UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC20549

 

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

X

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLYQUARTERLY PERIOD ENDED DECEMBERMARCH 31, 2017.2024, OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________.

 

Commission File No. 0-13375

lsi.jpg

 

LSI Industries Inc.

(Exact name of registrant as specified in its charter)

 

State of Incorporation - Ohio        IRS Employer I.D. No. 31-0888951

31-0888951

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer Identification No.)

 

10000 Alliance Road

10000 Alliance Road, Cincinnati, Ohio  45242

45242

(Address of principal executive offices)

(Zip Code)

(513) 793-3200

Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

LYTS

NASDAQ Global Select Market

 

Indicate by checkmark whether the Registrant:registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  YES    X     NO ____Yes  ☒  No  ☐

 

Indicate by checkmark whether the Registrantregistrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to submit and post such files).

YES    X      NO ____Yes  ☒   No  ☐

 

Indicate by checkmark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [    ]  

☐  

Accelerated filer [ X ]☒

Emerging growth company [    ]☐

Non-accelerated filer [    ] 

☐ 

Smaller reporting company [    ]☐

 

If an emerging growth company, indicate by check mark if the Registrantregistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by checkmark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ____  NO    X  ☐  No ☒

   

As of January 27, 2018April 26, 2024, there were 25,574,45729,129,848 shares of the Registrant'sregistrant's common stock, no par value per share, outstanding.

 


 

 

LSI INDUSTRIES INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBERMarch 31, 20172024

 

INDEX

 

Begins on Page

PART I.  Financial Information

ITEM 1.

Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations

FINANCIAL INFORMATION

3

ITEM 1.         FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

43

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

36

ITEM 4.

Controls and Procedures

36

PART II.  Other Information

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

ITEM 6.

Exhibits

37

Signatures

38

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

This Form 10-Q contains certain forward-looking statements that are subject to numerous assumptions, risks or uncertainties.  The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.  Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “may,” “will,” “should” or the negative versions of those words and similar expressions, and by the context in which they are used.  Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made.  Actual results could differ materially from those contained in or implied by such forward-looking statements as a result of a variety of risks and uncertainties over which the Company may have no control.  These risks and uncertainties include, but are not limited to, the impact of competitive products and services, product demand and market acceptance risks, potential costs associated with litigation and regulatory compliance, reliance on key customers, financial difficulties experienced by customers, the cyclical and seasonal nature of our business, the adequacy of reserves and allowances for doubtful accounts, fluctuations in operating results or costs whether as a result of uncertainties inherent in tax and accounting matters or otherwise, unexpected difficulties in integrating acquired businesses, the ability to retain key employees of acquired businesses, unfavorable economic and market conditions, the results of asset impairment assessments and the other risk factors that are identified herein.  You are cautioned to not place undue reliance on these forward-looking statements.  In addition to the factors described in this paragraph, the risk factors identified in our Form 10-K and other filings the Company may make with the SEC constitute risks and uncertainties that may affect the financial performance of the Company and are incorporated herein by reference.  The Company does not undertake and hereby disclaims any duty to update any forward-looking statements to reflect subsequent events or circumstances.

Page 2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)3

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

4

  

Three Months Ended

  

Six Months Ended

 
  

December 31

  

December 31

 

(In thousands, except per share data)

 

2017

  

2016

  

2017

  

2016

 
                 

Net sales

 $92,305  $85,658  $179,771  $169,817 
                 

Cost of products and services sold

  66,998   63,611   130,761   126,432 
                 

Restructuring costs

  --   640   --   1,143 
                 

Gross profit

  25,307   21,407   49,010   42,242 
                 

Restructuring costs

  --   57   --   210 
                 

Impairment of goodwill

  --   --   28,000   -- 
                 

Selling and administrative expenses

  20,760   18,532   41,277   38,148 
                 

Operating income (loss)

  4,547   2,818   (20,267

)

  3,884 
                 

Interest (income)

  (8

)

  (28

)

  (16

)

  (55

)

                 

Interest expense

  425   8   836   21 
                 

Income (loss) before income taxes

  4,130   2,838   (21,087

)

  3,918 
                 

Income tax expense (benefit)

  5,598   832   (3,990

)

  1,083 
                 

Net (loss) income

 $(1,468

)

 $2,006  $(17,097

)

 $2,835 
                 
                 

(Loss) Earnings per common share (see Note 4)

                

Basic

 $(0.06

)

 $0.08  $(0.66

)

 $0.11 

Diluted

 $(0.06

)

 $0.08  $(0.66

)

 $0.11 
                 
                 

Weighted average common shares outstanding

                

Basic

  25,858   25,314   25,824   25,294 

Diluted

  25,858   25,803   25,824   25,859 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 3

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)5

(In thousands, except shares)

 

December 31,

  

June 30,

 
  

2017

  

2017

 
         

ASSETS

        
         

Current Assets

        
         

Cash and cash equivalents

 $3,177  $3,039 
         

Accounts receivable, less allowance for doubtful accounts of $475 and $506, respectively

  59,740   48,880 
         

Inventories

  48,662   50,008 
         

Refundable income tax

  --   775 
         

Assets held for sale

  --   1,463 
         

Other current assets

  3,712   2,964 
         

Total current assets

  115,291   107,129 
         

Property, Plant and Equipment, at cost

        

Land

  6,469   6,429 

Buildings

  35,855   35,463 

Machinery and equipment

  82,152   78,804 

Construction in progress

  796   3,805 
   125,272   124,501 

Less accumulated depreciation

  (80,409

)

  (77,147

)

Net property, plant and equipment

  44,863   47,354 
         

Goodwill

  30,538   58,538 
         

Other Intangible Assets, net

  36,789   38,169 
         

Other Long-Term Assets, net

  10,893   5,490 
         

Total assets

 $238,374  $256,680 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 4

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)6

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

7

  

December 31,

  

June 30,

 

(In thousands, except shares)

 

2017

  

2017

 
         

LIABILITIES & SHAREHOLDERS’ EQUITY

        
         

Current Liabilities

        

Accounts payable

 $16,828  $19,356 

Accrued expenses

  25,713   26,069 
         

Total current liabilities

  42,541   45,425 
         

Long-Term Debt

  52,149   49,698 
         

Other Long-Term Liabilities

  1,356   1,479 
         

Commitments and Contingencies (Note 12)

  --   -- 
         

Shareholders’ Equity

        

Preferred shares, without par value; Authorized 1,000,000 shares, none issued

  --   -- 

Common shares, without par value; Authorized 40,000,000 shares; Outstanding 25,562,003 and 24,429,223 shares, respectively

  122,170   120,259 

Retained earnings

  20,158   39,819 
         

Total shareholders’ equity

  142,328   160,078 
         

Total liabilities & shareholders’ equity

 $238,374  $256,680 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 5

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)9

(In thousands)

 

Six Months Ended

 
  

December 31

 
  

2017

  

2016

 

Cash Flows from Operating Activities

        

Net (loss) income

 $(17,097

)

 $2,835 

Non-cash items included in net income

        

Depreciation and amortization

  5,124   3,605 

Deferred income taxes

  (5,667

)

  (962

)

Impairment of goodwill

  28,000   -- 

Deferred compensation plan

  (413

)

  237 

Stock compensation expense

  1,463   1,688 

Issuance of common shares as compensation

  156   228 

Loss (gain) on disposition of fixed assets

  (29

)

  53 

Fixed asset impairment and accelerated depreciation

  --   354 

Allowance for doubtful accounts

  115   205 

Inventory obsolescence reserve

  1,033   758 
         

Changes in certain assets and liabilities:

        

Accounts receivable

  (10,975

)

  (2,771

)

Inventories

  313   979 

Refundable income taxes

  775   -- 

Accounts payable

  (2,626

)

  (176

)

Accrued expenses and other

  (742

)

  (2,630

)

Customer prepayments

  (221

)

  216 

Net cash flows (used in) provided by operating activities

  (791

)

  4,619 
         

Cash Flows from Investing Activities

        

Purchases of property, plant and equipment

  (1,190

)

  (2,744

)

Proceeds from sale of fixed assets

  1,527   1 

Net cash flows provided by (used in) investing activities

  337   (2,743

)

         

Cash Flows from Financing Activities

        

Payments of long-term debt

  (48,553

)

  -- 

Borrowings of long-term debt

  51,004   -- 

Cash dividends paid

  (2,564

)

  (2,513

)

Exercise of stock options

  175   171 

Purchase of treasury shares

  (107

)

  (390

)

Acquisition of common stock for tax withholding related to share based compensation

  183   -- 

Issuance of treasury shares

  454   44 

Net cash flows provided by (used in) financing activities

  592   (2,688

)

         

Increase (decrease) in cash and cash equivalents

  138   (812

)

         

Cash and cash equivalents at beginning of period

  3,039   33,835 
         

Cash and cash equivalents at end of period

 $3,177  $33,023 

 The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

Page 6

LSI INDUSTRIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10

ITEM 2.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

21

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

28

ITEM 4.         CONTROLS AND PROCEDURES

29

PART II.OTHER INFORMATION

29

ITEM 5.         OTHER INFORMATION

29

ITEM 6.         EXHIBITS

30

SIGNATURES

31


PART I.FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of December 31, 2017, the results of its operations for the three and six month periods ended December 31, 2017 and 2016, and its cash flows for the six month periods ended December 31, 2017 and 2016. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2017 Annual Report on Form 10-K.  Financial information as of June 30, 2017 has been derived from the Company’s audited consolidated financial statements.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation:

The consolidated financial statements include the accounts of LSI Industries Inc. (an Ohio corporation) and its subsidiaries (collectively, the “Company”), all of which are wholly owned.  All intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition:

Revenue is recognized when title to goods and risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services have been rendered, and collectability is reasonably assured. Sales are recorded net of estimated returns, rebates and discounts. Amounts received from customers prior to the recognition of revenue are accounted for as customer pre-payments and are included in accrued expenses.

The Company has multiple sources of revenue:  revenue from product sales; revenue from installation of products; service revenue generated from providing integrated design, project and construction management, site engineering and site permitting, and commissioning of lighting controls; revenue from the management of media content and digital hardware related to active digital signage; and revenue from shipping and handling.

Product revenue is recognized on product-only orders upon passing of title and risk of loss, generally at time of shipment. In certain arrangements with customers, as is the case with the sale of some of our solid-state LED (light emitting diode) video screens, revenue is recognized upon customer acceptance of the video screen at the job site. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed.  The Company provides product warranties and certain post-shipment service, support and maintenance of certain solid state LED video screens.

Installation revenue is recognized when the products have been fully installed.  The Company is not always responsible for installation of products it sells and has no post-installation responsibilities, other than normal warranties.

Service revenue from integrated design, project and construction management, and site permitting is recognized when all products at a customer site have been installed.

Revenue from the management of media content and digital hardware related to active digital signage is recognized evenly over the service period with the customer. Media content service periods with most customers range from one month to one year.

Shipping and handling revenue coincides with the recognition of revenue from sale of the product.

In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separate unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company’s complete performance at the location, which may include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.

Page 7

The Company also evaluates the appropriateness of revenue recognition in accordance with the accounting standards on software revenue recognition. Our solid-state LED video screens and active digital signage contain software elements which the Company has determined are incidental.

Credit and Collections:

The Company maintains allowances for doubtful accounts receivable for probable estimated losses resulting from either customer disputes or the inability of its customers to make required payments.  If the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against income.  The Company determines its allowance for doubtful accounts by first considering all known collectability problems of customers’ accounts, and then applying certain percentages against the various aging categories based on the due date of the remaining receivables.  The resulting allowance for doubtful accounts receivable is an estimate based upon the Company’s knowledge of its business and customer base, and historical trends.  Receivables deemed uncollectable are written-off against the allowance for doubtful accounts receivable after all reasonable collection efforts have been exhausted. The Company also establishes allowances, at the time revenue is recognized, for returns, discounts, pricing and other possible customer deductions.  These allowances are based upon historical trends.

The following table presents the Company’s net accounts receivable at the dates indicated.

(In thousands)

 

December 31,

  

June 30,

 
  

2017

  

2017

 
         

Accounts receivable

 $60,215  $49,386 

Less: Allowance for doubtful accounts

  (475

)

  (506

)

Accounts receivable, net

 $59,740  $48,880 

Cash and Cash Equivalents:

The cash balance includes cash and cash equivalents which have original maturities of less than three months. Cash and cash equivalents consist primarily of bank deposits and a bank money market account that is stated at cost, which approximates fair value. The Company maintains balances at financial institutions in the United States.  In the United States, the FDIC limit for insurance coverage on non-interest bearing accounts is $250,000.As of December 31, 2017 and June 30, 2017, the Company had bank balances of $4,827,512 and $4,488,000, respectively, without insurance coverage.

Inventories and Inventory Reserves:

Inventories are stated at the lower of cost or market.  Cost of inventories includes the cost of purchased raw materials and components, direct labor, as well as manufacturing overhead which is generally applied to inventory based on direct labor and on material content. Cost is determined on the first-in, first-out basis.

The Company maintains an inventory reserve for obsolete and excess inventory. The Company first determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. A combination of financial modeling and qualitative input factors are used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item.  

Page 8

Property, Plant and Equipment and Related Depreciation:

Property, plant and equipment are stated at cost.  Major additions and betterments are capitalized while maintenance and repairs are expensed.  For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets as follows:

 

Buildings (in years)

28-40

Machinery and equipment (in years)

3-10

Computer software (in years)

3-8

Costs related to the purchase, internal development, and implementation of the Company’s fully integrated enterprise resource planning/business operating software system are either capitalized or expensed.  Leasehold improvements are depreciated over the shorter of fifteen years or the remaining term of the lease.
  

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 

(In thousands, except per share data)

 

2024

  

2023

  

2024

  

2023

 
                 

Net Sales

 $108,186  $117,470  $340,632  $373,343 
                 

Cost of products and services sold

  76,846   85,266   240,789   272,230 
                 

Severance and restructuring costs

  130   -   508   31 
                 

Gross profit

  31,210   32,204   99,335   101,082 
                 

Severance and restructuring costs

  12   -   40   - 
                 

Selling and administrative expenses

  23,538   24,472   72,788   74,291 
                 

Operating income

  7,660   7,732   26,507   26,791 
                 

Interest expense

  134   877   1,153   2,924 
                 

Other (income) expense

  75   (71)  142   86 
                 

Income before income taxes

  7,451   6,926   25,212   23,781 
                 

Income tax expense

  2,076   2,257   5,903   6,434 
                 

Net income

 $5,375  $4,669  $19,309  $17,347 
                 
                 

Earnings per common share (see Note 4)

                

Basic

 $0.18  $0.16  $0.67  $0.62 

Diluted

 $0.18  $0.16  $0.64  $0.60 
                 
                 

Weighted average common shares outstanding

                

Basic

  29,163   28,306   28,981   28,012 

Diluted

  30,122   29,611   30,005   29,055 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

  

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 
                 

Net Income

 $5,375  $4,669  $19,309  $17,347 
                 

Foreign currency translation adjustment

  31   117   46   192 
                 

Comprehensive Income

 $5,406  $4,786  $19,355  $17,539 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

  

March 31,

  

June 30,

 

(In thousands, except shares)

 

2024

  

2023

 
         

ASSETS

        
         

Current assets

        
         

Cash and cash equivalents

 $7,175  $1,828 
         

Accounts receivable, less allowance for credit losses of $493 and $435, respectively

  68,730   77,681 
         

Inventories

  60,331   63,718 
         

Refundable income taxes

  2,654   3,120 
         

Other current assets

  4,595   3,529 
         

Total current assets

  143,485   149,876 
         

Property, Plant and Equipment, at cost

        

Land

  4,010   4,010 

Buildings

  24,600   24,561 

Machinery and equipment

  67,713   67,457 

Buildings under finance leases

  2,033   2,033 

Construction in progress

  1,792   1,231 
   100,148   99,292 

Less accumulated depreciation

  (74,043)  (73,861)

Net property, plant and equipment

  26,105   25,431 
         

Goodwill

  45,030   45,030 
         

Other intangible assets, net

  59,633   63,203 
         

Operating lease right-of-use assets

  9,063   8,921 
         

Other long-term assets, net

  4,653   3,688 
         

Total assets

 $287,969  $296,149 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

  

March 31,

  

June 30,

 

(In thousands, except shares)

 

2024

  

2023

 
         

LIABILITIES & SHAREHOLDERS' EQUITY

        
         

Current liabilities

        

Current maturities of long-term debt

 $3,571  $3,571 

Accounts payable

  26,114   29,206 

Accrued expenses

  36,576   43,785 
         

Total current liabilities

  66,261   76,562 
         

Long-term debt

  12,782   31,629 
         

Finance lease liabilities

  719   960 
         

Operating lease liabilities

  6,222   5,954 
         

Other long-term liabilities

  3,548   3,466 
         

Commitments and contingencies (Note 12)

      
         

Shareholders' Equity

        

Preferred shares, without par value; Authorized 1,000,000 shares, none issued

  -   - 

Common shares, without par value; Authorized 50,000,000 shares; Outstanding 29,112,651 and 28,488,570 shares, respectively

  154,475   148,691 

Treasury shares, without par value

  (8,520)  (7,166)

Deferred compensation plan

  8,520   7,166 

Retained earnings

  43,577   28,548 

Accumulated other comprehensive income

  385   339 
         

Total shareholders' equity

  198,437   177,578 
         

Total liabilities & shareholders' equity

 $287,969  $296,149 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

  

Common Shares

  

Treasury Shares

  

Key Executive

  

Accumulated Other

      

Total

 
  Number Of      Number Of      Compensation  Comprehensive  Retained  Shareholders' 

(In thousands, except per share data)

 

Shares

  

Amount

  

Shares

  

Amount

  

Amount

  

Income

  

Earnings

  

Equity

 
                                 

Balance at June 30, 2022

  27,484  $139,500   (822) $(5,927) $5,927  $45  $8,224  $147,769 
                                 

Net Income

  -   -   -   -   -   -   6,261   6,261 

Other comprehensive gain

  -   -   -   -   -   7   -   7 

Board stock compensation

  12   75   -   -   -   -   -   75 

Restricted stock units issued, net of shares withheld for tax withholdings

  201   (66)  -   -   -   -   -   (66)

Shares issued for deferred compensation

  80   539   -   -   -   -   -   539 

Activity of treasury shares, net

  -   -   (77)  (512)  -   -   -   (512)

