not limited to, a financial covenant that MtronPTI maintain tangible net worth not less than $6,000,000. As of December 31, 2013, MtronPTI was not in compliance with the tangible net worth covenant under the Chase Loan Agreement. Based on the definition of tangible net worth under the Chase Loan Agreement, MtronPTI had a tangible net worth of $5,142,000 as of December 31, 2013, as compared to the minimum requirement of $6,000,000. Chase has waived non-compliance with this covenant as of December 31, 2013, in accordance with the terms of a letter agreement dated March 5, 2014.
D.Related Party Transactions
At December 31, 2013, the Company had $7,183,000 of cash and cash equivalents compared with $8,625,000 at December 31, 2012. Of this amount, at December 31, 2013 and December 31, 2012, approximately $5,589,000 and $6,239,000, respectively, was invested in United States Treasury money market funds managed by a related entity (the "Fund Manager") which is related through two common directors. One of the Company's directors, who is also a 10% stockholder, currently serves as a director and executive officer of the Fund Manager. Another of the Company's directors serves as a director and audit committee member of the Fund Manager. The fund transactions in 2013 and 2012 were directed solely at the discretion of Company management.
E.Stock-Based Compensation
The Company measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the requisite service period, typically the vesting period. On August 4, 2011, the Company's stockholders approved the 2011 Incentive Plan. 500,000 shares of common stock are authorized for issuance under the 2011 Incentive Plan. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to 10% above the market price of the Company's stock at the date of grant; those option awards generally have 5-year contractual terms and generally vest over three years. Restricted stock awards are granted at a value equal to the market price of the Company's common stock on the date of grant.
The following table summarizes the inputs to the option valuation model for the options granted during the years ended December 31, 2013 and 2012:
| | 2013 | | | 2012 | | Expected volatility | | | 66 | % | | | 79 | % | Dividend rate | | | 0 | % | | | 0 | % | Expected term (in years) | | | 3.45 | | | | 3.45 | | Risk-free rate | | | 0.38 | % | | | 0.38 | % | Forfeiture rate | | | 5 | % | | | 0 | % |
The Company bases expected volatility on the weighted average historical stock volatility. There is no dividend rate. The expected term utilizes historical data to estimate the period of time that the options are expected to remain unexercised. The Company bases risk-free rates on the U.S. Treasury zero-coupon rates with a remaining term equal to the expected term of the option. The Company also estimates forfeitures at the time of grant and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based upon past history of actual performance, a five percent and zero percent forfeiture rate has been assumed for options granted during 2013 and 2012, respectively.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2013 as well as activity during the year then ended:
| | Number of Stock Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | | Outstanding at December 31, 2012 | | | 130,000 | | | | 18.65 | | | | 2.6 | | | | — | | Granted during 2013 | | | 62,401 | | | | 7.26 | | | | 4.3 | | | | — | | Exercised during 2013 | | | — | | | | — | | | | — | | | | — | | Forfeited during 2013 | | | (14,540 | ) | | | 10.40 | | | | 3.8 | | | | — | | Expired during 2013 | | | — | | | | — | | | | — | | | | — | | Outstanding at December 31, 2013 | | | 177,861 | | | $ | 15.33 | | | | 3.1 | | | $ | — | | Exercisable at December 31, 2013 | | | 66,000 | | | $ | 20.23 | | | | 2.5 | | | $ | — | |
The weighted-average grant-date fair value of options granted during the years 2013 and 2012 was $2.33 and $2.44, respectively.
The following table summarizes information about the Company's nonvested stock awards as of December 31, 2013, as well as activity during the year then ended:
| | Number of Stock Awards | | | Weighted Average Grant Date Fair Value | | Nonvested at December 31, 2012 | | | 11,549 | | | | 12.72 | | Granted during 2013 | | | 27,864 | | | | 5.29 | | Vested during 2013 | | | (25,950 | ) | | | 7.56 | | Forfeited during 2013 | | | (1,475 | ) | | | 11.56 | | Nonvested at December 31, 2013 | | | 11,988 | | | $ | 6.74 | |
As of December 31, 2013, there was approximately $273,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2011 Incentive Plan and 2001 Equity Incentive Plan. That cost is to be recognized over a weighted average period of 1.5 years. The total fair value of shares vested during the year ended December 31, 2013, was approximately $132,000.
