What changed in this filing

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Item 1. Financial Statements

2020-05-05 compared with 2020-02-06 · 98 added, 79 removed, 453 unchanged (28% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands, except per share data)

10 unchanged sentences

Interest expense

Other (income)

Other expense

Income (loss) before income taxes

Income tax (benefit) expense

Income tax expense (benefit)

Net income (loss)

3 unchanged sentences

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands)

40 unchanged sentences

Retained (loss)

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Total shareholders' equity

10 unchanged sentences

(In thousands, except per share data)

Income (Loss)

Balance at June 30, 2018

8 unchanged sentences

Cumulative effect of adoption of accounting guidance

Balance at December 31, 2018

Balance at March 31, 2019

Common Shares

4 unchanged sentences

Shareholders'

Income (Loss)

Balance at June 30, 2019

9 unchanged sentences

Cumulative effect of adoption of accounting guidance

Balance at December 31, 2019

Balance at March 31, 2020

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

(In thousands)

1 unchanged sentence

Net income (loss)

Non-cash items included in net income

Non-cash items included in net income (loss)

Depreciation and amortization

4 unchanged sentences

Issuance of common shares as compensation

(Gain) loss on disposition of fixed assets

Gain on disposition of fixed assets

Allowance for doubtful accounts

17 unchanged sentences

Proceeds from stock option exercises

Net cash flows (used in) provided by financing activities

Increase in cash and cash equivalents

Net cash flows used in financing activities

Change related to foreign currency

Decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

6 unchanged sentences

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, 2019, the results of its operations for the three and six month periods ended December 31, 2019 and 2018, and its cash flows for the six month periods ended December 31, 2019 and 2018.

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, 2020, the results of its operations for the three and nine month periods ended March 31, 2020 and 2019, and its cash flows for the nine month periods ended March 31, 2020 and 2019.

These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2019 Annual Report on Form 10-K.

14 unchanged sentences

The Company is not always responsible for installation of products it sells and has no post-installation responsibilities other than standard warranties.

A number of the Company's products are highly customized.

A number of the Company's Graphics and select lighting products are highly customized for specific customers.

As a result, these customized products do not have an alternative use.

6 unchanged sentences

Digital signage and related media content

The Company also offers installation services.

The Company also offers installation services for its Graphics and select lighting products.

Installation revenue is recognized over time as our customer simultaneously receives and consumes the benefits provided through the installation process.

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands)

December 31, 2019

Lighting Segment

March 31, 2020

Graphics Segment

Lighting Segment

Graphics Segment

3 unchanged sentences

Three Months Ended

Six Months Ended

December 31, 2019

Lighting Segment

Nine Months Ended

March 31, 2020

Graphics Segment

Lighting Segment

Graphics Segment

18 unchanged sentences

The Company recorded a net increase to beginning retained earnings of $591,000 on July 1, 2018 due to the cumulative impact of adopting Topic 606, as described below.

ASC 606 Cumulative Impact

(in thousands)

Balance as of

1 unchanged sentence

June 30, 2018

Accounts receivable, net

8 unchanged sentences

In addition, the Company elected the practical expedient to not separate lease and non-lease component and the accounting policy election to not present leases with an initial term of twelve months or less on the balance sheet.

The Company’s most significant leases are those relating to its two manufacturing facilities along with a small office space.

Besides these three real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts, small tooling, and various office equipment.

The Company’s most significant leases are those relating to certain manufacturing facilities along with a small office space.

Besides these real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts, small tooling, and various office equipment.

All of the Company’s leases are operating leases and are included in other long-term assets with the corresponding liability in other long-term liabilities.

7 unchanged sentences

No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements other than noted below.

In December 2019, the Company signed a definitive agreement to sell a graphics manufacturing facility in North Canton, Ohio.

Advancements in graphics technology and the Company’s improved operating productivity coupled with better utilization of the manufacturing footprint in the graphics segment have reduced the quantity of floor space required by the business.

Upon consummation of the sale, production at the existing facility will be relocated to a smaller, leased facility in the North Canton area during the second half of fiscal 2020.

Under the terms of the agreement, the Company will receive approximately $8 million in gross cash proceeds.

The Company expects to record a gain on the sale of the facility.

The transaction is expected to close by March 31, 2020.

In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern.

On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.

As of the date of this filing, the Company’s locations and primary suppliers continue to be operating.

However, the broader implications of COVID-19 on the Company’s results of operations and overall financial performance remain uncertain.