Deferred stock compensation

  -   -   -   -   512   -   -   512 

Stock-based compensation expense

  -   551   -   -   -   -   -   551 

Stock options exercised, net

  -   -   -   -   -   -   -   - 

Dividends — $0.05 per share

  -   -   -   -   -   -   (1,408)  (1,408)
                                 

Balance at September 30, 2022

  27,777  $140,599   (899) $(6,439) $6,439  $52  $13,077  $153,728 
                                 

Net Income

  -   -   -   -   -   -   6,417   6,417 

Other comprehensive gain

  -   -   -   -   -   68   -   68 

Board stock compensation

  23   98   -   -   -   -   -   98 

Restricted stock units issued, net of shares withheld for tax withholdings

  71   (399)  -   -   -   -   -   (399)

Shares issued for deferred compensation

  57   548   -   -   -   -   -   548 

Activity of treasury shares, net

  -   -   (58)  (549)  -   -   -   (549)

Deferred stock compensation

  -   -   -   -   549   -   -   549 

Stock-based compensation expense

  -   864   -   -   -   -   -   864 

Stock options exercised, net

  192   1,278   -   -   -   -   -   1,278 

Dividends — $0.05 per share

  -   -   -   -   -   -   (1,286)  (1,286)
                                 

Balance at December 31, 2022

  28,120  $142,988   (957) $(6,988) $6,988   120  $18,208  $161,316 
                                 

Net Income

  -   -   -   -   -   -   4,669   4,669 

Other comprehensive gain

  -   -   -   -   -   117   -   117 

Board stock compensation awards

  2   97   -   -   -   -   -   97 

ESPP stock Awards

  10   97   -   -   -   -   -   97 

Restricted stock units issued, net of shares withheld for tax withholdings

  29   (379)  -   -   -   -   -   (379)

Shares issued for deferred compensation

  31   443   -   -   -   -   -   443 

Activity of treasury shares, net

  -   -   66   252   -   -   -   252 

Deferred stock compensation

  -   -   -   -   (252)  -   -   (252)

Stock-based compensation expense

  -   893   -   -   -   -   -   893 

Stock options exercised, net

  157   1,861   -   -   -   -   -   1,861 

Dividends — $0.05 per share

  -   -   -   -   -   -   (1,371)  (1,371)
                                 

Balance at March 31, 2023

  28,349  $146,000   (891) $(6,736) $6,736   237  $21,506  $167,743 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

  

Common Shares

  

Treasury Shares

  

Key Executive

  

Accumulated Other

      

Total

 
  

Number Of

      

Number Of

      

Compensation

  

Comprehensive

  

Retained

  

Shareholders'

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Amount

  

Income

  

Earnings

  

Equity

 
                                 

Balance at June 30, 2023

  28,488  $148,691   (922) $(7,166) $7,166  $339  $28,548  $177,578 
                                 

Net Income

  -   -   -   -   -   -   8,028   8,028 

Other comprehensive loss

  -   -   -   -   -   (56)  -   (56)

Board stock compensation

  9   113   -   -   -   -   -   113 

ESPP stock awards

  3   57   -   -   -   -   -   57 

Restricted stock units issued, net of shares withheld for tax withholdings

  276   -   -   -   -   -   -   - 

Shares issued for deferred compensation

  32   437   -   -   -   -   -   437 

Activity of treasury shares, net

  -   -   (30)  (417)  -   -   -   (417)

Deferred stock compensation

  -   -   -   -   417   -   -   417 

Stock-based compensation expense

  -   1,220   -   -   -   -   -   1,220 

Stock options exercised, net

  70   549   -   -   -   -   -   549 

Dividends — $0.05 per share

  -   -   -   -   -   -   (1,380)  (1,380)
                                 

Balance at September 30, 2023

  28,878  $151,067   (952) $(7,583) $7,583  $283  $35,196  $186,546 
                                 

Net Income

  -   -   -   -   -   -   5,906   5,906 

Other comprehensive gain

  -   -   -   -   -   71   -   71 

Board stock compensation

  7   112   -   -   -   -   -   112 

ESPP stock awards

  4   41   -   -   -   -   -   41 

Restricted stock units issued, net of shares withheld for tax withholdings

  28   (244)  -   -   -   -   -   (244)

Shares issued for deferred compensation

  36   506   -   -   -   -   -   506 

Activity of treasury shares, net

  -   -   (36)  (505)  -   -   -   (505)

Deferred stock compensation

  -   -   -   -   505   -   -   505 

Stock-based compensation expense

  -   814   -   -   -   -   -   814 

Stock options exercised, net

  107   628   -   -   -   -   -   628 

Dividends — $0.05 per share

  -   -   -   -   -   -   (1,446)  (1,446)
                                 

Balance at December 31, 2023

  29,060  $152,924   (988) $(8,088) $8,088  $354  $39,656  $192,934 
                                 

Net Income

  -   -   -   -   -   -   5,375   5,375 

Other comprehensive gain

  -   -   -   -   -   31   -   31 

Board stock compensation

  8   113   -   -   -   -   -   113 

ESPP stock awards

  4   47   -   -   -   -   -   47 

Restricted stock units issued, net of shares withheld for tax withholdings

  -   (60)  -   -   -   -   -   (60)

Shares issued for deferred compensation

  29   431   -   -   -   -   -   431 

Activity of treasury shares, net

  -   -   (31)  (432)  -   -   -   (432)

Deferred stock compensation

  -   -   -   -   432   -   -   432 

Stock-based compensation expense

  -   927   -   -   -   -   -   927 

Stock options exercised, net

  12   93   -   -   -   -   -   93 

Dividends — $0.05 per share

  -   -   -   -   -   -   (1,454)  (1,454)
                                 

Balance at March 31, 2024

  29,113  $154,475   (1,019) $(8,520) $8,520  $385  $43,577  $198,437 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  

Nine Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Cash Flows from Operating Activities

        

Net income

 $19,309  $17,347 

Non-cash items included in net income

        

Depreciation and amortization

  7,143   7,295 

Deferred income taxes

  (1,143)  59 

Deferred compensation plan

  1,374   1,530 

ESPP discount

  145   97 

Stock compensation expense

  2,961   2,308 

Issuance of common shares as compensation

  338   270 

Loss on disposition of fixed assets

  173   37 

Allowance for credit losses

  57   (80)

Inventory obsolescence reserve

  (1,259)  740 
         

Changes in certain assets and liabilities

        

Accounts receivable

  8,894   8,542 

Inventories

  4,646   6,020 

Refundable income taxes

  466   (1,865)

Accounts payable

  (3,092)  (10,034)

Accrued expenses and other

  (6,865)  2,830 

Customer prepayments

  (850)  (2,548)

Net cash flows provided by operating activities

  32,297   32,548 
         

Cash Flows from Investing Activities

        

Proceeds from the sale of fixed assets

  32   1 

Purchases of property, plant and equipment

  (4,626)  (1,754)

Net cash flows used in investing activities

  (4,594)  (1,753)
         

Cash Flows from Financing Activities

        

Payments of long-term debt

  (102,366)  (150,547)

Borrowings of long-term debt

  83,520   120,524 

Cash dividends paid

  (4,280)  (4,065)

Shares withheld for employees' taxes

  (304)  (844)

Payments on financing lease obligations

  (241)  (192)

Proceeds from stock option exercises

  1,270   3,139 

Net cash flows used in financing activities

  (22,401)  (31,985)
         

Change related to foreign currency

  45   78 
         

Increase (decrease) in cash and cash equivalents

  5,347   (1,112)
         

Cash and cash equivalents at beginning of period

  1,828   2,462 
         

Cash and cash equivalents at end of period

 $7,175  $1,350 

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


LSI INDUSTRIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1-INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of March 31, 2024, the results of its operations for the three and nine-month periods ended March 31, 2024, and 2023, and its cash flows for the nine-month periods ended March 31, 2024, and 2023. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2023 Annual Report on Form 10-K. Financial information as of June 30, 2023, has been derived from the Company’s audited consolidated financial statements.

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation:

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2023 Annual Report on Form 10-K.

Revenue Recognition:

The Company recognizes revenue when it satisfies the performance obligation in its customer contracts or purchase orders. Most of the Company’s products have a single performance obligation which is satisfied at a point in time when control is transferred to the customer. Control is generally transferred at time of shipment when title and risk of ownership passes to the customer. For customer contracts with multiple performance obligations, the Company allocates the transaction price and any discounts to each performance obligation based on relative standalone selling prices. Payment terms are typically within 30 to 90 days from the shipping date, depending on the terms with the customer. The Company offers standard warranties that do not represent separate performance obligations.

Installation is a separate performance obligation, except for the Company’s digital signage products. For digital signage products, installation is not a separate performance obligation as the product and installation is the combined item promised in digital signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties.

A number of the Company's display solutions and select lighting products are customized for specific customers. As a result, these customized products do not have an alternative use. For these products, the Company has a legal right to payment for performance to date and generally does not accept returns on these items. The measurement of performance is based upon cost plus a reasonable profit margin for work completed. Because there is no alternative use and there is a legal right to payment, the Company transfers control of the item as the item is being produced and therefore, recognizes revenue over time. The customized product types are as follows:

 

The Company recorded $1,862,000●

Customer specific branded print graphics

●

Electrical components based on customer specifications

●

Digital signage and $1,669,000 of depreciation expense in the second quarter of fiscal 2018 and 2017, respectively, and $3,744,000 and $3,397,000 of depreciation expense in the first half of fiscal 2018 and 2017, respectively.related media content

The Company also offers installation services for its display solutions elements and select lighting products. Installation revenue is recognized over time as the customer simultaneously receives and consumes the benefits provided through the installation process.

For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated cost for the performance obligation.


On occasion, the Company enters into bill-and-hold arrangements on a limited basis. Each bill-and-hold arrangement is reviewed and revenue is recognized only when certain criteria have been met: (1) the customer has requested delayed delivery and storage of the products by the Company because the customer wants to secure a supply of the products but lacks storage space; (ii) the risk of ownership has passed to the customer; (iii) the products are segregated from the Company’s other inventory items held for sale; (iv) the products are ready for shipment to the customer; and (v) the Company does not have the ability to use the products or direct them to another customer.

Disaggregation of Revenue

The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the Company believes it best depicts the nature, amount, and timing of its revenue and cash flows. The table below presents a reconciliation of the disaggregation by reportable segments:

  

Three Months Ended

 

(In thousands)

 

March 31, 2024

  

March 31, 2023

 
  

Lighting

Segment

  

Display

Solutions

Segment

  

Lighting

Segment

  

Display

Solutions

Segment

 

Timing of revenue recognition

                

Products and services transferred at a point in time

 $53,619  $30,304  $57,249  $42,378 

Products and services transferred over time

  11,263   13,000   9,458   8,385 
  $64,882  $43,304  $66,707  $50,763 

  

Nine Months Ended

 
  

March 31, 2024

  

March 31, 2023

 
  

Lighting

Segment

  

Display

Solutions

Segment

  

Lighting

Segment

  

Display

Solutions

Segment

 

Timing of revenue recognition

                

Products and services transferred at a point in time

 $165,890  $99,560  $173,917  $136,894 

Products and services transferred over time

  31,428   43,754   27,157   35,375 
  $197,318  $143,314  $201,074  $172,269 

  

Three Months Ended

 
  

March 31, 2024

  

March 31, 2023

 
  

Lighting

Segment

  

Display

Solutions

Segment

  

Lighting

Segment

  

Display

Solutions

Segment

 

Type of Product and Services

                

LED lighting, digital signage solutions, electronic circuit boards

 $53,917  $8,321  $55,894  $4,907 

Poles, other display solution elements

  10,181   26,628   9,920   37,019 

Project management, installation services, shipping and handling

  784   8,355   893   8,837 
  $64,882  $43,304  $66,707  $50,763 

  

Nine Months Ended

 
  

March 31, 2024

  

March 31, 2023

 
  

Lighting

Segment

  

Display

Solutions

Segment

  

Lighting

Segment

  

Display

Solutions

Segment

 

Type of Product and Services

                

LED lighting, digital signage solutions, electronic circuit boards

 $162,524  $26,045  $165,839  $17,883 

Poles, other display solution elements

  32,532   86,326   32,681   120,173 

Project management, installation services, shipping and handling

  2,262   30,943   2,554   34,213 
  $197,318  $143,314  $201,074  $172,269 

11

Practical Expedients and Exemptions

 

Goodwill and Intangible Assets:●

Intangible assets consistingThe Company’s contracts with customers have an expected duration of customer relationships, trade names and trademarks, patents, technology and software, and non-compete agreements are recorded onone year or less, as such, the Company's balance sheet.  The definite-lived intangible assets are being amortizedCompany applies the practical expedient to expense over periods ranging between seven and twenty years.  The Company evaluates definite-lived intangible assets for possible impairment when triggering events are identified. Neither indefinite-lived intangible assets nor the excess of cost over fair value of assets acquired ("goodwill") are amortized, however they are subject to review for impairment.  See additional information about goodwill and intangibles in Note 7.

Fair Value:

The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, accounts receivable, accounts payable, and on occasion, long-term debt.  The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.  The Company has no financial instruments with off-balance sheet risk.

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment analyses, long-lived asset impairment analyses, and in the purchase price of acquired companies (if any). The accounting guidance on fair value measurement was used to measure the fair value of these nonfinancial assets and nonfinancial liabilities.

Product Warranties:

The Company offers a limited warranty that its products are free from defects in workmanship and materials.  The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within one to five years, with some exceptions where the terms extend to ten years, from the date of shipment.  The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation.  The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues.  The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Page 9

Changes in the Company’s warranty liabilities, which are included in accrued expenses in the accompanying consolidated balance sheets, during the periods indicated below were as follows:

  

Six

  

Six

  

Fiscal

 
  

Months Ended

  

Months Ended

  

Year Ended

 

(In thousands)

 

December 31,

  

December 31,

  

June 30,

 
  

2017

  

2016

  

2017

 
             

Balance at beginning of the period

 $7,560  $5,069  $5,069 

Additions charged to expense

  2,394   2,243   4,956 

Addition from acquired company

  --   --   907 

Deductions for repairs and replacements

  (3,266

)

  (1,351

)

  (3,372

)

Balance at end of the period

 $6,688  $5,961  $7,560 

Research and Development Costs:

Research and development costs are directly attributable to new product development, including the development of new technology for both existing and new products, and consist of salaries, payroll taxes, employee benefits, materials, outside legal costs and filing fees related to obtaining patents, supplies, depreciation and other administrative costs. The Company expenses as research and development all costs associated with development of software used in solid-state LED products.  All costs are expensedcommissions as incurred and are included in selling and administrative expenses. Research and development costs related to both product and software development totaled $1,379,000 and $1,269,00 for the three months ended December 31, 2017 and 2016, respectively, and $2,941,000 and $2,670,000 for the six months ended December 31, 2017 and 2016, respectively.

Cost of Products and Services Sold:

Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of products, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity. Cost of services sold is primarily comprised of the internal and external labor costs required to support the Company’s service revenue along with the management of media content.

Earnings Per Common Share:

The computation of basic earnings per common share is based on the weighted average common shares outstanding for the period net of treasury shares held in the Company’s nonqualified deferred compensation plan.  The computation of diluted earnings per share is based on the weighted average common shares outstanding for the period and includes common share equivalents.  Common share equivalents include the dilutive effect of stock options, restricted stock units, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled 756,000 and 787,000 shares for the three month ended December 31, 2017 and 2016, respectively, and 686,000 shares and 852,000 shares for the six months ended December 31, 2017 and 2016, respectively. See further discussion of earnings per share in Note 4.

Income Taxes:

The Company accounts for income taxes in accordance with the accounting guidance for income taxes.  Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes.  Deferred income tax assets are reported on the Company’s balance sheet.  Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets.

The Tax Cuts and Jobs Act was signed into law on December 22nd,2017 and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the US corporate income tax rate to 21% effective January 1, 2018. Because the Act became effective mid-way through the Company’s tax year, the Company will have a US statutory income tax rate of 27.7% for the fiscal 2018, and will have a 21% US statutory income tax rate for fiscal years thereafter. During the quarter ended December 31, 2017, the Company re-valued the deferred tax balances because of the change in US tax rate resulting in a one-time deferred tax expense of $4,676,578.

Page 10

New Accounting Pronouncements:

In June 2014, the Financial Accounting Standards Board issued ASU 2014-09, “Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improveshas omitted disclosures about revenue.  In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers:  Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.”  In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.”  These three standards clarify or improve guidance from ASU 2014-09 and are effective for fiscal and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal 2019. The Company currently plans to adopt the new revenue guidance for the fiscal year beginning July 1, 2018 using the modified retrospective approach. The Company is reviewing accounting policies and evaluating disclosures in the financial statements related to the new standard. The Company is also assessing potential changes to the business processes, internal controls, and information systems related to the adoption of the new standard.  While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers.  Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer.  The recognition of revenue from most product sales is largely unaffected by the new standard.  However, with respect to certain product sales requiring installation, revenue is currently not recognized until the installation is complete.  While the Company does not expect this new guidance to have a material impact on the amount of overall sales recognized, the timing of recognition of revenues from sales on certain projects may be affected. Our initial conclusions may change as we finalize our assessment and select a transition method during the next six months.remaining performance obligations.

●

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, “Leases.” The amended guidance requires an entity to recognize assets and liabilitiesShipping costs that arise from leases. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2018, or the Company’s fiscal 2020, with early adoption permitted. The Company has are not yet determined the impact the amended guidance will have on its financial statements.  

In March 2016, the Financial Accounting Standards Board issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This amended guidance simplifies several aspects material in context of the accounting for share-based payment award transactions. delivery of products are expensed as incurred.

●

The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2016, orCompany’s accounts receivable balance represents the Company’s fiscal 2018. We adopted this standard on July 1, 2017 and recognized excess tax benefitsunconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of $87,354 in income tax expense during the six months ended December 31, 2017. The amount may not necessarily be indicative of future amounts that may be recognized as any excess tax benefits recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Prior to July 1, 2017, excess tax benefits were recognized in additional paid-in capital. Additionally, excess tax benefits are now included in net cash flows provided by operating activities rather than net cash flows provided by financing activities in the Company’s Consolidated Statement of Cash Flows. The treatment of forfeitures has not changed, as the Company is electing to continue the current process of estimating forfeiture at the time of grant. The Company had no unrecognized excess tax benefits from prior periods to record upon the adoption of this ASU.