The 2011 Incentive Plan had 349,565 shares remaining available for future issuance at December 31, 2013. F.Income Taxes
Income tax provision (benefit) for the years ended December 31, 2013 and 2012 is as follows:
| | 2013 | | | 2012 | | | | (in thousands) | | Current: | | | | | | | Federal | | $ | — | | | $ | — | | State and local | | | 3 | | | | 2 | | Foreign | | | 23 | | | | 50 | | Total Current | | | 26 | | | | 52 | | | | | | | | | | | Deferred: | | | | | | | | | Federal | | | (1,463 | ) | | | (527 | ) | State and local | | | (51 | ) | | | 4 | | Foreign | | | (225 | ) | | | (52 | ) | Total before change in valuation allowance | | | (1,739 | ) | | | (575 | ) | Change in valuation allowance | | | 5,661 | | | | (1 | ) | Net Deferred | | | 3,922 | | | | (576 | ) | | | $ | 3,948 | | | $ | (524 | ) |
A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes:
| | 2013 | | | 2012 | | | | (in thousands) | | Tax provision at expected statutory rate | | $ | (1,452 | ) | | $ | (627 | ) | State taxes, net of federal benefit | | | (38 | ) | | | 6 | | Permanent differences | | | 25 | | | | 21 | | Credits | | | (184 | ) | | | — | | Changes in estimated research and development credits | | | — | | | | 93 | | Foreign tax expense, and other | | | (64 | ) | | | (16 | ) | Change in valuation allowance | | | 5,661 | | | | (1 | ) | Provision (benefit) for income taxes | | $ | 3,948 | | | $ | (524 | ) |
Loss before income taxes from domestic operations was ($2,872,000) and ($1,638,000) in 2013 and 2012, respectively. Loss before income taxes from foreign operations was ($1,399,000) and ($206,000) in 2013 and 2012, respectively. At December 31, 2013, U.S. income taxes benefit have been provided on approximately ($1,366,000) of losses of the Company's foreign subsidiaries, because these losses are not considered to be indefinitely reinvested. As of December 31, 2013, earnings of non-U.S. subsidiaries considered to be indefinitely reinvested totaled $556,000. No provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. taxes, reduced by any foreign tax credits available. It is not practicable to estimate the amount of additional tax that might be payable on this undistributed foreign income. The Company has a total federal net operating loss ("NOL") carry-forward of $7,607,000 as of December 31, 2013. This NOL carry-forward expires through 2033 if not utilized prior to that date. The Company has total state NOL carry-forwards of $14,559,000 as of December 31, 2013. These NOL carry-forwards expire through 2033 if not utilized prior to that date. The Company has research and development tax credit carry-forwards of approximately $1,178,000 at December 31, 2013, that can be used to reduce future income tax liabilities and expire principally between 2020 and 2033. The Company has foreign tax credit carry-forwards of approximately $359,000 at December 31, 2013, that are available to reduce future U.S. income tax liabilities subject to certain limitations. These foreign tax credit carry-forwards expire at various times between 2018 and 2020. Additionally, the Company has federal alternative minimum tax ("AMT") credits of approximately $111,000 at December 31, 2013, that are available to offset future federal tax liabilities, and have no expiration. Based on the Company's assessment of the uncertainty surrounding the realization of the favorable U.S. tax attributes in future tax returns in accordance with the provisions of ASC 740, the Company has determined that a full valuation allowance against our otherwise recognizable U.S. net deferred tax assets is required. The Company has recorded a full valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the ability to realize deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. As of December 31, 2012, the Company has a state NOL carry-forward of $14,817,000. Approximately $7,760,000 of the state NOL carry-forward relates to the State of Georgia and has been fully reserved based on the fact that the Company has no ability to generate taxable income in the State of Georgia that would allow the net operating loss carry-forward to be utilized in a future period. In 2012, the Company was able to utilize approximately $18,000 of the Georgia net operating losses to offset interest income earned in Georgia, realizing a state tax benefit of $1,000. The valuation allowance was $307,000 and $263,000 at December 31, 2012 and 2011, respectively.