In January 2017, the Financial Accounting Standards Board issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which simplifies the testing for goodwill impairment by eliminating a previously required step. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2019, or the Company’s fiscal 2021. Early adoptioncompletion of the accounting standard is permitted,performance obligation and the Company elected to adopt this standard early. (See Footnote 7)invoicing; therefore, payments do not contain significant financing components.

●

Comprehensive Income:

The Company does not have any comprehensive income itemscollects sales tax and other than net income.

Subsequent Events:

The Company has evaluated subsequent events for potential recognitiontaxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and disclosure through the date the consolidated financial statements were filed.No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements.

Page 11

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

NOTE 3 - SEGMENT REPORTING INFORMATION

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segmentshandling costs are identifiedtreated as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. In the first quarter of fiscal 2018, the Company merged its Technology Segment with the Lighting Segment to be in alignment with the financial information received by the Chief Executive Officer and how the business is managed. The Company’s two operating segments are Lighting and Graphics, each of which has a president who is responsible for that business and reports to the CODM. Corporate and Eliminations, which captures the Company’s corporate administrative activities, is also reported in the segment information.

The Lighting Segment includes outdoor and indoor lighting utilizing both traditional and LED light sources that have been fabricated and assembled for the commercial/industrial market, the petroleum / convenience store market, the automotive dealership market, the quick service restaurant market, along with other markets the Company serves. The Lighting Segment also includes the design, engineering, and manufacturing of electronic circuit boards, assemblies and sub-assemblies used to manufacture certain LED light fixtures and sold directly to customers.

The Graphics Segment designs, manufactures and installs exterior and interior visual image elements such as traditional graphics, interior branding, electrical and architectural signage, active digital signage along with the management of media content related to digital signage, LED video screens, and menu board systems that are either digital or traditional by design. These products are used in visual image programs in several markets including, but not limited to the petroleum / convenience store market, multi-site retail operations, banking, and restaurants. The Graphics Segment implements, installs and provides program management services related to products sold by the Graphics Segment and by the Lighting Segment.

The Company’s corporate administration activities are reported in the Corporate and Eliminations line item.  These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit staff, expense related to the Company’s Board of Directors, stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relationsfulfillment activities and a portionincluded in cost of products and services sold on the Company’s legal, auditing and professional fee expenses. Corporate identifiable assets primarily consistConsolidated Statements of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.Operations.

New Accounting Pronouncements:

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” creating an exception to the recognition and measurement principles in ASC 805. The amendment requires that entities apply ASC 606, “Revenue from Contracts with Customers,” rather than using fair value, to recognize and measure contracts assets and contract liabilities from contracts with customers acquired in a business combination. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, including adoption in an interim period, regardless of whether a business combination occurs in that period. The guidance should be applied prospectively; however, an entity that elects to early adopt in an interim period should apply the amendments to all business combinations that occurred during the fiscal year that includes that interim period. There has not been a material impact on the Company’s consolidated financial statements and related disclosures as a result of its adoption of the guidance on July 1, 2023.

 

There was no concentration of consolidated net sales in the three and six months ended December 31, 2017 or 2016.  There was no concentration of accounts receivable at December 31, 2017 or June 30, 2017.

Page 12
 

NOTE 3 - SEGMENT REPORTING INFORMATION

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s two operating segments are Lighting and Display Solutions (formerly known as the Graphics Segment), with one executive team under the organizational structure reporting directly to the CODM with responsibilities for managing each segment. Corporate and Eliminations, which captures the Company’s corporate administrative activities, is also reported in the segment information.

The Lighting Segment includes non-residential outdoor and indoor lighting fixtures utilizing LED light sources that have been fabricated and assembled for the Company’s markets, primarily the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Company also services lighting product customers through the commercial and industrial project, stock and flow, and renovation channels. In addition to the manufacture and sale of lighting fixtures, the Company offers a variety of lighting controls to complement its lighting fixtures which include sensors, photocontrols, dimmers, motion detection and Bluetooth systems. The Lighting Segment also includes the design, engineering and manufacturing of electronic circuit boards, assemblies and sub-assemblies which are sold directly to customers.

The Display Solutions Segment manufactures, sells and installs exterior and interior visual image and display elements, including printed graphics, structural graphics, digital signage, menu board systems, display fixtures, refrigerated displays, and custom display elements. These products are used in visual image programs in several markets including the refueling and convenience store markets, parking lot and garage markets, quick-service restaurant market, retail and grocery store markets, the automotive market, the warehouse market, and the sports court and field market. The Display Solutions Segment also provides a variety of project management services to complement our display elements, such as installation management, site surveys, permitting, and content management which are offered to our customers to support our digital signage.

The Company’s corporate administration activities are reported in the Corporate and Eliminations line item. These activities primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff, the Company’s internal audit staff, expense related to the Company’s Board of Directors, equity compensation expense for various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities, and a portion of the Company’s legal, auditing, and professional fee expenses. Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.

12

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of December 31, 2017 and December 31, 2016:

  

Three Months Ended

  

Six Months Ended

 

(In thousands)

 

December 31

  

December 31

 
  

2017

  

2016

  

2017

  

2016

 

Net Sales:

                

Lighting Segment

 $69,174  $65,076  $137,602  $130,341 

Graphics Segment

  23,131   20,582   42,169   39,476 
  $92,305  $85,658  $179,771  $169,817 
                 

Operating Income (Loss):

                

Lighting Segment

 $5,275  $3,761  $(17,655

)

 $6,852 

Graphics Segment

  2,255   1,174   3,731   2,191 

Corporate and Eliminations

  (2,983

)

  (2,117

)

  (6,343

)

  (5,159

)

  $4,547  $2,818  $(20,267

)

 $3,884 
                 

Capital Expenditures:

                

Lighting Segment

 $499  $205  $760  $1,301 

Graphics Segment

  157   459   339   825 

Corporate and Eliminations

  36   120   91   618 
  $692  $784  $1,190  $2,744 
                 

Depreciation and Amortization:

                

Lighting Segment

 $1,885  $1,115  $3,786  $2,307 

Graphics Segment

  384   376   763   736 

Corporate and Eliminations

  283   279   575   562 
  $2,552  $1,770  $5,124  $3,605 

  

December 31,

2017

  

June 30,

2017

 

Identifiable Assets:

        

Lighting Segment

 $182,680  $214,070 

Graphics Segment

  39,394   33,144 

Corporate and Eliminations

  16,300   9,466 
  $238,374  $256,680 

The segment net sales reported above represent sales to external customers.  Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses. Identifiable assets are those assets used by each segment in its operations.

The Company records a 10% mark-up on intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows:

  

Three Months Ended

  

Six Months Ended

 
  

December 31

  

December 31

 

(In thousands)

 

2017

  

2016

  

2017

  

2016

 
                 

Lighting Segment inter-segment net sales

 $992  $700  $1,707  $1,453 
                 

Graphics Segment inter-segment net sales

 $1,040  $680  $1,071  $812 

The Company’s operations are located solely within the United States. As a result, the geographic distribution of the Company’s net sales and long-lived assets originate within the United States.

Page 13

NOTE 4 - EARNINGS PER COMMON SHARE

The following table presents the amounts used to compute basic and diluted earnings per common share, as well as the effect of dilutive potential common shares on weighted average shares outstanding (in thousands, except per share data):

  

Three Months Ended

  

Six Months Ended

 
  

December 31

  

December 31

 
  

2017

  

2016

  

2017

  

2016

 
                 

BASIC EARNINGS PER SHARE

                
                 

Net (loss) income

 $(1,468

)

 $2,006  $(17,097

)

 $2,835 
                 

Weighted average shares outstanding during the period, net of treasury shares (a)

  25,551   25,016   25,528   25,007 

Weighted average vested restricted stock units outstanding

  63   37   52   37 

Weighted average shares outstanding in the Deferred Compensation Plan during the period

  244   261   244   250 

Weighted average shares outstanding

  25,858   25,314   25,824   25,294 
                 

Basic (loss) earnings per share

 $(0.06

)

 $0.08  $(0.66

)

 $0.11 
                 

DILUTED EARNINGS PER SHARE

                
                 

Net (loss) income

 $(1,468

)

 $2,006  $(17,097

)

 $2,835 
                 

Weighted average shares outstanding

                
                 

Basic

  25,858   25,314   25,824   25,294 
                 

Effect of dilutive securities (b):

                

Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any

  --   489   --   565 
                 

Weighted average shares outstanding (c)

  25,858   25,803   25,824   25,859 
                 

Diluted (loss) earnings per share

 $(0.06

)

 $0.08  $(0.66

)

 $0.11 

 

There were no customers or customer programs representing a concentration of 10% or more of the Company’s consolidated net sales in the three and nine months ended March 31, 2024, or 2023. There was no concentration of accounts receivable at March 31, 2024, or 2023.

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of March 31, 2024, and March 31, 2023:

  

Three Months Ended

  

Nine Months Ended

 

(In thousands)

 

March 31

  

March 31

 
  

2024

  

2023

  

2024

  

2023

 

Net Sales:

                

Lighting Segment

 $64,882  $66,707  $197,318  $201,074 

Display Solutions Segment

  43,304   50,763   143,314   172,269 
  $108,186  $117,470  $340,632  $373,343 
                 

Operating Income (Loss):

                

Lighting Segment

 $7,268  $6,529  $24,877  $22,441 

Display Solutions Segment

  4,064   5,501   14,585   19,759 

Corporate and Eliminations

  (3,672)  (4,298)  (12,955)  (15,409)
  $7,660  $7,732  $26,507  $26,791 
                 

Capital Expenditures:

                

Lighting Segment

 $999  $401  $3,012  $725 

Display Solutions Segment

  167   338   1,215   1,038 

Corporate and Eliminations

  111   19   399   (9)
  $1,277  $758  $4,626  $1,754 
                 

Depreciation and Amortization:

                

Lighting Segment

 $2,635  $1,344  $3,944  $4,113 

Display Solutions Segment

  1,970   1,044   2,946   2,993 

Corporate and Eliminations

  75   67   253   189 
  $4,680  $2,455  $7,143  $7,295 

  

March 31,
2024

  

June 30,
2023

 

Total Assets:

        

Lighting Segment

 $135,569  $142,941 

Display Solutions Segment

  138,449   145,307 

Corporate and Eliminations

  13,951   7,901 
  $287,969  $296,149 

The segment net sales reported above represent sales to external customers. Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses. Identifiable assets are those assets used by each segment in its operations.

The Company records a 10% mark-up on intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows:

Inter-segment sales

                
  

Three Months Ended

  

Nine Months Ended

 

(In thousands)

 

March 31

  

March 31

 
  

2024

  

2023

  

2024

  

2023

 

Lighting Segment inter-segment net sales

 $6,318  $5,101  $18,468  $16,312 
                 

Display Solutions Segment inter-segment net sales

 $96  $175  $536  $139 

The Company’s operations are located solely within North America. As a result, the geographic distribution of the Company’s net sales and long-lived assets originate within North America.

13

NOTE 4 -EARNINGS PER COMMON SHARE

The following table presents the amounts used to compute basic and diluted earnings per common share, as well as the effect of dilutive potential common shares on weighted average shares outstanding (in thousands, except per share data):

  

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 
  

2024

  

2023

  

2024

  

2023

 
                 

BASIC EARNINGS PER SHARE

                
                 

Net income

 $5,375  $4,669  $19,309  $17,347 
                 

Weighted average shares outstanding during the period, net of treasury shares

  28,084   27,376   27,933   27,050 

Weighted average vested restricted stock units outstanding

  75   52   78   70 

Weighted average shares outstanding in the Deferred Compensation Plan during the period

  1,004   878   970   892 

Weighted average shares outstanding

  29,163   28,306   28,981   28,012 
                 

Basic earnings per common share

 $0.18  $0.16  $0.67  $0.62 
                 
                 

DILUTED EARNINGS PER SHARE

                
                 

Net income

 $5,375  $4,669  $19,309  $17,347 
                 

Weighted average shares outstanding:

                
                 

Basic

  29,163   28,306   28,981   28,012 
                 

Effect of dilutive securities (a):

                

Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any

  959   1,305   1,024   1,043 

Weighted average shares outstanding

  30,122   29,611   30,005   29,055 
                 

Diluted earnings per common share

 $0.18  $0.16  $0.64  $0.60 
                 
                 

Anti-dilutive securities (b)

  3   -   10   181 

 

(a)

Includes shares accounted for like treasury stock.

(b)

Calculated using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period.

(b)

(c)

Options to purchase 3,569,762 common shares and 1,682,270 common shares for the three months ended December 31, 2017 and 2016, respectively, and options to purchase 3,549,705 common shares and 1,626,770 common shares for the six months ended December 31, 2017 and 2016, respectively were not included in the computation of the three month and six month period for diluted earnings

Anti-dilutive securities were excluded from the computation of diluted net income per share respectively, because the exercise price was greater than the average fair market value of the common shares. For the three and six months ended December 31, 2017, the effect of dilutive securities was not included in the calculation of diluted earnings (loss) per share because there was a net operating loss for the period.

Page 14

NOTE 5 - INVENTORIES

The following information is provided as of the dates indicated:

  

December 31,

  

June 30,

 

(In thousands)

 

2017

  

2017

 
         

Inventories:

        

Raw materials

 $31,156  $32,421 

Work-in-process

  2,772   3,527 

Finished goods

  14,734   14,060 

Total Inventories

 $48,662  $50,008 

NOTE 6 - ACCRUED EXPENSES

The following information is provided as of the dates indicated:

  

December 31,

  

June 30,

 

(In thousands)

 

2017

  

2017

 
         

Accrued Expenses:

        

Compensation and benefits

 $8,667  $9,759 

Customer prepayments

  840   1,061 

Accrued sales commissions

  2,214   2,314 

Accrued warranty

  6,688   7,560 

Other accrued expenses

  7,304   5,375 

Total Accrued Expenses

 $25,713  $26,069 

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS

Carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of goodwill and indefinite-lived intangible assets using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of goodwill and intangible assets requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate.  The estimates of fair value of reporting units are based on the best information available as of the date of the assessment.  The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge.  Company management uses its judgment in assessing whether assets may have become impaired between annual impairment tests.  Indicators such as adverse business conditions, economic factors and technological change or competitive activities may signal that an asset has become impaired.

The Company identified its reporting units in conjunction with its annual goodwill impairment testing.  The Company has a total of three reporting units that contain goodwill. There are two reporting units within the Lighting Segment and one reporting unit within the Graphics Segment. One reporting unit previously reported in the Technology Segment has been transferred to the Lighting Segment as a result of the merge of the Technology Segment with the Lighting Segment (See Note 3). The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

A sustained and significant decline in the Company’s stock price in the first quarter of fiscal 2018 led management to believe that a triggering event occurred and that an interim goodwill impairment test was required for one of the reporting units in the Lighting Segment that contains goodwill, as of September 30, 2017. Because the Company elected to early adopt ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, the requirement to perform step 2 in the impairment test was not required. The result of the impairment test on the reporting unit in the Lighting Segment indicated that goodwill was impaired by $28,000,000.

Page 15

The following table presents information about the Company's goodwill on the dates or for the periods indicated:

Goodwill

            

(In thousands)

 

Lighting

  

Graphics

     
  

Segment

  

Segment

  

Total

 

Balance as of June 30, 2017

            

Goodwill

 $94,564  $28,690  $123,254 

Accumulated impairment losses

  (37,191

)

  (27,525

)

  (64,716

)

Goodwill, net as of June 30, 2017

 $57,373  $1,165  $58,538 
             

Goodwill Impairment

  (28,000

)

  --   (28,000

)

             

Balance as of December 31, 2017

            

Goodwill

 $94,564   28,690   123,254 

Accumulated impairment losses

  (65,191

)

  (27,525

)

  (92,716

)

Goodwill, net as of December 31, 2017

 $29,373  $1,165  $30,538 

The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:

  

December 31, 2017

 

Other Intangible Assets

 

Gross

         

(In thousands)

 

Carrying

  

Accumulated

  

Net

 
  

Amount

  

Amortization

  

Amount

 

Amortized Intangible Assets

            

Customer relationships

 $35,563  $8,982  $26,581 

Patents

  338   201   137 

LED technology firmware, software

  16,066   11,521   4,545 

Trade name

  2,658   554   2,104 

Non-compete agreements

  710   710   -- 

Total Amortized Intangible Assets

  55,335   21,968   33,367 
             

Indefinite-lived Intangible Assets

            

Trademarks and trade names

  3,422   --   3,422 

Total Indefinite-lived Intangible Assets

  3,422   --   3,422 

Total Other Intangible Assets

 $58,757  $21,968  $36,789 

  

June 30, 2017

 

Other Intangible Assets

 

Gross

         
  

Carrying

  

Accumulated

  

Net

 

(In thousands)

 

Amount

  

Amortization

  

Amount

 

Amortized Intangible Assets

            

Customer relationships

 $35,563  $7,956  $27,607 

Patents

  338   186   152 

LED technology firmware, software

  16,066   11,237   4,829 

Trade name

  2,658   499   2,159 

Non-compete agreements

  710   710   - 

Total Amortized Intangible Assets

  55,335   20,588   34,747 
             

Indefinite-lived Intangible Assets

            

Trademarks and trade names

  3,422   --   3,422 

Total Indefinite-lived Intangible Assets

  3,422   --   3,422 
             

Total Other Intangible Assets

 $58,757  $20,588  $38,169 

Page 16

(In thousands)

 

Amortization Expense of

Other Intangible Assets

 
  

 

December 31, 2017

  

December 31, 2016

 
         

Three Months Ended

 $690  $101 

Six Months Ended

 $1,380  $208 

The Company expects to record annual amortization expense as follows:

(In thousands)    
     

2018

 $2,760 

2019

 $2,760 

2020

 $2,687 

2021

 $2,682 

2022

 $2,461 

After 2022

 $21,397 

NOTE 8 - REVOLVING LINE OF CREDIT

In February2017 the Company amended its secured line of credit to a $100 million facility. The line of credit expires in the third quarter of fiscal 2022. Interest on the revolving line of credit is charged based upon an increment over the LIBOR rate as periodically determined, or at the bank’s base lending rate, at the Company’s option.  The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between 125 and 250 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the line of credit agreement. The increment over LIBOR borrowing rate will remain at 175 basis points for the next twelve months.  The fee on the unused balance of the $100 million committed line of credit is 15 basis points.  Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum fixed charge coverage ratio. As of December 31, 2017, there was $52.1 million borrowed against the line of credit, and $47.9 million was available as of that date. Based on the terms of the line of credit and the maturity date, the debt has been classified as long term.

The Company is in compliance with all of its loan covenants as of December 31, 2017.

NOTE 9 - CASH DIVIDENDS

The Company paid cash dividends of $2,564,000 and $2,513,000 in the sixthree months ended DecemberMarch 31, 2017 2024, and 2016, respectively. Dividends on restricted stock units inMarch 31, 2023, because the amount of $38,463 and $19,826 were accrued as of December 31, 2017 and 2016, respectively. These dividends will be paid uponexercise price was greater than the vesting of the restricted stock units when shares are issued to the award recipients. In January 2018, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 13, 2018 to shareholders of record as of February 5, 2018. The indicated annual cash dividend rate is $0.20 per share.

NOTE 10- EQUITY COMPENSATION

Stock Based Compensation

The Company’s equity compensation plan, the 2012 Stock Incentive Plan (“the 2012 Plan”), was approved by shareholders in November 2012. The 2012 Plan covers all of its full-time employees, outside directors and certain advisors and replaced all previous equity compensation plans. In November 2016, the Company’s shareholders approved an amendment to the 2012 Plan that added 1,600,000 shares to the plan and implemented the use of a fungible share ratio that consumes 2.5 available shares for every 1 full value share awarded by the Company as stock compensation. The 2012 Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, and other stock awards. Stock option grants or stock awards made pursuant to the 2012 Plan are granted ataverage fair market value at the date of option grant or stock award.  

Page 17

Stock option grants may be service-based or performance-based. Service-based options granted during fiscal 2017 and prior fiscal years generally have a four year ratable vesting period beginning one year after the date of grant. Service-based options granted during fiscal 2018 have a three year ratable vesting period beginning one year after the date of grant. Performance-based options have a three year ratable vesting period beginning one year after the date of grant. The maximum exercise period of stock options granted under the 2012 Plan is ten years.  If a stock option holder’s employment with the Company terminates by reason of death, disability or retirement, as defined in the Plan, the Plan generally provides for acceleration of vesting.  

The number of shares reserved for issuance under the 2012 Plan is 1,453,356 shares, all of which were available for future grant or award as of December 31, 2017.   Service-based and performance-based stock options were granted and restricted stock units (“RSUs”) were awarded during the six months ended December 31, 2017. As of December 31, 2017, a total of 3,448,677 stock options were outstanding under the 2012 Plan (as well as one previous stock option plan which was also approved by shareholders), of which, a total of 1,527,651 stock options were vested and exercisable.  As of December 31, 2017, the approximate unvested stock option expense that will be recorded as expense in future periods is $2,563,987.  The weighted average time over which this expense will be recorded is approximately 24 months. Additionally, as of December 31, 2017, a total of 187,150 RSUs were outstanding. The approximate unvested stock compensation expense that will be recorded as expense in future periods for the RSUs is $775,144. The weighted average time over which this expense will be recorded is approximately 30 months.

Stock Options

The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The below listed weighted average assumptions were used for grants in the periods indicated.

  

Three Months Ended

  

Six Months Ended

 
  

December 31

  

December 31

 
  

2017

  

2016

  

2017

  

2016

 
                 

Dividend yield

  3.06%  2.07%  3.35%  1.81%

Expected volatility

  41%  41%  41%  43%

Risk-free interest rate

  1.94%  2.06%  1.77%  1.00%

Expected life (in years)

 

6.0

  

6.0

  

6.0

  

6.0

 

At December 31, 2017, the 794,537 options granted during the firstsix months of fiscal 2018 to employees had exercise prices ranging from $5.92 to $6.54 per share, fair values ranging from of $1.71 to $1.96 per share, and remaining contractual lives of between 9.5 and 10 years.

At December 31, 2016, the 834,320 options granted during the firstsix months of fiscal 2017 to employees had exercise prices ranging from $9.65 to $11.06 per share, fair values ranging from of $3.29 to $3.83 per share, and remaining contractual lives of between 9.5 and 10 years.

The Company calculates stock option expense using the Black-Scholes model.  Stock option expense is recorded on a straight line basis, or sooner if the grantee is retirement eligible as defined in the 2012 Stock Incentive Plan, with an estimated 8.54% forfeiture rate effective October 1, 2017. Previous estimated forfeiture rates were between 2.0% and 8.3% between the periods January 1, 2013 through September 30, 2017. The expected volatility of the Company’s stock was calculated based upon the historic monthly fluctuation in stock price for a period approximating the expected life of option grants.  The risk-free interest rate is the rate of a five year Treasury security at constant, fixed maturity on the approximate date of the stock option grant.  The expected life of outstanding options is determined to be less than the contractual term for a period equal to the aggregate group of option holders’ estimated weighted average time within which options will be exercised.  It is the Company’s policy that when stock options are exercised, new common shares shall be issued.  

The Company recorded $367,920 of expense in the three months ended December 31, 2017 and recorded a reduction of expense of $142,434 in the three months ended December 31, 2016, related to stock options. The reduction of stock option expense in the three months ended December 31, 2016 was the result of expectations that the performance criteria related to incentive based options will not be met. The Company recorded $1,125,728 and $1,296,009 of expense related to stock options in the six months ended December 31, 2017 and 2016, respectively.  As of December 31, 2017, the Company had 3,344,138 stock options that were vested and that were expected to vest, with a weighted average exercise price of$8.13 per share, an aggregate intrinsic value of $905,309 and weighted average remaining contractual terms of 7.4 years.

Page 18

Information related to all stock options for the six months ended December 31, 2017 and 2016 is shown in the following tables:

  

Six Months Ended December 31, 2017

 
      

Weighted

  

Weighted

     
      

Average

  

Average

  

Aggregate

 
      

Exercise

  

Remaining

  

Intrinsic

 
  

Shares

  

Price

  

Contractual Term (in years)

  

Value

 
                 

Outstanding at 6/30/17

  3,119,688  $9.12   7.4  $2,332,224 
                 

Granted

  794,537  $5.98         

Forfeitures

  (438,609

)

 $11.62         

Exercised

  (26,939

)

 $6.49         
                 

Outstanding at 12/31/17

  3,448,677  $8.10   7.4  $971,344 
                 

Exercisable at 12/31/17

  1,527,651  $8.14   5.7  $218,246 

  

Six Months Ended December 31, 2016

 
      

Weighted

  

Weighted

     
      

Average

  

Average

  

Aggregate

 
      

Exercise

  

Remaining

  

Intrinsic

 
  

Shares

  

Price

  

Contractual Term (in years)

  

Value

 
                 

Outstanding at 6/30/16

  2,976,490  $8.97   6.6  $8,338,974 
                 

Granted

  834,320  $11.05         

Forfeitures

  (147,375

)

 $16.03         

Exercised

  (38,063

)

 $7.75         
                 

Outstanding at 12/31/16

  3,625,372  $9.18   7.1  $4,648,729 
                 

Exercisable at 12/31/16

  1,700,025  $8.73   5.1  $3,216,899 

The following table presents information related to unvested stock options:


  Shares  

Weighted-Average

Grant Date

Fair Value

 
         

Unvested at June 30, 2017

  1,842,127  $3.52 

Granted

  794,537  $1.73 

Vested

  (513,504) $3.49 

Forfeited

  (202,134) $3.46 

Unvested at December 31, 2017

  1,921,026  $2.79 

The weighted average grant date fair value of options granted during the six month periods ended December 31, 2017 and 2016 was $1.73 and $3.83, respectively. The aggregate intrinsic value of options exercised during the six months ended December 31, 2017 and 2016 was $22,079 and $99,883, respectively. The aggregate grant date fair value of options that vested during the six months ended December 31, 2017 and 2016 was $1,793,086 and $1,779,490, respectively. The Company received $174,965 and $295,030 of cash from employees who exercised options in the six month periods ended December 31, 2017 and 2016, respectively. In the firstsix months of fiscal 2018 the Company recorded a $83,608 reduction of the federal income tax payable, $559,474 as an increase in common stock, $87,354 as a reduction of income tax expense, and $170,462 as a reduction of the deferred tax assets. In the firstsix months of fiscal 2017 the Company recorded $95,443 as a reduction of federal income taxes payable, $124,056 as a decrease in common stock, $22,073 as a reduction of income tax expense, and $197,427 as a reduction of the deferred tax asset related to the issuance of RSUs and the exercises of stock options in which the employees sold the common shares prior toor because the passage of twelve monthsassumed proceeds from the date of exercise.    

Page 19

Restricted Stock Units

A total of 91,490 RSUs with aaward’s exercise or vesting was greater than the average fair value of $5.92 per share were awarded to employees during the six months ended December 31, 2017. The service-based RSUs awarded during fiscal 2018 have a three year ratable vesting period beginning one year after the date of award. A total of 71,700 RSUs with a fair value of $11.06 per share were awarded to employees during the six months ended December 31, 2016. The service-based RSUs awarded during fiscal 2017 and in prior fiscal years have a four year ratable vesting period beginning one year after the date of award. The Company determined the fair value of the awards based on the closingmarket price of the Company stock on the date the RSUs were awarded. The RSUs have a four year ratable vesting period. The RSUs are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on RSUs in the amount of $38,463 and $19,826 were accrued as of December 31, 2017 and 2016, respectively. Accrued dividends are paid to the holder upon vesting of the RSUs and issuance of shares.

14

NOTE 5 – INVENTORIES

The following information is provided as of the dates indicated:                           

  

March 31,

  

June 30,

 

(In thousands)

 

2024

  

2023

 
         

Inventories:

        

Raw materials

 $44,051  $47,689 

Work-in-progress

  3,790   3,373 

Finished goods

  12,490   12,656 

Total Inventories

 $60,331  $63,718 

NOTE 6- ACCRUED EXPENSES

The following information is provided as of the dates indicated:

  

March 31,

  

June 30,

 

(In thousands)

 

2024

  

2023

 
         

Accrued Expenses:

        

Customer prepayments

 $4,575  $5,425 

Compensation and benefits

  10,016   13,116 

Accrued warranty

  6,009   6,501 

Operating lease liabilities

  3,557   3,566 

Accrued sales commissions

  4,185   5,082 

Accrued Freight

  2,898   3,821 

Accrued FICA

  543   546 

Finance lease liabilities

  317   284 

Other accrued expenses

  4,476   5,444 

Total Accrued Expenses

 $36,576  $43,785 

NOTE 7-GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of the reporting unit using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of reporting unit requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate. The estimates of the fair value of reporting units are based on the best information available as of the date of the assessment. The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge. Company management uses its judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as adverse business conditions, economic factors and technological change or competitive activities may signal that an asset has become impaired.

The Company identified its reporting units in conjunction with its annual goodwill impairment testing. The Company has a total of three reporting units that contain goodwill. One reporting unit is within the Lighting Segment and two reporting units are within the Display Solutions Segment. The tradename intangible assets have an indefinite life and are also tested separately on an annual basis. The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows, and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

15

The following table presents information about the Company's goodwill on the dates or for the periods indicated:

Goodwill

     

Display

     

(In thousands)

 

Lighting

  

Solutions

     
  

Segment

  

Segment

  

Total

 

Balance as of March 31, 2024

            

Goodwill

 $70,971  $63,347  $134,318 

Accumulated impairment losses

  (61,763)  (27,525)  (89,288)

Goodwill, net as of March 31, 2024

 $9,208  $35,822  $45,030 
             

Balance as of June 30, 2023

            

Goodwill

 $70,971  $63,347  $134,318 

Accumulated impairment losses

  (61,763)  (27,525)  (89,288)

Goodwill, net as of June 30, 2023

 $9,208  $35,822  $45,030 

The gross carrying amount and accumulated amortization by each major intangible asset class is as follows:

Other Intangible Assets

 

March 31, 2024

 

(In thousands)

 

Gross

         
  

Carrying

  

Accumulated

  

Net

 
  

Amount

  

Amortization

  

Amount

 

Amortized Intangible Assets

            

Customer relationships

 $62,083  $20,379  $41,704 

Patents

  268   268   - 

LED technology firmware, software

  20,966   16,670   4,296 

Trade name

  2,658   1,238   1,420 

Non-compete

  260   149   111 

Total Amortized Intangible Assets

  86,235   38,704   47,531 
             

Indefinite-lived Intangible Assets

            

Trademarks and trade names

  12,102   -   12,102 

Total indefinite-lived Intangible Assets

  12,102   -   12,102 
             

Total Other Intangible Assets

 $98,337  $38,704  $59,633 

Other Intangible Assets

 

June 30, 2023

 

(In thousands)

 

Gross

         
  

Carrying

  

Accumulated

  

Net

 
  

Amount

  

Amortization

  

Amount

 

Amortized Intangible Assets

            

Customer relationships

 $62,083  $17,817  $44,266 

Patents

  268   268   - 

LED technology firmware, software

  20,966   15,783   5,183 

Trade name

  2,658   1,156   1,502 

Non-compete

  260   110   150 

Total Amortized Intangible Assets

  86,235   35,134   51,101 
             

Indefinite-lived Intangible Assets

            

Trademarks and trade names

  12,102   -   12,102 

Total indefinite-lived Intangible Assets

  12,102   -   12,102 
             

Total Other Intangible Assets

 $98,337  $35,134  $63,203 

16

  

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 
                 

Amortization Expense of Other Intangible Assets

 $1,190  $1,190  $3,570  $3,570 

The Company expects to record annual amortization expense as follows:

(In thousands)

    
     

2024

 $4,760 

2025

 $4,760 

2026

 $4,760 

2027

 $4,754 

2028

 $4,708 

After 2028

 $27,359 

NOTE 8-DEBT

The Company’s long-term debt as of March 31, 2024, and June 30, 2023, consisted of the following:

  

March 31,

  

June 30,

 

(In thousands)

 

2024

  

2023

 
         

Secured line of credit

 $-  $18,729 

Term loan, net of debt issuance costs of $20 and $30, respectively

  16,353   16,471 

Total debt

 $16,353  $35,200 

Less: amounts due within one year

  3,571   3,571 

Total amounts due after one year, net

 $12,782  $31,629 

In September 2021, the Company amended its existing $100 million secured line of credit, to a $25 million term loan and $75 million remaining as a secured revolving line of credit. Both facilities expire in the third quarter of fiscal 2026. The principal of the term loan is repaid annually in the amount of $3.6 million over a five-year period with a balloon payment of the remaining balance due on the last month. Interest on both the revolving line of credit and the term loan is charged based upon an increment over the Secured Overnight Financing Rate (SOFR) or a base rate, at the Company’s option. The base rate is calculated as the highest of (a) the Prime rate, (b) the sum of the Overnight Funding Rate plus 50 basis points and (c) the sum of the Daily SOFR Rate plus 100 basis points. The increment over the SOFR borrowing rate fluctuates between 100 and 225 basis points, and the increment over the Base Rate fluctuates between 0 and 125 basis points, both of which depend upon the ratio of indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as defined in the line of credit agreement. As of March 31, 2024, the Company has no borrowings against its revolving line of credit. If the Company had borrowed on its revolving line of credit, the borrowing rate as of March 31, 2024, would have been 6.6%. The increment over the SOFR borrowing rate will be 100 basis points for the fourth quarter of fiscal 2024. The fee on the unused balance of the $75 million committed line of credit fluctuates between 15 and 25 basis points. Under the terms of this line of credit, the Company is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum fixed charge ratio. As of March 31, 2024, the entire $75 million revolving line of credit was available for borrowing.

The Company is in compliance with all of its loan covenants as of March 31, 2024.

NOTE 9-CASH DIVIDENDS

The Company paid cash dividends of $4.3 million and $4.1 million for the nine months ended March 31, 2024, and March 31, 2023, respectively. In April 2024, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable May 14, 2024, to shareholders of record as of May 6, 2024. The indicated annual cash dividend rate is $0.20 per share. 

17

NOTE 10 – EQUITY COMPENSATION

The 2019 Omnibus Award Plan (“2019 Omnibus Plan”) authorizes for issuance up to 2,350,000 shares. The purpose of the 2019 Omnibus Plan is to provide a means to attract and retain key personnel and to align the interests of the directors, officers, and employees with the Company’s shareholders. The plan also provides a vehicle whereby directors and officers may acquire shares in order to meet the ownership requirements under the Company’s Stock Ownership Policy. The 2019 Omnibus Plan allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance stock units (“PSUs”) and other awards. While RSU grants are time-based, PSU grants offer participants the opportunity to acquire shares over a three-year performance measurement period tied to specific company performance metrics. As of March 31, 2024, 1,944,773 shares remain available for issuance under the 2019 Omnibus Plan.

In the first nine months of fiscal 2024, the Company granted 175,251 PSUs and 116,834 RSUs, both with a weighted average market value of $12.76. Stock compensation expense was $0.9 million and $0.9 million for the three months ended March 31, 2024, and 2023, respectively, and $2.9 million and $2.3 million in the nine months ended March 31, 2024, and 2023, respectively.

In the third quarter of fiscal 2024, the Company granted 30,000 inducement stock options, with a weighted average fair market value of $14.41. Stock compensation expense was $0.1 million for the three and nine months ended March 31, 2024, respectively.

In November of 2021, our board of directors approved the LSI Employee Stock Purchase Plan (“ESPP”). A total of 270,000 shares of common stock were provided for issuance under the ESPP. Employees may participate at their discretion and are able to purchase, through payroll deduction, common stock at a 10% discount on a quarterly basis. Employees may end their participation at any time during the offering period, and participation ends automatically upon termination of employment with the company. During the first nine months of fiscal year 2024, employees purchased 11,000 shares. At March 31, 2024, 245,000 shares remained available for purchase under the ESPP.

NOTE 11-SUPPLEMENTAL CASH FLOW INFORMATION

  

Nine Months Ended

 

(In thousands)

 

March 31

 
  

2024

  

2023

 

Cash Payments:

        

Interest

 $1,122  $2,325 

Income taxes

 $6,317  $7,808 
         

Non-cash investing and financing activities

        

Issuance of common shares as compensation

 $338  $270 

Issuance of common shares to fund deferred compensation plan

 $1,374  $1,530 

Issuance of common shares to fund ESPP plan

 $145  $97 

NOTE 12 - COMMITMENTS AND CONTINGENCIES

The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. Because it is not possible to predict with certainty the outcome or costs of these matters, the Company does not disclose a range of potential losses. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.