The Company will recognize any interest and penalties related to unrecognized tax positions in income tax expense. At the date of adoption of ASC 740, the Company did not have a liability for unrecognized tax positions. In addition, the Company did not record any increases or decreases to its liability for unrecognized tax positions during the years ended December 31, 2012 or 2011. Accordingly, the Company has not accrued for any interest and penalties as of December 31, 2012 or 2011. The Company does not anticipate any change in its liability for unrecognized tax positions over the next fiscal year.
The Company files income tax returns in the U.S. Federal, various state, Hong Kong and India jurisdictions. The statute of limitations for assessment by the Internal Revenue Service ("IRS") and state tax authorities is open for tax years ended December 31, 2009, 2010 and 2011, although carry-forward attributes that were generated prior to tax year 2009, including net operating loss carry-forwards and tax credits, may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. The Company is generally subject to examinations by foreign tax authorities from 2006 to the present.
G.Other Comprehensive Income
Other comprehensive income includes the changes in fair value of investments classified as available-for-sale and the changes in fair values of derivatives designated as cash flow hedges.
For the year ended December 31, 2012, total comprehensive loss was $1,317,000, comprised of other comprehensive income, net of tax, of $3,000, less net loss of $1,320,000. Other comprehensive income included $3,000 from the unrealized increase in the market value of marketable securities (included in other current assets). As of December 31, 2012, accumulated other comprehensive income was approximately $28,000, and the change was comprised only of the change in the fair value of investments classified as available-for-sale, net of the related tax effect.
For the year ended December 31, 2011, total comprehensive income was $445,000, comprised of other comprehensive income, net of tax, of $63,000, plus net income of $382,000. Other comprehensive income included $5,000 from the unrealized increase in the market value of marketable securities (included in other current assets). The Company terminated an interest rate swap agreement with First National Bank of Omaha, and reclassified a loss of $14,000 from other comprehensive income to earnings for the period ended June 30, 2011. As of December 31, 2011, accumulated other comprehensive income was approximately $25,000, and the change was comprised only of the change in the fair value of investments classified as available-for-sale, net of the related tax effect.
H.Stockholders' Equity
On August 29, 2011, the Board authorized the Company to repurchase up to 100,000 shares of its common stock in accordance with applicable securities laws. This authorization increased the total number of shares authorized and available for repurchase under the Company's existing share repurchase program to 540,000 shares, at such times, amounts and prices as the Company shall deem appropriate. As of December 31, 2012, the Company had repurchased a total of 50,454 shares of common stock at a cost of $405,000, which shares are currently held in treasury.
On February 4, 2011, the Company completed a public offering of 350,000 shares of common stock at $20.00 per share. The aggregate number of shares sold reflects and includes the exercise in full by the underwriter of its over-allotment option to purchase 45,652 additional shares of common stock. The Company received net proceeds of $6,404,000 from the offering, after deducting the underwriting discounts and commissions and offering expenses. These proceeds have been and will continue to be used for general corporate purposes, including working capital and potential technology acquisitions or other strategic ventures.
I.Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value guidance identifies three primary valuation techniques: the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts such as cash flows or earnings, to a single present amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required.
Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the Company's own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.
Assets
To estimate the market value of its marketable securities, the Company obtains current market pricing from quoted market sources or uses pricing for identical securities. Assets measured at fair value on a recurring basis are summarized below.
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | | Equity securities | | $ | 44 | | | $ | — | | | $ | — | | | $ | 44 | | U.S. Treasury securities (cash equivalents) | | $ | 6,239 | | | $ | — | | | $ | — | | | $ | 6,239 | |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | | Equity securities | | $ | 40 | | | $ | — | | | $ | — | | | $ | 40 | | U.S. Treasury securities (cash equivalents) | | $ | 10,087 | | | $ | — | | | $ | — | | | $ | 10,087 | |
J.Employee Benefit Plans
The Company offers a defined contribution plan for eligible employees, in which the Company makes discretionary contributions up to 50% of the first 6% of eligible compensation contributed by participants. The Company reinstated the match in June 2011, and contributed approximately $106,000 and $59,000 for contributions during 2012 and 2011, respectively. Participants vest in employer contributions starting after their second year of service at 20% increments vesting 100% in year six.
K.Commitments and Contingencies
In the normal course of business, the Company and its subsidiaries may become defendants in certain product liability, patent infringement, worker claims and other litigation. The Company and its subsidiaries have no litigation pending at this time.
Rent Expense
Rent expense under operating leases was $320,000 and $282,000 for the years ended December 31, 2012 and 2011, respectively. The Company leases certain property and equipment, including warehousing, and sales and distribution equipment, under operating leases that extend from one to two years. Certain of these leases have renewal options.
L.Segment Information
The Company has one reportable business segment from operations: frequency control devices (quartz crystals and oscillators) that represent products manufactured and sold by MtronPTI. The Company's foreign operations in Hong Kong, India and China exist under MtronPTI.
Operating income (loss) is equal to revenues less costs of sales, operating expenses, excluding investment income, interest expense, and income taxes. Identifiable assets of each segment are the assets used by the segment in its operations excluding general corporate assets. General corporate assets are principally cash and cash equivalents, short-term investments and certain other investments and receivables.
| | Years Ended December 31, | | | | 2012 | | | 2011 | | | | (in thousands) | | Revenues from Operations | | | | | | | Frequency control devices – USA | | $ | 15,087 | | | $ | 15,645 | | Frequency control devices – Foreign | | | 14,619 | | | | 20,037 | | Total consolidated revenues | | $ | 29,706 | | | $ | 35,682 | | | | | | | | | | | Operating (Loss) Income from Operations | | | | | | | | | Frequency control devices | | $ | (345 | ) | | $ | 2,558 | | Unallocated corporate expense | | | (1,437 | ) | | | (1,884 | ) | Consolidated total operating (loss) income | | | (1,782 | ) | | | 674 | | Interest expense, net | | | (89 | ) | | | (109 | ) | Other income, net | | | 27 | | | | 2 | | Other loss | | | (62 | ) | | | (107 | ) | | | | | | | | | | (Loss) Income Before Income Taxes | | $ | (1,844 | ) | | $ | 567 | | | | | | | | | | | Capital Expenditures | | | | | | | | | Frequency control devices | | | 505 | | | | 1,211 | | General corporate | | | 401 | | | | 483 | | Total capital expenditures | | $ | 906 | | | $ | 1,694 | | | | | | | | | | | Total Assets | | | | | | | | | Frequency control devices | | $ | 19,493 | | | $ | 16,276 | | General corporate | | | 10,100 | | | | 15,808 | | Total assets from discontinued operations and Lynch Systems' remaining assets | | | — | | | | 337 | | Consolidated total assets | | $ | 29,593 | | | $ | 32,421 | |
M.Foreign Revenues
For years ended December 31, 2012 and 2011, significant foreign revenues from operations (10% or more of foreign sales) were as follows:
| | Years Ended December 31, | | | | 2012 | | | 2011 | | | | (in thousands) | | Frequency Control Devices - Significant | | | | | | | Foreign Revenues: | | | | | | | Malaysia | | $ | 4,651 | | | $ | 7,035 | | China | | | 3,802 | | | | 5,984 | | Thailand | | | 1,681 | | | | 1,907 | | All other foreign countries | | | 4,485 | | | | 5,111 | | Total foreign revenues | | $ | 14,619 | | | $ | 20,037 | |
The Company allocates its foreign revenue based on the customer's ship-to location.
N.Subsequent Events
On March 26, 2013, the Company's Board of Directors appointed Donald H. Hunter to serve as a member of the Board of Directors effective immediately. Mr. Hunter is currently Principal of Donald Hunter LLC, a consulting practice based in Wellesley, MA, and previously served as the Chief Operating Officer and Chief Financial Officer of Harbor Global Company Limited, a public company that owned international investment management and natural resources subsidiaries.
On March 26, 2013, the Company granted to its executive management 8,135 restricted shares of the Company's common stock under the 2011 Incentive Plan with a grant date fair value of $5.81 per share. The related compensation expense will be recognized over the vesting period. The shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date.