The Company may occasionally issue a standby letter of credit in favor of third parties. As of March 31, 2024, there were no such standby letters of credit issued.

NOTE 13 - LEASES

The Company leases certain manufacturing facilities along with a small office space, several forklifts, several small tooling items, and various items of office equipment. The Company also has one sublease. All but two of the Company’s leases are operating leases. Leases have a remaining term of one to seven years some of which have an option to renew. The Company does not assume renewals in determining the lease term unless the renewals are deemed reasonably certain. The lease agreements do not contain any material residual guarantees or material variable lease payments.

18

The Company has periodically entered into short-term operating leases with an initial term of twelve months or less. The Company elected not to record these leases on the balance sheet. For the three and nine months ended March 31, 2024, and 2023, the rent expense for these leases is immaterial.

The Company has certain leases that contain lease and non-lease components and has elected to utilize the practical expedient to account for these components together as a single lease component.

Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments.

  

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 
                 

Operating lease cost

 $993  $884  $2,893  $2,661 

Financing lease cost:

                

Amortization of right of use assets

  73   74   219   221 

Interest on lease liabilities

  13   16   41   51 

Variable lease cost

  22   22   65   65 

Sublease income

  (116)  (116)  (348)  (348)

Total lease cost

 $985  $880  $2,870  $2,650 

Supplemental Cash Flow Information:

 

Nine Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Cash flows from operating leases

        

Fixed payments - operating cash flows

 $2,806  $2,754 

Liability reduction - operating cash flows

 $2,421  $2,451 
         

Cash flows from finance leases

        

Interest - operating cash flows

 $41  $51 

Repayments of principal portion - financing cash flows

 $241  $192 

Operating Leases:

 

March 31,

  

June 30,

 
  

2024

  

2023

 
         

Total operating right-of-use assets

 $9,063  $8,921 
         

Accrued expenses (Current liabilities)

 $3,557  $3,566 

Long-term operating lease liability

  6,222   5,954 

Total operating lease liabilities

 $9,779  $9,520 
         

Weighted Average remaining Lease Term (in years)

  3.77   3.31 
         

Weighted Average Discount Rate

  5.35%  5.44%

19

Finance Leases:

 

March 31,

  

June 30,

 
  

2024

  

2023

 
         

Buildings under finance leases

 $2,033  $2,033 

Equipment under finance leases

  41   34 

Accumulated depreciation

  (1,159)  (929)

Total finance lease assets, net

 $915  $1,138 
         

Accrued expenses (Current liabilities)

 $317  $284 

Long-term finance lease liability

  719   960 

Total finance lease liabilities

 $1,036  $1,244 
         

Weighted Average remaining Lease Term (in years)

  3.08   3.83 
         

Weighted Average Discount Rate

  4.86%  4.86%

Maturities of Lease Liability:

 

Operating

Lease

Liabilities

  

Finance Lease Liabilities

  

Operating Subleases

  

Net Lease Commitments

 

2024

 $3,577  $317  $(94) $3,800 

2025

  2,675   362   (31)  3,006 

2026

  1,824   362   -   2,186 

2027

  1,360   114   -   1,474 

2028

  496   -   -   496 

Thereafter

  1,049   -   -   1,049 

Total lease payments

 $10,981  $1,155  $(125) $12,011 

Less: Interest

  (1,202)  (119)      (1,321)

Present Value of Lease Liabilities

 $9,779  $1,036      $10,690 

NOTE 14 – INCOME TAXES

The Company's effective income tax rate is based on expected income, statutory rates, and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

  

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 
  

2024

  

2023

  

2024

  

2023

 

Reconciliation of effective tax rate:

                
                 

Provision for income taxes at the anticipated annual tax rate

  25.3

%

  30.5

%

  26.0%  25.9%

Uncertain tax positions

  2.6   1.2   0.3   0.3 

Other

  -   0.7   -   0.2 

Share-based compensation

  -   0.2   (2.9)  0.6 

Effective tax rate

  27.9

%

  32.6

%

  23.4%  27.0%

NOTE 15 – SUBSEQUENT EVENTS

On April 18, 2024, the Company announced the acquisition of privately held EMI Industries (“EMI”) for an all-cash purchase price of $50 million. LSI funded the acquisition with cash and availability under its existing credit facility. Florida-based EMI is a metal and millwork manufacturer of standard and customized fixtures, displays, and food equipment for the convenience store, grocery, and restaurant industries. EMI designs and manufactures products from five production facilities located across the United States. EMI reported total revenue of $87.0 million in calendar 2023. Upon closing, the transaction will be immediately accretive to LSI on an adjusted earnings per share basis. EMI will become part of LSI’s display solutions segment on a reporting basis moving forward.


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note About Forward-Looking Statements

This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including this section. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “focus,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in in our Annual Report on Form 10-K in the following sections: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Risk Factors.” All of those risks and uncertainties are incorporated herein by reference. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of LSI Industries Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended June 30, 2023, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

Our condensed consolidated financial statements, accompanying notes and the “Safe Harbor” Statement, each as appearing earlier in this report, should be referred to in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Summary of Consolidated Results

Net Sales by Business Segment

 

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 
                 

Lighting Segment

 $64,882  $66,707  $197,318  $201,074 

Display Solutions Segment

  43,304   50,763   143,314   172,269 
  $108,186  $117,470  $340,632  $373,343 

Operating Income by Business Segment

 

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 
                 

Lighting Segment

 $7,268  $6,529  $24,877  $22,441 

Display Solutions Segment

  4,064   5,501   14,585   19,759 

Corporate and Eliminations

  (3,672)  (4,298)  (12,955)  (15,409)
  $7,660  $7,732  $26,507  $26,791 

Net sales of $108.2 million for the three months ended March 31, 2024, decreased $9.3 million or 8% as compared to net sales of $117.5 million for the three months ended March 31, 2023. The decrease in net sales was attributed to a $1.8 million decrease in net sales of the Lighting Segment, while the remainder of the decrease in net sales was attributable to the Display Solutions Segment. In our Display Solutions segment, recent program awards generated strong growth in the refueling/c-store and QSR verticals, partially offsetting delayed activity in the grocery vertical. Our diverse end-market exposure and solid execution was key during the third quarter, as certain verticals demonstrated robust or stable demand strength, while the grocery vertical remains unfavorably impacted by the proposed merger of two industry participants, and longer than expected regulatory review.

Net sales of $340.6 million for the nine months ended March 31, 2024, decreased $32.7 million or 9% as compared to net sales of $373.3 million for the nine months ended March 31, 2023. Net sales in the Lighting Segment decreased ($3.8 million or 2%) from the prior year. Net sales in the Display Solutions Segment decreased ($29.0 million or 17%) from the prior year. The challenges previously addressed above in the grocery market have been the primary cause of the decline in total sales year-over-year.

21

Operating income of $7.7 million for the three months ended March 31, 2024, remained stable from the same period in fiscal 2023. Adjusted operating income, a Non-GAAP measure, was $8.8 million in the three months ended March 31, 2024, and was also unchanged from the period in fiscal 2023. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. Despite an 8% decrease in sales, operating income remained consistent from prior year which reflects the Company’s focus in higher-value, solutions-based sales mix, continued sales discipline, and moderating input costs.

Operating income of $26.5 million for the nine months ended March 31, 2024, declined slightly from $26.8 million operating income for the nine months ended March 31, 2023. Adjusted operating income, a Non-GAAP financial measure, was $30.2 million in the nine months ended March 31, 2024, and remained equal to the same period in fiscal 2023. Refer to “Non-GAAP Financial Measures” below for a reconciliation of Non-GAAP financial measures to U.S. GAAP measures. Similar to the third quarter results, the Company was able to maintain the same level of operating income despite a 9% decline in sales.

 

The following table presents information related to RSUs:

  Shares  

Weighted-Average

Grant Date

Fair Value

 
         

Unvested at June 30, 2017

  133,335  $10.38 

Awarded

  91,490  $5.92 

Shares Issued

  (30,675) $10.30 

Shares Forfeited

  (7,000) $10.46 

Unvested at December 31, 2017

  187,150  $8.21 

As of December 31, 2017, the 187,150 RSUs had a remaining contractual life of between 2.5 and 3.5 years. Of the 187,150 RSUs outstanding as of December 31, 2017, 176,073 RSUs are vested or expected to vest in the future. An estimated forfeiture rate of 8.5% was used in the calculation of expense related to the RSUs. The Company recorded $81,895 and $337,310 of expense related to RSUs in the three and six month periods ended December 31, 2017, respectively.

As of December 31, 2016, the 118,575 RSUs had a remaining contractual life of between 2.5 and 3.5 years. Of the 118,575 RSUs outstanding as of December 31, 2016, 114,531 RSUs are vested or expected to vest in the future. An estimated forfeiture rate of 3.4% was used in the calculation of expense related to the RSUs. The Company recorded $89,896 and $392,197 of expense related to RSUs in the three and six month periods ended December 31, 2016, respectively.

Director and Employee Stock Compensation Awards

The Company awarded a total of 19,920 and 21,199 common shares in the six months ended December 31, 2017 and 2016, respectively, as stock compensation awards. These common shares were valued at their approximate $155,974 and $228,000 fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, respectively, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock and for employees who received a nominal recognition award in the form of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company.

Page 20

Deferred Compensation Plan

The Company has a non-qualified deferred compensation plan providing for both Company contributions and participant deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. As of December 31, 2017 there were 38 participants, all with fully vested account balances. A total of 245,732 common shares with a cost of $2,187,811, and 257,898 common shares with a cost of $2,456,875 were held in the plan as of December 31, 2017 and June 30,2017, respectively, and, accordingly, have been recorded as treasury shares. The change in the number of shares held by this plan is the net result of share purchases and sales on the open stock market for compensation deferred into the plan; shares newly issued for compensation deferred into the plan, and for distributions to terminated employees. The Company issued 42,280 new common shares for purposes of the non-qualified deferred compensation plan as of December 31, 2017 and the company did not issue new common shares for plan in fiscal 2017. The Company used approximately $106,537 and $390,288 to purchase 15,225 and 39,487 common shares of the Company in the open stock market during the six months ended December 31, 2017 and 2016, respectively, for either employee salary deferrals or Company contributions into the non-qualified deferred compensation plan.

The Company’s non-qualified deferred compensation is no longer funded by purchases in the open market of LSI stock as of September 30, 2017. This plan is now solely funded by newly issued shares that are authorized from the Company’s 2012 Stock Incentive Plan.

NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION

(In thousands)

 

Six Months Ended

December 31

 
  

2017

  

2016

 

Cash payments:

        

Interest

 $767  $21 

Income taxes

 $1,232  $2,381 
         

Non-cash investing and finance activities:

        

Issuance of common shares as compensation

 $156  $228 

Issuance of common shares to fund deferred compensation plan

 $261  $-- 

NOTE 12- COMMITMENTS AND CONTINGENCIES

The Company is party to various negotiations, customer bankruptcies, and legal proceedings arising in the normal course of business. The Company provides reserves for these matters when a loss is probable and reasonably estimable. The Company does not disclose a range of potential loss because the likelihood of such a loss is remote. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.

The Company may occasionally issue a standby letter of credit in favor of third parties. As of December 31, 2017, there were no standby letter of credit agreements.

NOTE 13 – SEVERANCE COSTS

The Company recorded severance expense of $83,000 and $173,000 in the six months ended December 31, 2017 and 2016, respectively. This severance expense was related to reductions in staffing not related to plant restructuring. See further discussion of restructuring expenses in Note 14.

The activity in the Company’s accrued severance liability is as follows for the periods indicated:

  

Six

  

Six

  

Fiscal

 
  

Months Ended

  

Months Ended

  

Year Ended

 

(In thousands)

 

December 31,

  

December 31,

  

June 30,

 
  

2017

  

2016

  

2017

 
             

Balance at beginning of the period

 $235  $39  $39 

Accrual of expense

  83   173   523 

Payments

  (218

)

  (205

)

  (313

)

Adjustments

  (14

)

  --   (14

)

Balance at end of the period

 $86  $7  $235 

NOTE 14 – RESTRUCTURING COSTS

On September 22, 2016, the Company announced plans to close its lighting facility in Kansas City, Kansas. The decision was based upon the market shift away from fluorescent and other technologies and the rapid movement to LED lighting which is produced at other LSI facilities. The Company expects to continue to meet the demand for products containing fluorescent light sources as long as these products are commercially viable. All operations at the Kansas City facility ceased prior to December 31, 2016. Fiscal 2017 restructuring costs related to the closure of the Kansas City facility were $944,000. There have been no restructuring costs in fiscal 2018. These costs primarily included employee-related costs (primarily severance), the impairment of manufacturing equipment, plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs. In addition, there was also an inventory write-down of $485,000 recorded in fiscal 2017. The write-down was related to inventory that was previously realizable until the decision in the first quarter of fiscal 2017 to close the Kanas City plant due to the planned curtailment of the manufacturing of fluorescent light fixtures. The Company owned the facility in Kansas City and realized a $1,361,000 gain when the facility was sold.

Page 21

The Company also announced the consolidation of the Beaverton, Oregon facility into other LSI facilities. The light assembly of products in the Beaverton facility was moved to the Company’s Columbus, Ohio facility, and administration and engineering functions were moved to the Company’s Cincinnati, Ohio facility. This consolidation was completed September 30, 2016. As a result of this consolidation, restructuring charges of $377,000 were recorded in fiscal 2017, with the majority of this representing the costs related to the remaining period of the facility’s lease and severance costs for employees who formerly worked in the Beaverton facility. There were no restructuring charges in fiscal 2018.

In November 2016, the Company announced the consolidation of the Woonsocket, Rhode Island manufacturing operation into its North Canton, Ohio operation. The manufacturing operations in Woonsocket ceased prior to December 31, 2016. The Company owned the facility in Woonsocket and realized a small gain when the facility was sold in September 2017. Total restructuring costs related to the consolidation of the Woonsocket facility were $452,000 in fiscal 2017. These costs primarily include employee-related costs (severance), plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs. There have been no restructuring charges in fiscal 2018.

Management does not expect any significant restructuring charges for fiscal 2018. All previously announced restructuring projects were completed in fiscal 2017 and all restructuring charges were recorded in fiscal 2017.

The following table presents information about restructuring costs for the periods indicated:

  

Three

  

Six Months

  

Three

  

Six Months

 
  

Months Ended

  

Ended

  

Months Ended

  

Ended

 

(In thousands)

 

December 31,

  

December 31,

  

December 31,

  

December 31,

 
  

2017

  

2017

  

2016

  

2016

 
                 

Severance and other termination benefits

 $--  $--  $526  $691 

Lease obligation

  --   --   --   213 

Impairment of fixed assets and accelerated depreciation

  --   --   80   353 

Other

  --   --   91   96 

Total

 $--  $--  $697  $1,353 

The following table presents restructuring costs incurred by line item in the consolidated statement of operations in which the costs are included:

  

Three Months Ended

  

Six Months Ended

 

(In thousands)

 

December 31

  

December 31

 
  

2016

  

2016

 
         

Cost of Goods Sold

 $640  $1,143 

Operating Expenses

  57   210 

Total

 $697  $1,353 

Page 22

The following table presents information about restructuring costs by segment for the periods indicated:

  

Three

  

Six Months

  

Three

  

Six Months

 
  

Months Ended

  

Ended

  

Months Ended

  

Ended

 

(In thousands)

 

December 31,

  

December 31,

  

December 31,

  

December 31,

 
  

2017

  

2017

  

2016

  

2016

 
                 

Lighting Segment

 $--  $--  $476  $1,021 

Graphics Segment

  --   --   221   221 

Corporate and Eliminations

  --   --   --   111 

Total

 $--  $--  $697  $1,353 

The above tables exclude the gain on the sale of the Kansas City and Woonsocket facilities. Additionally, the above tables do not include expense of $400,000 recorded during the first quarter of fiscal 2017 related to the write-down of inventory included as cost of sales as part of the Kansas City facility closure.

The following table presents a roll forward of the beginning and ending liability balances related to the restructuring costs:

(In thousands)

                    
  

Balance as of

June 30,

2017

  

Restructuring

Expense

  

Payments

  

Adjustments

  

Balance as of

December 31,

2017

 
                     

Severance and termination benefits

 $--  $--  $--  $--  $-- 

Lease obligation

  85   --   (85

)

  --   -- 

Other

  --   --   --   --   -- 

Total

 $85  $--  $(85

)

 $--  $-- 

Refer to Note 13 for information regarding additional severance expenses that are not included in the restructuring costs identified in this footnote.

NOTE 15– INCOME TAXES

The Company's effective income tax rate is based on expected income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income on a periodic basis as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

The Tax Cuts and Jobs Act was signed into law on December 22nd,2017 and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the US corporate income tax rate to 21% effective January 1, 2018. Because the Act became effective mid-way through the Company’s tax year, the Company will have a US statutory income tax rate of 27.7% for the fiscal 2018, and will have a 21% US statutory income tax rate for fiscal years thereafter. During the quarter ended December 31, 2017, the Company re-valued the deferred tax balances because of the change in US tax rate resulting in a one-time deferred tax expense of $4,676,578. The Company revised its full year projected effective tax rate to incorporate the fiscal 2018 statutory rate of 27.7%. The Company completed its accounting for the income tax effects of the Act during the quarter.