Further, on March 26, 2013, the Board granted options to purchase a total of 62,401 shares of the Company's common stock to members of executive management. These stock options have an exercise price of $7.26, have a five-year life expiring on March 25, 2018, and vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. These stock options have a grant date fair value of $2.33 per option.
Deferred income taxes for 2013 and 2012 were provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Tax effects of temporary differences and carry-forwards at December 31, 2013 and 2012, are as follows:
| | December 31, 2013 | | | December 31, 2012 | | | | Deferred Tax | | | Deferred Tax | | | | Asset | | | Liability | | | Asset | | | Liability | | | | (in thousands) | | Inventory reserve | | $ | 996 | | | $ | — | | | $ | 1,022 | | | $ | — | | Fixed assets | | | — | | | | 375 | | | | — | | | | 443 | | Other reserves and accruals | | | 90 | | | | — | | | | 92 | | | | — | | Stock-based compensation | | | 295 | | | | — | | | | 173 | | | | — | | Undistributed foreign earnings | | | — | | | | 14 | | | | — | | | | 725 | | Other | | | — | | | | 75 | | | | — | | | | 35 | | Tax credit carry-forwards | | | 1,648 | | | | — | | | | 1,464 | | | | — | | Federal tax loss carry-forwards | | | 2,586 | | | | — | | | | 2,116 | | | | — | | State tax loss carry-forwards | | | 541 | | | | — | | | | 513 | | | | — | | Foreign tax loss carry-forwards | | | 276 | | | | — | | | | 52 | | | | — | | Total deferred income taxes | | | 6,432 | | | $ | 464 | | | | 5,432 | | | $ | 1,203 | | Valuation allowance | | | (5,968 | ) | | | | | | | (307 | ) | | | | | Net deferred tax assets | | $ | 464 | | | | | | | $ | 5,125 | | | | | |
At December 31, 2013, the net deferred tax assets of $0 presented in the Company's balance sheet comprises deferred tax assets of $464,000, offset by deferred tax liabilities of $464,000. At December 31, 2012, the net deferred tax assets of $3,922,000 presented in the Company's balance sheet comprises deferred tax assets of $5,125,000, offset by deferred tax liabilities of $1,203,000. The Company will recognize any interest and penalties related to unrecognized tax positions in income tax expense. At the date of adoption of ASC 740, the Company did not have a liability for unrecognized tax positions. In addition, the Company did not record any increases or decreases to its liability for unrecognized tax positions during the years ended December 31, 2013 or 2012. Accordingly, the Company has not accrued for any interest and penalties as of December 31, 2013 or 2012. The Company does not anticipate any change in its liability for unrecognized tax positions over the next fiscal year. The Company files income tax returns in the U.S. Federal, various state, Hong Kong and India jurisdictions. The statute of limitations for assessment by the Internal Revenue Service ("IRS") and state tax authorities is open for tax years ended December 31, 2010, 2011 and 2012, although carry-forward attributes that were generated prior to tax year 2010, including net operating loss carry-forwards and tax credits, may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. The Company is generally subject to examinations by foreign tax authorities from 2007 to the present. G.Other Comprehensive Income
Other comprehensive income includes the changes in fair value of investments classified as available-for-sale.
For the year ended December 31, 2013, total comprehensive loss was $8,202,000, comprised of other comprehensive income, net of tax, of $17,000, less net loss of $8,219,000. Other comprehensive income included $17,000 from the unrealized increase in the market value of marketable securities (included in other current assets). As of December 31, 2013, accumulated other comprehensive income was approximately $45,000, and the change was comprised only of the change in the fair value of investments classified as available-for-sale, net of the related tax effect.
For the year ended December 31, 2012, total comprehensive loss was $1,317,000, comprised of other comprehensive income, net of tax, of $3,000, less net loss of $1,320,000. Other comprehensive income included $3,000 from the unrealized increase in the market value of marketable securities (included in other current assets). As of December 31, 2012, accumulated other comprehensive income was approximately $28,000, and the change was comprised only of the change in the fair value of investments classified as available-for-sale, net of the related tax effect.