Page 23

  

Three Months Ended

  

Six Months Ended

 
  

December 31

  

December 31

 
  

2017

  

2016

  

2017

  

2016

 

Reconciliation to effective tax rate:

                
                 

Provision for income taxes at the anticipated annual tax rate

  28.9

%

  30.4

%

  28.9

%

  30.8

%

Enactment of tax law changes

  111.2   --   (22.2

)

  -- 

Uncertain tax positions

  (4.8

)

  (0.6

)

  0.5   (0.8

)

Difference between deferred and current tax rate related to the impairment of goodwill

  --   --   12.1   -- 

Other

  --   --   --   (1.8

)

Tax impact related to share based compensation

  0.3   (0.5

)

  (0.4

)

  (0.6

)

Effective tax rate

  135.6

%

  29.3

%

  18.9

%

  27.6

%

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s condensed consolidated financial statements, accompanying notes and the “Safe Harbor” Statement, each as appearing earlier in this report, should be referred to in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Net Sales by Business Segment

                

(In thousands)

 

Three Months Ended

  

Six Months Ended

 
  

December 31

  

December 31

 
  

2017

  

2016

  

2017

  

2016

 
                 

Lighting Segment

 $69,174  $65,076  $137,602  $130,341 

Graphics Segment

  23,131   20,582   42,169   39,476 
  $92,305  $85,658  $179,771  $169,817 

Operating Income (Loss) by Business Segment

                

(In thousands)

 

Three Months Ended

  

Six Months Ended

 
  

December 31

  

December 31

 
  

2017

  

2016

  

2017

  

2016

 
                 

Lighting Segment

 $5,275  $3,761  $(17,655

)

 $6,852 

Graphics Segment

  2,255   1,174   3,731   2,191 

Corporate and Eliminations

  (2,983

)

  (2,117

)

  (6,343

)

  (5,159

)

  $4,547  $2,818  $(20,267

)

 $3,884 

Summary Comments

Fiscal 2018 second quarter net sales of $92,305,000 increased $6.6 million or 7.8% as compared to second quarter fiscal 2017 net sales of $85,658,000. Net sales were favorably influenced by increased net sales of the Lighting Segment (up $4.1 million or 6.3%) and increased net sales of the Graphics Segment (up $2.5 million or 12.4%). Comparable fiscal 2018 net sales excluding net sales from Atlas Lighting Products, Inc. (“Atlas”) decreased by $7.3 million or 8.5% compared to fiscal 2017 net sales. The Company acquired Atlas on February 21, 2017.     

Fiscal 2018 first half net sales of $179,771,000 increased $10 million or 5.9% as compared to first half fiscal 2017 net sales of $169,817,000. Net sales were favorably influenced by increased net sales of the Lighting Segment (up $7.3 million or 5.5%) and increased net sales of the Graphics Segment (up $2.7 million or 6.8%). Comparable fiscal 2018 net sales excluding net sales from Atlas decreased by $15.0 million or 8.8% compared to fiscal 2017 net sales.

Page 24

Fiscal 2018 second quarter operating income of $4,547,000 increased $1.7 million or 61.4% from operating income of $2,818,000 in the second quarter of fiscal 2017. The increase in adjusted operating income was the net result of increased net sales, increased gross profit and increased gross profit as a percentage of sales, and an increase in selling and administrative expenses. The Company also recorded restructuring costs of $697,000 in the second quarter of fiscal 2017 with no corresponding cost in fiscal 2018.

Fiscal 2018 first half operating loss of $(20,267,000) represents a $24.2 million change from operating income of $3,884,000 in the first half of fiscal 2017. The change from operating income in fiscal 2017 to an operating loss in fiscal 2018 is primarily the result of a $28 million goodwill impairment in the first quarter of fiscal 2018. Also contributing to the year-over-year change in operating income is the net result of increased net sales, increased gross profit and increased gross profit as a percentage of sales, and an increase in selling and administrative expenses. The Company also recorded restructuring costs of $1,753,000 in the first half of fiscal 2017 with no corresponding cost in fiscal 2018.

Non-GAAP Financial Measures

 

The Company believesWe believe it is appropriate to evaluate itsour performance after making adjustments to the as-reported U.S. GAAP operating income, net income, and earnings per share. Adjusted operating income, net income, and earnings per share, which exclude the impact of a goodwill impairment, a tax chargelong-term performance based compensation expense, severance and restructuring costs, and consulting expense related to the revaluation of deferred tax assets, restructuringcommercial growth initiatives, are Non-GAAP financial measures. Also included below are Non-GAAP financial measures including Earnings before Interest, Taxes, Depreciation and plant closure costs,Amortization (EBITDA and other severance costs, are non-GAAP financial measures.Adjusted EBITDA), Free Cash Flow, and Net Debt to Adjusted EBITDA. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business. These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business results. WeAlthough the impacts of some of these items have been recognized in prior periods and could recur in future periods, we exclude these items because they provide greater comparability and enhanced visibility into our results of operations. These non-GAAP measures may be different from non-GAAP measures used by other companies.  In addition, the non-GAAP measures are not representativebased on any comprehensive set of the ongoingaccounting rules or principles.  Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results of operations ofas determined in accordance with U.S. GAAP. Therefore, these measures should be used only to evaluate our business.results in conjunction with corresponding GAAP measures. Below is a reconciliation of these non-GAAPNon-GAAP measures to operating income, net income, and earnings per share for the periods indicated.indicated along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow, and Net Debt to Adjusted EBITDA.

 

(in thousands, unaudited)

 

Second Quarter

 
  

FY 2018

  

FY 2017

 

Reconciliation of operating income to adjusted operating income:

        
         

Operating income as reported

 $4,547  $2,818 
         

Adjustment for restructuring and plant closure costs

  --   697 
         

Adjustment for other severance costs

  83   28 
         

Adjusted operating income

 $4,630  $3,543 

Reconciliation of operating income to adjusted operating income:

 

Three Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Operating Income as reported

 $7,660  $7,732 
         

Long-Term Performance Based Compensation

  1,021   968 
         

Consulting expense: Commercial Growth Initiatives

  -   75 
         

Severance costs and Restructruing costs

  141   - 
         

Adjusted Operating Income

 $8,822  $8,775 

 

(in thousands, except per share data; unaudited)

 

Second Quarter

 
      

Diluted

      

Diluted

 
  

FY 2018

  

EPS

  

FY 2017

  

EPS

 

Reconciliation of net income (loss) to adjusted net income:

                
                 

Net income (loss) and earnings (loss) per share as reported

 $(1,468) $(0.06) $2,006  $0.08 
                 

Tax impact from the reduction of the deferred tax assets

  4,676   0.18   --   -- 
                 

Adjustment for restructuring and plant closure costs, inclusive of the income tax effect

  --   --   448(1)  0.02 
                 

Adjustment for severance costs, inclusive of the income tax effect

  59(3)  --   23(2)  -- 
                 

Adjusted net income and earnings per share

 $3,267  $0.12  $2,477  $0.10 

Reconciliation of net income to adjusted net income

 

Three Months Ended

 
  

March 31

 

(In thousands, except per share data)

 

2024

  

2023

 
      

Diluted EPS

      

Diluted EPS

 
                 

Net Income as reported

 $5,375  $0.18  $4,669  $0.16 
                 

Long-Term Performance Based Compensation

  767 (1)  0.03   769 (3)  0.03 
                 

Consulting expense: Commercial Growth Initiatives

  -   -   59 (4)  - 
                 

Severance costs and Restructruing costs

  101 (2)  -   -   - 
                 

Net Income adjusted

 $6,243  $0.21  $5,497  $0.19 

 

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates re-computed after considering non-GAAP adjustments for the periods indicated. The income tax effects were as followsindicated (in thousands):

 

(1) 249$254

(2) 5$40

(3) 24$199

(4) $16

 

Page 25
22

 

(in thousands, unaudited)

 

First Half

 
  

FY 2018

  

FY 2017

 

Reconciliation of operating income (loss) to adjusted operating income:

        
         

Operating income (loss) as reported

 $(20,267) $3,884 
         

Adjustment for goodwill impairment

  28,000   -- 
         

Adjustment for restructuring, plant closure costs, and related inventory write-downs

  --   1,753 
         

Adjustment for other severance costs

  83   173 
         

Adjusted operating income

 $7,816  $5,810 

Reconciliation of operating income to adjusted operating income:

 

Nine Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Operating Income as reported

 $26,507  $26,791 
         

Long-Term Performance Based Compensation

  3,195   2,521 
         

Consulting expense: Commercial Growth Initiatives

  19   864 
         

Severance costs and Restructruing costs

  529   46 
         

Adjusted Operating Income

 $30,250  $30,222 

 

(in thousands, except per share data; unaudited)

 

First Half

 
      

Diluted

      

Diluted

 
  

FY 2018

  

EPS

  

FY 2017

  

EPS

 

Reconciliation of net income (loss) to adjusted net income:

                
                 

Net income (loss) and earnings (loss) per share as reported

 $(17,097) $(0.66) $2,835  $0.11 
                 

Adjustment for goodwill impairment, inclusive of the income tax effect

  17,361(4)  0.67         
                 

Tax impact from the reduction of the deferred tax assets

  4,676   0.18   --   -- 
                 

Adjustment for restructuring and plant closure costs, inclusive of the income tax effect

  --   --   1,143(1)  0.04 
                 

Adjustment for other severance costs, inclusive of the income tax effect

  59(3)  --   120(2)  -- 
                 

Adjusted net income and earnings per share

 $5,001  $0.19  $4,098  $0.16 

Reconciliation of net income to adjusted net income

 

Nine Months Ended

 
  

March 31

 

(In thousands, except per share data)

 

2024

  

2023

 
      

Diluted EPS

      

Diluted EPS

 
                 

Net Income as reported

 $19,309  $0.64  $17,347  $0.60 
                 

Long-Term Performance Based Compensation

  2,366(1)  0.08   2,107(4)  0.08 
                 

Consulting expense: Commercial Growth Initiatives

  13(2)  -   708(5)  0.02 
                 

Severance costs and Restructruing costs

  390(3)  0.01   38(6)  - 
                 

Tax rate difference between reported and adjusted net income

  (732)  (0.02)  -   - 
                 

Net Income adjusted

 $21,346  $0.71  $20,200  $0.70 

 

The following represents the income tax effects of the adjustments in the tables above, which were calculated using the estimated combined U.S., Canada and Mexico effective income tax rates re-computed after considering non-GAAP adjustments for the periods indicated. The income tax effects were as followsindicated (in thousands):

 

(1) 610$829

(2) 53$6

(3) 24$139

(4) 10,639$414

(5) $156

The reconciliation of reported net income and earnings per share to adjusted net income and earnings per share may not agree due to rounding differences and due to the difference between basic and dilutive weighted average shares outstanding in the computation of earnings per share.(6) $8

 

Page 26
23

 

Reconciliation of Net Income to Adjusted EBITDA

 

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 

Net Income - Reported

 $5,375  $4,669  $19,309  $17,347 
                 

Income Tax

  2,076   2,257   5,903   6,434 

Interest Expense, Net

  134   877   1,153   2,924 

Other (Income) Expense

  75   (71)  142   86 

Operating Income as reported

 $7,660  $7,732  $26,507  $26,791 
                 

Depreciation and Amortization

  2,415   2,455   7,143   7,295 
                 

EBITDA

 $10,075  $10,187  $33,650  $34,086 
                 

Long-Term Performance Based Compensation

  1,021   968   3,195   2,521 

Consulting expense: Commercial Growth Initiatives

  -   75   19   864 

Severance costs and Restructruing costs

  141   -   529   46 
                 

Adjusted EBITDA

 $11,237  $11,230  $37,393  $37,517 

Reconciliation of cash flow from operations to free cash flow

 

Three Months Ended

  

Nine Months Ended

 
  

March 31

  

March 31

 

(In thousands)

 

2024

  

2023

  

2024

  

2023

 
                 

Cash Flow from Operations

 $12,429  $12,486  $32,297  $32,548 
                 

Capital expenditures

  (1,277)  (759)  (4,626)  (1,754)
                 

Free Cash Flow

 $11,152  $11,727  $27,671  $30,794 

Net Debt to Adjusted EBITDA

 

March 31

 

(In thousands)

 

2024

  

2023

 
         

Current portion and long-term debt as reported

 $3,571  $3,571 

Long-Term Debt

  12,782   46,002 

Total Debt

  16,353   49,573 

Less: Cash and cash equivalents

  (7,175)  (1,350)
         

Net Debt

 $9,178  $48,223 
         

Adjusted EBITDA - Trailing 12 Months

 $51,496  $48,117 
         

Net Debt to Adjusted EBITDA

  0.2   1.0 

Results of Operations

 

THREE MONTHS ENDED DECEMBERMARCH 31, 20172024, COMPARED TO THREE MONTHS ENDED DECEMBERMARCH 31, 20162023

 

Lighting Segment

 

Three Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Net Sales

 $64,882  $66,707 

Gross Profit

 $21,564  $20,278 

Operating Income

 $7,268  $6,529 

Lighting Segment

(In thousands)

 

Three Months Ended

 
  

December 31

 
  

2017

  

2016

 
         

Net Sales

 $69,174  $65,076 

Gross Profit

 $19,259  $16,493 

Operating Income

 $5,275  $3,761 
24

 

Lighting Segment net sales of $69,174,000$64.9 million in the second quarter of fiscal 2018 increased 6.3%three months ended March 31, 2024, decreased 3% from fiscal 2017 same period net sales of $65,076,000. Comparable fiscal 2018 net sales excluding net sales from Atlas decreased by $9.8 million or 15.1% from fiscal 2017 second quarter sales. The Lighting Segment’s net sales of light fixtures having solid-state LED technology totaled $57.7$66.7 million in the second quarter ofsame period in fiscal 2018, representing an $11.6 million or 25.1% increase from fiscal 2017 second quarter net sales of solid-state LED light fixtures of $46.1 million. Light fixtures having solid-state LED technology represent 91.7% of total lighting product net sales in2023. Demand levels for the second quarter of fiscal 2018 comparednon-residential construction market have decreased slightly, and while our quotation pipeline remains highly active, the order conversion period continues to 78.2% of total lighting product net sales in the second quarter of fiscal 2017. Total lighting product net sales excludes sales related to installation and shipping and handling.  There was a reduction in the Company’s traditional lighting sales (metal halide and fluorescent light sources) from fiscal 2017 to fiscal 2018 as customers continue to convert from traditional lighting to light fixtures having solid-state LED technology.

Lighting Segment total net sales of solid-state LED technology in light fixtures have been recorded as indicated in the table below.

  

LED Net Sales

 

(In thousands)

 

FY 2018

  

FY 2017

  

% Change

 
             

First Quarter

 $52,956  $43,146   22.7%

Second Quarter

  57,726   46,137   25.1%

First Half

  110,682   89,283   24.0%

Third Quarter

      44,946     

Nine Months

      134,229     

Fourth Quarter

      52,303     

Full Year

     $186,532     

lengthen, specifically for larger projects.

 

Gross profit of $19,259,000$21.6 million in the second quarter of fiscal 2018three months ended March 31, 2024, increased $2.8$1.3 million or 16.8%6% from the same period of fiscal 2017, and increased from 25.1% to 27.4%2023. Gross profit as a percentage of Lighting Segment net sales (customer plus inter-segment net sales). The Company incurred restructuring and plant closure costs that were recorded in cost of sales related to the closure of the Kansas City, Kansas manufacturing facility of $429,000 with no comparable costs in fiscal 2018. The remaining increase in amount of gross profit is due to the net effect of improved product mix, net sales from Atlas for which there were no comparable sales in fiscal 2017, manufacturing efficiencies as a result of the Company’s lean initiatives, continued inflationary pressures in certain commodities, competitive pricing pressures, continued softnesswas 33.2% in the lighting industry, and cost savings relatedthree months ended March 31, 2024, compared to the closure of the Kansas City manufacturing facility.

Selling and administrative expenses of $13,984,000in the second quarter of fiscal 2018 increased $1.3 million or 9.9% from the same period of fiscal 2017, primarily as the net result of acquiring Atlas. Our comparable selling and administrative expenses excluding Atlas decreased 16.2% in the second quarter of fiscal 2018 from the same period of fiscal 2017. The more notable quarter-over-quarter changes impacting the $1.3 million increase in selling and administrative expenses are increased employee compensation and benefits expense ($0.8 million), decreased commission expense ($1.1 million), and increased amortization expense ($0.6 million).

The Lighting Segment second quarter fiscal 2018 operating income of $5,275,000 increased $1.5 million or 40.3% from operating income of $3,761,00030.4% in the same period of fiscal 2017.2023. The $1.5 million increaseimprovement in operating income was the net result of increased net sales, an increase in gross profit and gross profit as a percentage of sales increased selling and administrative expenses, and plant closure costson a 3% decrease in fiscal 2017 with no comparable expenses in fiscal 2018.

Page 27

Graphics Segment

(In thousands)

 

Three Months Ended

 
  

December 31

 
  

2017

  

2016

 
         

Net Sales

 $23,131  $20,582 

Gross Profit

 $6,046  $4,918 

Operating Income

 $2,255  $1,174 

Graphics Segment net sales of $23,131,000 in the second quarter of fiscal 2018 increased $2.5 million or 12.4% from fiscal 2017 same period netwas driven by stable pricing, a higher-value sales of $20,582,000. Sales to the Retailmix, continued sales price disciplines, favorable material input costs, and QSR markets increased in the second quarter of fiscal 2018 compared the second quarter of fiscal 2017, followed by a modest increase in sales to the Petroleum market.improved manufacturing productivity.

 

Gross profitOperating expenses of $6,046,000 $14.3 millionin the second quarter of fiscal 2018three months ended March 31, 2024, increased $1.1$0.6 million or 23.0%4% from the same period of fiscal 2017.2023, primarily driven by driven by continued investments in the agent network and commercial sales initiatives.

Lighting Segment operating income of $7.3 million for the three months ended March 31, 2024, increased $0.8 million or 11% from operating income of $6.5 million in the same period of fiscal 2023 primarily driven by an improvement in gross profit as a percentage of sales on lower net sales, and continued sales price disciplines, favorable material input costs, and improved manufacturing productivity.

Display Solutions Segment

 

Three Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Net Sales

 $43,304  $50,763 

Gross Profit

 $9,645  $11,927 

Operating Income

 $4,064  $5,501 

Display Solutions Segment net sales of $43.3 million in the three months ended March 31, 2024, decreased $7.5 million or 15% from net sales of $50.8 million in the same period in fiscal 2023. Despite growth in the refueling/c-store and QSR verticals, sales in the Display Solutions segment continue to be unfavorably impacted by a temporary pause in projected demand within the grocery market vertical related to the pending merger of two larger grocery chains.

Gross profit of $9.6 million in the three months ended March 31, 2024, decreased $2.3 million or 19% from the same period of fiscal 2023. Gross profit as a percentage of segment net sales (customer plus inter-segment net sales) increased from 23.1% in the second quarter of fiscal 2017three months ended March 31, 2024, was 22.3% compared to 25.0% in the second quarter of fiscal 2018. The change in amount of gross profit is due to the net effect of increased net sales (customer plus inter-segment net sales), improved gross profit margin on shipping and handling sales, and decreased employee compensation and benefit expense ($0.1 million). The Company incurred $211,000 in the second quarter of fiscal 2017 related to the closure of its Woonsocket, Rhode Island facility with no comparable expense in fiscal 2018.

Selling and administrative expenses of $3,791,000 in the second quarter of fiscal 2018 increased slightly from fiscal 2017 selling and administrative expenses of $3,744,000. There were only modest increases and offsetting decreases in several cost categories.