H.Stockholders' Equity
On August 29, 2011, the Board authorized the Company to repurchase up to 100,000 shares of its common stock in accordance with applicable securities laws. This authorization increased the total number of shares authorized and available for repurchase under the Company's existing share repurchase program to 540,000 shares, at such times, amounts and prices as the Company shall deem appropriate. As of December 31, 2013, the Company had repurchased a total of 79,664 shares of common stock at a cost of $572,000, which shares are currently held in treasury.
On August 6, 2013, the Company distributed warrants to purchase shares of the Company's common stock as a dividend to holders of the Company's common stock on July 29, 2013, the record date for the dividend. Stockholders received five warrants for each share of the Company's common stock owned on the record date. When exercisable, 25 warrants will entitle their holder to purchase one share of the Company's common stock at an exercise price of $7.50 per share (subject to adjustment). The warrants are "European style warrants" and will only become exercisable on the earlier of (i) their expiration date, August 6, 2018, and (ii) such date that the 30-day volume weighted average price per share, or VWAP, of the Company's common stock is greater than or equal to $15.00 (subject to adjustment). Once the warrants become exercisable, they may be exercised in accordance with the terms of the warrant agreement between the Company and the warrant agent until their expiration at 5:00 p.m., Eastern Time, on the expiration date.
I.Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value guidance identifies three primary valuation techniques: the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts such as cash flows or earnings, to a single present amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required.
Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the Company's own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.
Assets
To estimate the market value of its marketable securities, the Company obtains current market pricing from quoted market sources or uses pricing for identical securities. Assets measured at fair value on a recurring basis are summarized below.
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total December 31, 2013 | | Equity securities | | $ | 61 | | | $ | – | | | $ | – | | | $ | 61 | | U.S. Treasury securities (cash equivalents) | | $ | 5,589 | | | $ | – | | | $ | – | | | $ | 5,589 | |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total December 31, 2012 | | Equity securities | | $ | 44 | | | $ | – | | | $ | – | | | $ | 44 | | U.S. Treasury securities (cash equivalents) | | $ | 6,239 | | | $ | – | | | $ | – | | | $ | 6,239 | |
The Company also has assets that may be subject to measurement at fair value on a non-recurring basis, including goodwill and intangible assets, and other long-lived assets. The Company reviews the carrying value of these assets whenever events and circumstances indicate that the carrying amounts of the assets may not be recoverable. If it is determined that the assets are impaired, the carrying value would be reduced to estimated fair value.
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total December 31, 2013 | | | Total Losses | | Long-lived assets held and used | | $ | - | | | $ | - | | | $ | - | | | | - | | | | (249 | ) |
In December 2013, long-lived assets held and used with a carrying amount of $249,000 were written off in connection with the Company's restructuring plan. For additional information see footnote "N. Restructuring Charges."
J.Employee Benefit Plans
The Company offers a defined contribution plan for eligible employees, in which the Company makes discretionary contributions up to 50% of the first 6% of eligible compensation contributed by participants. The Company contributed approximately $135,000 and $106,000 for contributions during 2013 and 2012, respectively. Participants vest in employer contributions starting after their second year of service at 20% increments vesting 100% in year six.
K.Commitments and Contingencies
In the normal course of business, the Company and its subsidiaries may become defendants in certain product liability, patent infringement, worker claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. The Company is not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which the Company believes will have a material adverse effect on the Company's business, financial condition or results of operations.
Rent Expense
Rent expense under operating leases was $377,000 and $320,000 for the years ended December 31, 2013 and 2012, respectively. The Company leases certain property and equipment, including warehousing, and sales and distribution equipment, under operating leases that extend from one to two years. Certain of these leases have renewal options.
L.Segment Information
The Company has one reportable business segment from operations: frequency control devices (quartz crystals and oscillators) that represent products manufactured and sold by MtronPTI. The Company's foreign operations in Hong Kong and India exist under MtronPTI.