The Graphics Segment second quarter fiscal 2018 operating income of $2,255,000 increased $1.1 million or 92.1% from operating income of $1,174,00023.5% in the same period of fiscal 2017.2023. The increase of $1.1 million was primarily the net result of increased net sales, increasedreduction in gross profit and increased gross profit margin as a percentage of sales was primarily driven by the decrease in net sales partially offset by favorable program pricing and a small increase in selling and administrative costs.prudent cost management.

 

Corporate and EliminationsOperating expenses of $5.6 million in the three months ended March 31, 2024, decreased $0.8 million from $6.4 million in the same period of fiscal 2023. The decrease in operating expenses was primarily driven by efforts to manage costs in line with the decline in net sales.

 

(In thousands)

 

Three Months Ended

 
  

December 31

 
  2017  

2016

 

Gross Profit (Loss)

 $2  $(4)

Operating (Loss)

 $(2,983) $(2,117)

Display Solutions Segment operating income of $4.1 million in the three months ended March 31, 2024, decreased $1.4 million from operating income of $5.5 million in the same period of fiscal 2023. The decrease in operating income was primarily driven by the decrease in net sales.

Corporate and Eliminations

 

Three Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Gross Profit (Loss)

 $1  $(1)

Operating (Loss)

 $(3,672) $(4,298)

 

The gross profit (loss) relates to the change in the intercompany profit in inventory elimination.

 

Administrative expensesOperating expenses of $2,985,000$3.7 million in the second quarter of fiscal 2018 increased $0.9three months ended March 31, 2024, decreased $0.6 million or 41.0% from15% for operating expenses of $4.3 million in the same period of the prior year.fiscal 2023. The $0.9 million increase isdecrease was primarily the result of increased employee compensation and benefit expense ($1.1 million increase) partially offset by a reduction in the cost of outside services expense such as legal expenses ($0.2 million decrease). Mostcontainment initiatives across several of the increase in employee compensation and benefit expense is the result of the reduction of incentive-based compensation in the second quarter of fiscal 2017 which was driven by the operating results of the Company. There was no similar reduction in incentive-based compensation in fiscal 2018.Company’s cost categories.

25

 

Consolidated Results

 

The Company reported $417,000$0.1 million and $0.9 million of net interest expense in the second quarter of fiscal 2018 compared to net interest income of $20,000three months ended March 31, 2024, and March 31, 2023, respectively. The decrease in the second quarter of fiscal 2017. The change from interest income in fiscal 2017 to interest expense in fiscal 2018 iswas the result of borrowing against the Company’s lineability to paydown its debt from cash generated by operations. The Company also recorded a nominal amount of credit. Commitment feesother income which is related to the unused portion ofnet foreign exchange currency transaction net gains and (losses) through the Company’s line of creditMexican and interest income on invested cash are included in both fiscal years.Canadian subsidiaries.

 

The $5,598,000$2.1 million of income tax expense in the second quarter of fiscal 2018 was most notably impacted by a $4.7 million tax adjustment related to the revaluation of the Company’s deferred tax assets partially offset by a favorable tax impact related to the re-alignment of the Company’s tax expense to a lower effective tax rate, both related to the recently enacted “Tax Cut and Jobs Act” (“TCJA”) legislation. The $832,000 income tax expense in the second quarter of fiscal 2017three months ended March 31, 2024, represents a consolidated effective tax rate of 29.3%27.9%. This is the net result of anThe income tax rate for the $2.3 million of 30.8% influenced by certain permanent book-tax differences andincome tax expense in the three months ended March 31, 2023, represents a consolidated effective tax rate of 32.6%. The decrease in the effective tax rate is primarily driven by a benefit related to uncertain income tax positions.decrease in pre-tax profits in the higher taxing jurisdictions outside of the United States where the Company conducts business.

Page 28

 

The Company reported a net lossincome of $(1,468,000)$5.4 million in the second quarter of fiscal 2018 asthree months ended March 31, 2024, compared to net income of $2,006,000$4.6 million in the same period of the prior year. The change betweenthree months ended March 31, 2023. Non-GAAP adjusted net income in fiscal 2017was $6.2 million for the three months ended March 31, 2024, compared to aadjusted net loss in fiscal 2018 is mostly driven byincome of $5.5 million for the $4.7 million charge in fiscal 2018 relatedthree months ended March 31, 2023 (Refer to the re-valuationNon-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net results result of the Company’s deferred tax assets. Also contributing to the quarter-over-quarter net changea decrease in net income are increased net sales increased gross profit andmore than offset by an improvement ofincrease in the gross profit as a percentage of sales, increased selling and administrativea decrease in operating expenses and restructuring and plant closureprimarily driven by efforts to manage costs in fiscal 2017line with no comparable coststhe decline in fiscal 2018.net sales, and a decrease in interest expense resulting from a reduction in debt. Diluted lossearnings per share of $(0.06)$0.18 was reported in the second quarter of fiscal 2018three months ended March 31, 2024, as compared to $0.08$0.16 diluted earnings per share in the same period of fiscal 2017.2023. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the second quarter of fiscal 2018three months ended March 31, 2024, were 25,858,00030,122,000 shares as compared to 25,803,00029,611,000 shares in the same period last year.

 

SIXNINE MONTHS ENDED DECEMBERMARCH 31, 20172024, COMPARED TO SIXNINE MONTHS ENDED DECEMBERMARCH 31, 20162023

 

Lighting Segment    

Nine Months Ended

 
 

March 31

 

(In thousands)

 

Six Months Ended

  

2024

  

2023

 
 

December 31

 
 

2017

  

2016

 
         

Net Sales

 $137,602  $130,341  $197,318  $201,074 

Gross Profit

 $37,932  $32,383  $67,542  $63,015 

Operating (Loss) Income

 $(17,655

)

 $6,852 

Operating Income

 $24,877  $22,441 

 

Lighting Segment net sales of $137,602,000$197.3 million in the first half of fiscal 2018 increased 5.5%nine months ended March 31, 2024, decreased 2% from fiscal 2017 same period net sales of $130,341,000. Comparable fiscal 2018 net sales excluding net sales from Atlas decreased by $17.7 million or 13.6% from fiscal 2017 second quarter sales. The Lighting Segment’s net sales of light fixtures having solid-state LED technology totaled $110.7$201.1 million in the first half ofsame period in fiscal 2018, representing a $21.4 million or 24.0% increase from fiscal 2017 first half net sales of solid-state LED light fixtures of $89.3 million. Light fixtures having solid-state LED technology represent 88.3% of total lighting product net sales2023. Despite continued softness in the first half of fiscal 2018 comparednon-residential construction market, which contributed to 75.2% of total lighting product netthe small decline in sales, in the first half of fiscal 2017. Total lighting product net sales excludes sales relatedCompany continues to installationoutperform the broader market and shipping and handling. There was a reduction in the Company’s traditional lighting sales (metal halide and fluorescent light sources) from fiscal 2017 to fiscal 2018 as customers continue to convert from traditional lighting to light fixtures having solid-state LED technology.gain market share.

 

Gross profit of $37,932,000$67.5 million in the first half of fiscal 2018nine months ended March 31, 2024, increased $5.5$4.5 million or 17.1%7% from the same period of fiscal 2017, and increased from 24.6% to 27.2%2023. Gross profit as a percentage of Lighting Segment net sales (customer plus inter-segment net sales). The Company incurred restructuring and plant closure costs that were recorded in cost of sales related to the closure of the Kansas City, Kansas manufacturing facility and the Beaverton, Oregon facility of $932,000 and plant closure costs related to an inventory write-down of $400,000 as the Company exited the manufacturing of fluorescent lighting fixtures with no comparable costs in fiscal 2018. The remaining increase in amount of gross profit is due to the net effect of improved product mix, net sales from Atlas for which there were no comparable sales in fiscal 2017, manufacturing efficiencies as a result of the Company’s lean initiatives, continued inflationary pressures in certain commodities, competitive pricing pressures, continued softnesswas 34.2% in the lighting industry, and cost savings relatednine months ended March 31, 2024, compared to the closure of the Kansas City and Beaverton facilities.

Selling and administrative expenses of $27,587,000in the first half of fiscal 2018 excluding the $28 million goodwill impairment charge, increased $2.1 million or 8.1% from the same period of fiscal 2017 primarily as the net result of acquiring Atlas. Our comparable selling and administrative expenses excluding Atlas decreased 17.5% in the first half of fiscal 2018 from the same period of fiscal 2017. The more notable year-over-year changes impacting the $2.1 million increase in selling and administrative expenses are increased employee compensation and benefits expense ($1.3 million), increased research and development expense ($0.2 million), decreased commission expense ($1.6 million), and increased amortization expense ($1.2 million). The Company recorded a $28 million goodwill impairment charge in fiscal 2018 with no comparable expense in fiscal 2017. The Company will perform an impairment analysis in the third quarter of fiscal 2018 in conjunction with its annual impairment test.          

The Lighting Segment first half fiscal 2018 operating loss of $(17,655,000) represents a $24,507,000 change from operating income of $6,852,00031.3% in the same period of fiscal 2017 primarily due to a $28 million pre-tax goodwill impairment charge.2023. The year-over-year change was also the net result of increased net sales, an increaseimprovement in gross profit and gross profit as a percentage of sales increased selling and administrative expenses, and plant closure costson a 2% decrease in fiscal 2017 with no comparable expenses in fiscal 2018.

Page 29

Graphics Segment   

(In thousands)

 

Six Months Ended

 
  

December 31

 
  

2017

  

2016

 
         

Net Sales

 $42,169  $39,476 

Gross Profit

 $11,109  $9,358 

Operating Income

 $3,731  $2,191 

Graphics Segment net sales of $42,169,000 in the first half of fiscal 2018 increased $2.7 million or 6.8% from fiscal 2017 same period netwas driven by stable pricing, a higher-value sales of $39,476,000. Sales to the Retailmix, continued sales price disciplines, favorable material input costs, and QSR markets increased in the first half of fiscal 2018 compared to fiscal 2017 which more than offset a decline in sales to the Petroleum market over the same period.improved manufacturing productivity.

 

Gross profitOperating expenses of $11,109,000 $42.7 millionin the first half of fiscal 2018nine months ended March 31, 2024, increased $1.8$2.1 million or 18.7% from the same period of fiscal 2017.2023, primarily driven by driven by continued investments in the agent network and the sales team.

Lighting Segment operating income of $24.9 million for the nine months ended March 31, 2024, increased $2.5 million or 11% from operating income of $22.4 million in the same period of fiscal 2023 primarily driven by an improvement in gross profit as a percentage of sales on lower net sales, and continued sales price disciplines, favorable material input costs, and improved manufacturing productivity.

Display Solutions Segment

 

Nine Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Net Sales

 $143,314  $172,269 

Gross Profit

 $31,793  $38,061 

Operating Income

 $14,585  $19,759 

Display Solutions Segment net sales of $143.3 million in the nine months ended March 31, 2024, decreased $29.0 million or 17% from net sales of $172.3 million in the same period in fiscal 2023. Despite recent growth in the refueling/c-store and QSR verticals, sales in the Display Solutions segment continue to be unfavorably impacted by a temporary pause in projected demand within the grocery market vertical related to the pending merger of two larger grocery chains.

26

Gross profit of $31.8 million in the nine months ended March 31, 2024, decreased $6.3 million or 17% from the same period of fiscal 2023. Gross profit as a percentage of segment net sales (customer plus inter-segment net sales) increased from 23.2% in the first half of fiscal 2017nine months ended March 31, 2024, was 22.2% compared to 25.7% in the first half of fiscal 2018. The change in amount of gross profit is due to the net effect of increased net sales (customer plus inter-segment net sales), an improvement in the gross profit margin of installation and shipping and handling sales, and decreased employee compensation and benefit expense ($0.5 million). The Company incurred $211,000 in the first half of fiscal 2017 related to the closure of its Woonsocket, Rhode Island facility with no comparable expense in fiscal 2018.

Selling and administrative expenses of $7,378,000 in the first half of fiscal 2018 increased 2.9% or $0.2 million from fiscal 2017 selling and administrative expenses of $7,167,000. There were only modest increases and offsetting decreases in several cost categories.

The Graphics Segment first half fiscal 2018 operating income of $3,731,000 increased $1.5 million or 70.3% from operating income of $2,191,00022.1% in the same period of fiscal 2017.2023. The increase of $1.5 million was primarily the net result of increased net sales, increasedsmall improvement in gross profit and increased gross profit margin as a percentage of sales was driven improved program pricing, and a small increase in selling and administrative costs.favorable sales mix on lower sales.

 

Operating expenses of $17.2 million in the nine months ended March 31, 2024, decreased $1.1 million or 6% from $18.3 million in the same period of fiscal 2023. The decrease in operating expenses was primarily driven by efforts to manage costs in line with the decline in net sales.

Corporate and Eliminations   

(In thousands)

 

Six Months Ended

 
  

December 31

 
  

2017

  

2016

 
         

Gross Profit (Loss)

 $(31

)

 $501 

Operating (Loss)

 $(6,343

)

 $(5,159

)

Display Solutions Segment operating income of $14.6 million in the nine months ended March 31, 2024, decreased $5.2 million or 26% from operating income of $19.8 million in the same period of fiscal 2023. The decrease in operating income was primarily driven by the decrease in net sales.

Corporate and Eliminations

 

Nine Months Ended

 
  

March 31

 

(In thousands)

 

2024

  

2023

 
         

Gross Profit

 $-  $6 

Operating (Loss)

 $(12,955) $(15,409)

 

The gross profit (loss) relates to the change in the intercompany profit in inventory elimination.

 

Administrative expensesOperating expenses of $6,312,000$13.0 million in the first half of fiscal 2018 increased $0.7nine months ended March 31, 2024, decreased $2.6 million or 11.5% from the same period of the prior year.fiscal 2023. The $0.7 million increase isdecrease was primarily the result of increased employee compensation and benefit expense ($0.5 million increase) and by a net increase in othercost containment initiatives across several of the Company’s cost categories. Most of the increase in employee compensation and benefit expense is the result of the reduction of incentive-based compensation in the second quarter of fiscal 2017 which is driven by the operating results of the Company. There was no similar reduction in incentive-based compensation in fiscal 2018. Also contributing to the net change in administrative expenses are restructuring costs of $0.1 million recorded in fiscal 2017 related to the consolidation of its Beaverton, Oregon facility into other LSI facilities, with no comparable costs in fiscal 2018.

 

Consolidated Results

The Company reported $820,000$1.2 million and $2.9 million of net interest expense in the first half of fiscal 2018 compared to net interest income of $34,000nine months ended March 31, 2024, and March 31, 2023, respectively. The decrease in the first half of fiscal 2017. The change from interest income in fiscal 2017 to interest expense in fiscal 2018 iswas the result of borrowing against the Company’s lineability to paydown its debt from cash generated by operations. The Company also recorded a nominal amount of credit. Commitment feesother income which is related to the unused portion ofnet foreign exchange currency transaction net gains through the Company’s line of creditMexican and interest income on invested cash are included in both fiscal years.Canadian subsidiaries.

Page 30

 

The $3,990,000 tax benefit in the first half$5.9 million of fiscal 2018 represents a consolidated overall tax rate of 135.6%. This is a result of an effective tax rate of 58.2% influenced most notably by the first quarter goodwill impairment, and by a $4.7 million tax adjustment related to the revaluation of the Company’s deferred tax assets partially offset by a favorable tax impact related to the re-alignment of the Company’s tax expense to a lower effective tax rate, both related to the recently enacted TCJA legislation. The $1,083,000 income tax expense in the first half of fiscal 2017nine months ended March 31, 2024, represents a consolidated effective tax rate of 18.9%23.4%. This isThe $6.4 million income tax expense in the net result of an incomenine months ended March 31, 2023, represents a consolidated effective tax rate of 28.9% influenced27.0%. The decrease in the effective tax rate is primarily driven by certain permanent book-tax differences, by a benefit related to uncertain incomethe favorable tax positions, and by atreatment of the Company’s long-term performance based compensation in fiscal 2024 with no comparable favorable adjustment to a deferred tax asset.treatment in fiscal 2023.

 

The Company reported a net lossincome of $(17,097,000)$19.3 million in the first half of fiscal 2018 asnine months ended March 31, 2024, compared to net income of $2,835,000$17.3 million in the same period of the prior year. The change betweennine months ended March 31, 2023. Non-GAAP adjusted net income in fiscal 2017was $21.3 million for the nine months ended March 31, 2024, compared to aadjusted net loss in fiscal 2018 is mostly driven byincome of $20.2 million for the $4.7 million charge in fiscal 2018 relatednine months ended March 31, 2023 (Refer to the re-valuationNon-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net results result of the Company’s deferred tax assets and by the first quarter goodwill impairment. Also contributing to the quarter-over-quarter net changea decrease in net income are increased net sales increased gross profit andmore than offset by an improvement ofincrease in the gross profit as a percentage of sales, increased selling and administrativea decrease in operating expenses and restructuring and plant closureprimarily driven by efforts to manage costs in fiscal 2017line with no comparable coststhe decline in fiscal 2018.net sales, and a decrease in interest expense resulting from a reduction in debt. Diluted lossearnings per share of $(0.66)$0.64 was reported in the first half of fiscal 2018nine months ended March 31, 2024, as compared to $0.11$0.60 diluted earnings per share in the same period of fiscal 2017.2023. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the first half of fiscal 2018nine months ended March 31, 2024, were 25,824,00030,005,000 shares as compared to 25,859,00029,055,000 shares in the same period last year.

 

Liquidity and Capital Resources

 

The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and itsour historical levels of net cash flows from operating activities to be the most important measures.

 

27

At DecemberMarch 31, 2017,2024, the Company had working capital of $72.8$77.2 million compared to $61.7$73.3 million at June 30, 2017.2023. Non-cash working capital for the period ending March 31, 2024, was $70.0 million which represents a drop of $1.4 million from $71.4 million non-cash working capital as of June 30, 2023. The ratio of current assets to current liabilities was 2.712.2 to 1 as compared to a ratio of 2.36 to 11.0 at March 31, 2024, and 2.0 at June 30, 2017.2023. The $11.1 million increasedecrease in non-cash working capital from June 30, 20172023, to DecemberMarch 31, 2017 was2024, is primarily driven by an increasea $9.0 million decrease in net accounts receivable ($10.9 million). The other offsetting changes to working capital are as follow: decreasedand a $3.4 million decrease in net inventories ($1.3 million); a reduction in the asset held for sale ($1.5 million); ainventory partially offset by $10.0 million decrease in accounts payable ($2.6 million); and an increase in accrued expenses ($0.4 million). The Company has a strategy of aggressively managing working capital, including reduction of theexpenses.