Operating loss is equal to revenues less cost of sales, operating expenses, excluding investment income, interest expense, and income taxes. Identifiable assets of each segment are the assets used by the segment in its operations excluding general corporate assets. General corporate assets are principally cash and cash equivalents, short-term investments and certain other investments and receivables.
| | Years Ended December 31, | | | | 2013 | | | 2012 | | | | (in thousands) | | Revenues from Operations | | | | | | | Frequency control devices – USA | | $ | 13,797 | | | $ | 15,087 | | Frequency control devices – Foreign | | | 12,404 | | | | 14,619 | | Total consolidated revenues | | $ | 26,201 | | | | 29,706 | | | | | | | | | | | Operating Loss from Operations | | | | | | | | | Frequency control devices | | $ | (2,480 | ) | | $ | (345 | ) | Unallocated corporate expense | | | (1,684 | ) | | | (1,437 | ) | Consolidated total operating loss | | | (4,164 | ) | | | (1,782 | ) | Interest expense, net | | | (43 | ) | | | (89 | ) | Other (expense) income, net | | | (64 | ) | | | 27 | | Other loss | | | (107 | ) | | | (62 | ) | | | | | | | | | | Loss Before Income Taxes | | $ | (4,271 | ) | | $ | (1,844 | ) | | | | | | | | | | Capital Expenditures | | | | | | | | | Frequency control devices | | | 448 | | | | 505 | | General corporate | | | 0 | | | | 401 | | Total capital expenditures | | $ | 448 | | | $ | 906 | | | | | | | | | | | Total Assets | | | | | | | | | Frequency control devices | | $ | 16,053 | | | $ | 19,493 | | General corporate | | | 5,210 | | | | 10,100 | | Consolidated total assets | | $ | 21,263 | | | $ | 29,593 | |
M.Foreign Revenues
For years ended December 31, 2013 and 2012, significant foreign revenues from operations (10 % or more of foreign sales) were as follows:
| Years Ended December 31, | | | 2013 | | 2012 | | | (in thousands) | | | | | | | | | | | | Malaysia | | $ | 4,079 | | | $ | 4,651 | | China | | | 3,504 | | | | 3,802 | | Hong Kong | | | 1,448 | | | | 0 | | Thailand | | | 1,149 | | | | 1,681 | | All other foreign countries | | | 2,224 | | | | 4,485 | | Total foreign revenues | | $ | 12,404 | | | $ | 14,619 | |
The Company allocates its foreign revenue based on the customer's ship-to location.
N.Restructuring Charges On October 17, 2013, the Company's management initiated a restructuring plan to realign its customer support operations across all of the Company's locations and to reduce structural costs in an effort to gain efficiencies in providing customer support. As a result of these restructuring plans, the Company incurred restructuring charges during the fourth quarter of 2013 of $648,000. These restructuring charges consisted of approximately $292,000 of employee separation costs, $107,000 of other facility closure related costs and $249,000 of non-cash charges related to the impairment of assets. The charges for employee separation costs consisted of severance pay and other benefits. The costs related to these restructuring activities were recorded in the consolidated statements of operations as restructuring charges.
A reconciliation of the Company's restructuring liability, included as a component of other accrued expenses, is as follows: | | Employee Related | | | Other | | | Total | | Beginning balance, October 17, 2013 | | $ | 292,000 | | | $ | 107,000 | | $ | 399,000 | | Less: Cash payments | | | (273,000 | ) | | | (56,000 | ) | | (329,000 | ) | Ending balance, December 31, 2013 | | $ | 19,000 | | | $ | 51,000 | | $ | 70,000 | |
N.Subsequent Events
On January 31, 2014, MtronPTI entered into an asset purchase agreement with Trilithic Inc. ("Trilithic") pursuant to which it acquired certain of Trilithic's filter product line assets for cash consideration of $700,000. The acquired assets include intellectual property and equipment for Trilithic's fixed and tunable frequency filter products used in cellular, military and other wireless applications.