Net accounts receivable was $68.7 million and $77.8 million at March 31, 2024, and June 30, 2023, respectively. DSO was 58 days sales outstanding (“DSO”) and reduction of inventory levels, without reducing service to its customers.at March 31, 2023, slightly higher than 57 days at June 30, 2023.

 

Net inventories of $60.3 million at March 31, 2024, decreased $3.4 million from $63.7 million at June 30, 2023. The Company used $0.8decrease of $3.4 million of cash from operating activities in the first half of fiscal 2018 as compared to a source of cash of $4.6 million in the same period of the prior year. This $5.4 million decrease in net cash flows from operating activities is primarily the net result of a larger increase in accounts receivable (unfavorable change of $8.2 million), a larger decrease in accounts payable (unfavorable change of $2.4 million), a decrease rather than an increase in customer prepayments (unfavorable change of $0.4 million), a smaller decrease in net inventory (unfavorable change of $0.7 million), a smaller decrease in accrued expenses and other (favorable change of $1.9 million), a decrease in refundable income taxes (favorable change of $0.8 million), and a change from net income in fiscal 2017 to a net loss in fiscal 2018 more than offset by an increase in non-cash items (favorable change of $3.7 million).

Net accounts receivable were $59.7$4.2 million and $48.9 million at December 31, 2017 and June 30, 2017, respectively. DSO increased to 56 days at December 31, 2017 from 52 days at June 30, 2017. The Company believes that its receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.

Net inventories of $48.7 million at December 31, 2017 decreased $1.4 million from $50.0 million at June 30, 2017. The decrease of $1.4 million is the result of a decrease in gross inventory of $1.0 million and an increase in obsolescence reserves of $0.4 million. Based on a strategy of balancing inventory reductions with customer service and the timing of shipments, net inventory increases occurred in the first half of fiscal 2018 in the GraphicsLighting Segment of approximately $0.9 million which was more thanpartially offset by a decrease$0.8 million increase in net inventory in the Lighting Segment of $2.2 million.Display Solutions Segment.

 

Cash generated from operations and borrowing capacity under the Company’s line of credit is the Company’sits primary source of liquidity. TheIn September 2021, the Company hasamended its existing $100 million credit facility, to a $25 million term loan and $75 million remaining as a secured $100 million revolving line of credit with its bank, with $56.8 million of the credit line available as of January 25, 2018. This line of credit is a $100 million five year credit line expiringcredit. Both facilities expire in the third quarter of fiscal 2022. The Company believes that its $1002026. As of March 31, 2024, the entire $75 million of the revolving credit line of credit plus cash flows from operating activities are adequate for the Company’s fiscal 2018 operational and capital expenditure needs.was available. The Company is in compliance with all of its loan covenants.

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The Company generated$100 million credit facility plus cash of $0.3 million related to investingflows from operating activities inare adequate for operational and capital expenditure needs for the halfremainder of fiscal 2018 as compared to a use of $2.7 million in the same period from the prior year, resulting in a favorable change of $3.1 million. Capital expenditures for the first half of fiscal 2018 decreased $1.6 million to $1.2 million from the same period in fiscal 2017. The Company sold its Woonsocket manufacturing facility for $1.5 million which contributed to the change in cash flow from investing activities from fiscal 2017 to fiscal 2018.2024.

 

The Company generated $0.6$32.3 million of cash from operating activities in the nine months ended March 31, 2024, compared to a similar generation of cash of $32.5 million in the nine months ended March 31, 2023. The Company continues to effectively manage its working capital while generating increasing cash flow from earnings in both fiscal years, resulting in strong cash flow from operations.

The Company used $4.6 million and $1.8 million of cash related to investing activities to support the Company’s various capital initiatives, in the nine months ended March 31, 2024, and March 31, 2023, respectively. The Company has increased its investment in equipment and tooling year-over-year to support sales growth and new products.

The Company used cash of $22.4 million and $32.0 million related to financing activities in the first half of fiscal 2018 compared to anine months ended March 31, 2024, and March 31, 2023, respectively. The use of cash of $2.7 million in the first half ofboth fiscal 2017. The $3.3 million favorable change in cash flowyears was primarily the net result of borrowingscash generated from improved earnings and effective working capital management, which in excessturn was used to pay down the Company’s line of payments of long term debt of $2.5credit. The Company also received $1.3 million and a decrease$3.1 million of cash in fiscal 2024 and fiscal 2023, respectively, related to the purchaseexercise of treasury shares coupled with an increase instock options. This influx of cash also contributed to the distributionpay down of treasury shares (favorable changethe Company’s line of $0.7 million).credit. On or about April 18, 2024, the Company borrowed $44.0 million, net of available cash, under the credit facility for the purposes of financing the acquisition of EMI.

 

The Company has or could have, on its balance sheet financial instruments consisting primarily of cash and cash equivalents, short-term investments, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates.

 

Off-Balance Sheet Arrangements

 

The Company has no financial instruments with off-balance sheet risk and hashave no off-balance sheet arrangements, except for various operating leases.arrangements.

 

Cash Dividends

 

In January 2018,April 2024, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 13, 2018May 14, 2024, to shareholders of record as of February 5, 2018.May 6, 2024. The indicated annual cash dividend rate for fiscal 20182024 is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.

 

Critical Accounting Policies and Estimates

 

The Company is required to make estimates and judgments in the preparationA summary of its financial statements that affect the reported amounts of assets, liabilities, revenues and expenses, and related footnote disclosures.  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.  The Company continually reviews these estimates and their underlying assumptions to ensure they remain appropriate.  The Company believes the items discussed below are among its mostour significant accounting policies because they utilize estimates aboutis included in Note 1 to the effect of matters that are inherently uncertain and therefore are based on management’s judgment.  Significant changes in the estimates or assumptions related to anyaudited consolidated financial statements of the following critical accounting policies could possibly have a material impactCompany’s fiscal 2023 Annual Report on the financial statements.Form 10-K. 

 

Revenue Recognition

Revenue is recognized when title to goods and risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services have been rendered, and collectability is reasonably assured. Sales are recorded net of estimated returns, rebates and discounts.  Amounts received from customers prior to the recognition of revenue are accounted for as customer pre-payments and are included in accrued expenses.

The Company has multiple sources of revenue:  revenue from product sales; revenue from installation of products; service revenue generated from providing integrated design, project and construction management, site engineering and site permitting, and commissioning of lighting controls; revenue from the management of media content and digital hardware related to active digital signage; and revenue from shipping and handling.

Product revenue is recognized on product-only orders upon passing of title and risk of loss, generally at time of shipment. In certain arrangements with customers, as is the case with the sale of some of our solid-state LED video screens, revenue is recognized upon customer acceptance of the video screen at the job site. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed.  The company provides product warranties and certain post-shipment service, support and maintenance of certain solid-state LED video screens and billboards.

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Installation revenue is recognized when the products have been fully installed.  The Company is not always responsible for installation of products it sells and has no post-installation responsibilities, other than normal warranties.

Service revenue from integrated design, project and construction management, and site permitting is recognized when all products at a customer site have been installed.

Revenue from the management of media content and digital hardware related to active digital signage is recognized evenly over the service period with the customer. Media content service periods with most customers range from 1 month to 1 year.

Shipping and handling revenue coincides with the recognition of revenue from the sale of the product.

In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separate unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company’s complete performance at the location, which may include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.

The Company also evaluates the appropriateness of revenue recognition in accordance with the accounting standard on software revenue recognition. Our solid-state LED video screens, billboards and active digital signage contain software elements which the Company has determined are incidental.

Income Taxes

The Company accounts for income taxes in accordance with the accounting guidance for income taxes. Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes.  Deferred income tax assets and liabilities are reported on the Company’s balance sheet.  Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets. The Company has adopted ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” As a result of early adoption of this accounting guidance, prior periods have been re-classified, which only affected the financial statement presentation and not the measurement of deferred tax liabilities and assets.

The Company operates in multiple taxing jurisdictions and is subject to audit in these jurisdictions.  The Internal Revenue Service and other tax authorities routinely review the Company’s tax returns.  These audits can involve complex issues which may require an extended period of time to resolve.  In management’s opinion, adequate provision has been made for potential adjustments arising from these audits.

The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Condensed Consolidated Statements of Operations.  The reserve for uncertain tax positions is not expected to change significantly in the next twelve months.

The Tax Cuts and Jobs Act was signed into law on December 22nd, 2017 and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the US corporate income tax rate to 21% effective January 1, 2018. Because the Act became effective mid-way through the Company’s tax year, the Company will have a US statutory income tax rate of 27.7% for the fiscal 2018, and will have a 21% US statutory income tax rate for fiscal years thereafter. During the quarter ended December 31, 2017, the Company re-valued the deferred tax balances because of the change in US tax rate resulting in a one-time deferred tax expense of $4,676,578.

Asset Impairment

Carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with the accounting guidance on goodwill and intangible assets. The Company may first assess qualitative factors in order to determine if goodwill is impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill is not impaired, no further testing is required. If it is determined that it is more likely than not that goodwill is impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues at the reporting unit level with the estimation of the fair value of goodwill and indefinite-lived intangible assets using a combination of a market approach and an income (discounted cash flow) approach. The estimation of the fair value of goodwill and indefinite-lived intangible assets requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate.  The estimates of fair value of reporting units are based on the best information available as of the date of the assessment.  The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge.  Company management uses its judgment in assessing whether assets may have become impaired between annual impairment tests.  Indicators such as adverse business conditions, a sustained drop in the Company’s stock price, economic factors and technological change or competitive activities may signal that an asset has become impaired.  

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      Carrying values for long-lived tangible assets and definite-lived intangible assets, excluding goodwill and indefinite-lived intangible assets, are reviewed for possible impairment as circumstances warrant. Impairment reviews are conducted at the judgment of Company management when it believes that a change in circumstances in the business or external factors warrants a review.  Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the forecast for a product, changes in technology or in the way an asset is being used, a history of negative operating cash flow, or an adverse change in legal factors or in the business climate, among others, may trigger an impairment review.  The Company’s initial impairment review to determine if a potential impairment charge is required is based on an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist.  The analysis requires judgment with respect to changes in technology, the continued success of product lines and future volume, revenue and expense growth rates, and discount rates.

Credit and Collections

The Company maintains allowances for doubtful accounts receivable for probable estimated losses resulting from either customer disputes or the inability of its customers to make required payments.  If the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against income.  The Company determines its allowance for doubtful accounts by first considering all known collectability problems of customers’ accounts, and then applying certain percentages against the various aging categories based on the due date of the remaining receivables.  The resulting allowance for doubtful accounts receivable is an estimate based upon the Company’s knowledge of its business and customer base, and historical trends.  The amount ultimately not collected may differ from the reserve established, particularly in the case where percentages are applied against aging categories.  In all cases, it is management’s goal to carry a reserve against the Company’s accounts receivable which is adequate based upon the information available at that time so that net accounts receivable is properly stated. The Company also establishes allowances, at the time revenue is recognized, for returns and allowances, discounts, pricing and other possible customer deductions.  These allowances are based upon contractual terms and historical trends.

Warranty Reserves

The Company offers a limited warranty that its products are free from defects in workmanship and materials.  The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within one to five years, with some exceptions where the terms extend to ten years, from the date of shipment.  The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation.  The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues.  The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Inventory Reserves

The Company maintains an inventory reserve for probable obsolete and excess inventory. The Company first determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. A combination of financial modeling and qualitative input factors are used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item.  Management values inventory at lower of cost or market.

The Company is required to make estimates and judgments in the preparation of its financial statements that affect the reported amounts of assets, liabilities, revenues and expenses, and related footnote disclosures.  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.  The Company continually reviews these estimates and their underlying assumptions to ensure they remain appropriate.  The Company believes the items discussed below are among its most significant accounting policies because they utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management’s judgment.  Significant changes in the estimates or assumptions related to any of the following critical accounting policies could possibly have a material impact on the financial statements.

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New Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board issued ASU 2014-09, “Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improves disclosures about revenue. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.” In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” These three standards clarify or improve guidance from ASU 2014-09 and are effective for fiscal and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal 2019. The Company will adopt these standards no later than July 1, 2018, using the modified retrospective transition method. The Company is reviewing accounting policies and evaluating disclosures in the financial statements related to the new standard. The Company is also assessing potential changes to the business processes, internal controls, and information systems related to the adoption of the new standard. While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. The recognition of revenue from most product sales is largely unaffected by the new standard. However, with respect to certain product sales requiring installation, revenue is currently not recognized until the installation is complete. While the Company does not expect this new guidance to have a material impact on the amount of overall sales recognized, the timing of recognition of revenues from sales on certain projects may be affected. Our initial conclusions may change as we finalize our assessment and select a transition method during the next six months.

In July 2015, the Financial Accounting Standards Board issued ASU 2015-11, “Simplifying the Measurement of Inventory.” The amended guidance requires an entity to measure in scope inventory at lower of cost and net realizable value. The amended guidance is effective for fiscal years beginning after December 15, 2016, or the Company’s fiscal 2018. We adopted the new accounting standard in the first quarter of fiscal 2018 and there was no material impact on the Company’s consolidated financial statements.

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, “Leases.” The amended guidance requires an entity to recognize assets and liabilities that arise from leases. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2018, or the Company’s fiscal 2020, with early adoption permitted. The Company has not yet determined the impact the amended guidance will have on its financial statements.  

In March 2016, the Financial Accounting Standards Board issued ASU 2016-08, “Principal versus Agent Considerations.” The amendment is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal 2019, with early adoption permitted in fiscal years beginning after December 15, 2016. The Company has determined the amended guidance will have an immaterial impact on its financial statements.

In March 2016, the Financial Accounting Standards Board issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This amended guidance simplifies several aspects of the accounting for share-based payment award transactions. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2016, or the Company’s fiscal 2018. We adopted this standard on July 1, 2017 and recognized excess tax benefits of $81,010 in income tax expense during the three months ended September 30, 2017. The amount may not necessarily be indicative of future amounts that may be recognized as any excess tax benefits recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Prior to July 1, 2017, excess tax benefits were recognized in additional paid-in capital. Additionally, excess tax benefits are now included in net cash flows provided by operating activities rather than net cash flows provided by financing activities in the Company’s Consolidated Statement of Cash Flows. The treatment of forfeitures has not changed, as the Company is electing to continue the current process of estimating forfeiture at the time of grant. The Company had no unrecognized excess tax benefits from prior periods to record upon the adoption of this ASU. 

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In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This amendment provides additional guidance on the measurement of expected credit losses for financial assets based on historical experience, current conditions, and supportable forecasts. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2019, or the Company’s fiscal 2021. The Company is evaluating the impact of the amended guidance and the anticipated impact to the financial statements is not material.

In August 2016, the Financial Accounting Standards Board issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments,” which provides cash flow classification guidance for certain cash receipts and cash payments. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, or the Company’s fiscal 2019. The Company is evaluating the impact the amended guidance will have on its financial statements.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes in the Company’sour exposure to market risk since June 30, 2017.2023. Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 1316 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2023.

 

28

 

ITEM 4.CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company maintainsWe maintain disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934.Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of DecemberMarch 31, 2017,2024, our disclosure controls and procedures were effective. Management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP for interim financial statements, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.

The Company acquired Atlas Lighting Products, Inc. (“Atlas”) on February 21, 2017. Management excluded Atlas from its evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2017. Atlas represented 31% of the Company’s total consolidated assets as of December 31, 2017, and 14% of the Company’s total consolidated sales for the fiscal year ended December 31, 2017.

 

Changes in Internal Control

 

There have been no changes in the Company’sour internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscalsecond quarter ended DecemberMarch 31, 2017,2024, that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.

 

PART II.OTHER INFORMATION

ITEM 5. OTHER INFORMATION

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSNone.

(c)

The Company does not purchase into treasury its own common shares for general purposes.  However, the Company does purchase its own common shares, through a Rabbi Trust, in connection with investments of employee/participants of the LSI Industries Inc. Non-Qualified Deferred Compensation Plan.  Purchases of Company common shares for this Plan in the second quarter of fiscal 2018 were as follows:

 

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ISSUER PURCHASES OF EQUITY SECURITIES

Period

(a) Total

Number of

Shares

Purchased

(b) Average

Price Paid

per Share

(c) Total Number of

Shares Purchased as Part of

Publicly Announced Plans

or Programs

(d) Maximum Number (or

Approximate Dollar Value) of

Shares that May Yet Be

Purchased Under the Plans or

Programs

10/1/17 to 10/31/17

--

--

--

(1)

11/1/17 to 11/30/17

--

--

--

(1)

12/1/17 to 12/31/17

--

--

--

(1)

Total

--

--

--

(1)

(1)

In the first half of fiscal 2018, all 575,000 shares authorized for the Company’s Non-Qualified Deferred Compensation Plan have been extinguished by purchase in the open market. Newly issued shares from the Company’s 2012 Stock Incentive Plan will replace shares purchased in the open market to fulfill the obligation the plan has to its participants. 

ITEM 6.EXHIBITS -

 

Exhibits:

 

10.1*

Nonqualified Deferred Compensation Plan Amended and Restated as of January 24, 2024

19.1

Insider Trading Policy Amended and Restated as of January 24, 2024

31.1

Certification of Principal Executive Officer required by Rule 13a-14(a)

31.2

Certification of Principal ExecutiveFinancial Officer required by Rule 13a-14(a)

 

31.232.1

Section 1350 Certification of Principal FinancialExecutive Officer required by Rule 13a-14(a)

 

32.132.2

Section 1350 Certification of Principal Executive Officer

32.2

Section 1350 Certification of Principal Financial Officer

 

101.INS Inline XBRL Instance Document

 

101.SCH Inline XBRL Taxonomy Extension Schema Document

 

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

104

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

* Management compensatory agreement.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

LSI Industries Inc.

    

By:

/s/ Dennis W. Wells James A. Clark

James A. Clark

Dennis W. Wells

Chief Executive Officer and President

(Principal Executive Officer)

    

By:

/s/ James E. Galeese

James E. Galeese

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

May 6, 2024

(Principal Financial Officer)

February 7, 2018

 

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31