EXHIBIT INDEX | | | | 3.1 | | Certificate of Incorporation of The LGL Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on August 31, 2007). | | 3.2 | | The LGL Group, Inc. By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on August 31, 2007). | | 10.1 | | The LGL Group, Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K filed with the SEC on April 1, 1996). | | 10.2 | | The LGL Group, Inc. 2001 Equity Incentive Plan adopted December 10, 2001 (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 filed with the SEC on December 29, 2005). | | 10.3 | | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its directors (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | 10.4 | | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its executive officers (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | 10.5 | | The LGL Group, Inc. 2011 Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.6 | | Form of Stock Option Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.7 | | Form of Restricted Stock Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | 10.8 | | Form of Indemnification Agreement by and between The LGL Group, Inc. and its executive officers and directors (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | 10.9 | | Employment Agreement, dated as of November 10, 2011, by and between The LGL Group, Inc. and Gregory P. Anderson (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on November 14, 2011). | | 10.10 | | Master Loan Agreement, dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and J.P. MorganExhibit No. | | Description | | 3.1 | | Certificate of Incorporation of The LGL Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on August 31, 2007). | | | | | | 3.2 | | The LGL Group, Inc. By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on August 31, 2007). | | | | | | 10.1 | | The LGL Group, Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K filed with the SEC on April 1, 1996). | | | | | | 10.2 | | The LGL Group, Inc. 2001 Equity Incentive Plan adopted December 10, 2001 (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 filed with the SEC on December 29, 2005). | | | | | | 10.3 | | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its directors (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | | | | | 10.4 | | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its executive officers (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | | | | | 10.5 | | The LGL Group, Inc. 2011 Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | | | | | 10.6 | | Form of Stock Option Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | | | | | 10.7 | | Form of Restricted Stock Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed with the SEC on December 30, 2011). | | | | | | 10.8 | | Form of Indemnification Agreement by and between The LGL Group, Inc. and its executive officers and directors (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K filed with the SEC on March 24, 2011). | | | | | | 10.9 | | Employment Agreement, dated as of November 10, 2011, by and between The LGL Group, Inc. and Gregory P. Anderson (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on November 14, 2011). | | | | | | 10.10 | | Master Loan Agreement, dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2011). | | | | | | 10.11 | | First Amendment to Master Loan Agreement, dated as of June 28, 2012, by and between M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 2, 2012). |
| | | | 10.12 | | Second Amendment to Master Loan Agreement, dated as of September 28, 2012, by and between M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2012). | | 10.13 | | Form of Revolving Loan Note, by M-tron Industries, Inc. and Piezo Technology, Inc. for the benefit of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2012). | | 10.14 | | Promissory Note (Term Loan), dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2011). | | 10.15 | | Assignment of Deposit Agreement, dated May 15, 2012, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on July 7, 2011). | | | | | | | 10.12 | | Second Amendment to Master Loan Agreement, dated as of September 28, 2012, by and between M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2012). | | | | | | 10.13 | | Form of Revolving Loan Note, by M-tron Industries, Inc. and Piezo Technology, Inc. for the benefit of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on October 4, 2012). | | | | | | 10.14 | | Promissory Note (Term Loan), dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed with the SEC on July 7, 2011). | | | | | | 10.15 | | Assignment of Deposit Agreement, dated May 15, 2012, by and among M-tron Industries, Inc., Piezo Technology, Inc. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on July 7, 2011). | | | | | | 21.1 | | Subsidiaries of The LGL Group, Inc.* | | | | | | 23.1 | | Consent of Independent Registered Public Accounting Firm – McGladrey LLP.* | | | | | | 31.1 | | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | | | | | 31.2 | | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | | | | | 32.1 | | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | | | | | | 32.2 | | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | | | | | 101.INS | | XBRL Instance Document** | | | | | 101.SCH | | XBRL Taxonomy Extension Schema Document** | | | | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document** | | | | | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document** | | | | | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document** | | | | | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document** |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Exchange Act and otherwise are not subject to liability under those sections. |
The exhibits listed above have been filed separately with the SEC in conjunction with this Annual Report on Form 10-K or have been incorporated by reference into this Annual Report on Form 10-K. Upon request, the Company will furnish to each of its stockholders a copy of any such exhibit. Requests should be addressed to the Office of the Securities Act of 1933, as amended, or Section 18 of the Exchange Act and otherwise are not subject to liability under those sections. | Secretary, The LGL Group, Inc., 2525 Shader Road, Orlando, Florida 32804.
63 The exhibits listed above have been filed separately with the SEC in conjunction with this Annual Report on Form 10-K or have been incorporated by reference into this Annual Report on Form 10-K. Upon request, the Company will furnish to each of its stockholders a copy of any such exhibit. Requests should be addressed to the Office of the Secretary, The LGL Group, Inc., 2525 Shader Road, Orlando, Florida 32804.
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