The Company may experience constrained supply or slowed customer demand that could materially impact its business, results of operations and overall financial performance in future periods.

See Risk Factors in Part II, Item 1A of this Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on the Company’s business .

NOTE 3 - SEGMENT REPORTING INFORMATION

7 unchanged sentences

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.

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 quick-service restaurants.

The Graphics Segment implements, installs and provides program management services related to products sold by the Graphics Segment and by the Lighting Segment.

2 unchanged sentences

Corporate identifiable assets primarily consist of cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.

There was no concentration of consolidated net sales in the three and six months ended December 31, 2019 or 2018.

There was no concentration of accounts receivable at December 31, 2019 or June 30, 2019.

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of December 31, 2019 and December 31, 2018:

There was no concentration of consolidated net sales in the three and nine months ended March 31, 2020 and 2019.

There was no concentration of accounts receivable at March 31, 2020 or June 30, 2019.

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of March 31, 2020 and March 31, 2019:

Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands)

25 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands)

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

BASIC EARNINGS PER SHARE

Net income (loss)

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

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

Weighted average vested restricted stock units outstanding

5 unchanged sentences

Weighted average shares outstanding

Effect of dilutive securities (b):

Effect of dilutive securities (a):

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

1 unchanged sentence

Diluted income (loss) per share

Anti-dilutive securities (c)

Includes shares accounted for like treasury stock.

Anti-dilutive securities (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.

Anti-dilutive securities were excluded from the computation of diluted net income per share for the three and six months ended December 31, 2019 because the exercise price was greater than the average fair market price of the common shares or because the assumed proceeds from the award’s exercise or vesting was greater than the average fair market price of the common shares.

For the three and six months ended December 31, 2018, the effect of dilutive securities was not included in the calculation of diluted loss per share because there was a net loss for the period.

Anti-dilutive securities were excluded from the computation of diluted net income per share for the three and nine months ended March 31, 2020 because the exercise price was greater than the average fair market price of the common shares or because the assumed proceeds from the award’s exercise or vesting was greater than the average fair market price of the common shares.

For the three and nine months ended March 31, 2019, the effect of dilutive securities was not included in the calculation of diluted loss per share because there was a net loss for the period.

NOTE 5 - INVENTORIES

30 unchanged sentences

There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

As of March 1, 2020, the Company performed its annual goodwill impairment test on the two reporting units that contain goodwill.

The preliminary goodwill impairment test of the reporting unit in the Lighting Segment passed with a business enterprise value of $31.6 million or 33% above the carrying value of this reporting unit including goodwill.

The preliminary goodwill impairment test of the reporting unit with goodwill in the Graphics Segment passed with an estimated business enterprise value of $4.7 million or 619% above the carrying value of the reporting unit including goodwill.

The definitive impairment test is expected to be completed in the fourth quarter of fiscal 2020.

It is anticipated that the results of the test will not change when the test is complete.

A significant decline in the Company’s stock price during March 2020 related to the COVID-19 pandemic led management to conclude that a triggering event occurred.

As a result, an interim goodwill impairment test subsequent to the March 1 testing date was required for both reporting units as of March 31, 2020 .

The result of the impairment test on both reporting units indicated that goodwill was not impaired .

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

3 unchanged sentences

Goodwill, net as of June 30, 2019

Balance as of December 31, 2019

Balance as of March 31, 2020

Accumulated impairment losses

Goodwill, net as of December 31, 2019

Goodwill, net as of March 31, 2020

The Company performed its annual review of indefinite-lived intangible assets as of March 1, 2020 and determined there was no impairment.

The preliminary indefinite-lived intangible impairment test passed with a fair market value of $16.8 million or 392% above its carrying value.

The definitive indefinite-lived impairment test is expected to be completed in the fourth quarter of fiscal 2020.

It is anticipated that the results of the test will not change when the test is complete.

The following table presents the gross carrying amount and accumulated amortization by each major asset class:

Other Intangible Assets

December 31, 2019

March 31, 2020

(In thousands)

19 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands)

7 unchanged sentences

The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between 125 and 250 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the line of credit agreement.

The increment over LIBOR borrowing rate will be 175 basis points for the third quarter of fiscal 2020.

The increment over LIBOR borrowing rate will be 125 basis points for the fourth quarter of fiscal 2020.

The fee on the unused balance of the $75 million committed line of credit is 20 basis points.

Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum fixed charge coverage ratio.

As of December 31, 2019, there was $10.4 million borrowed against the line of credit, and $64.6 million was available as of that date.

As of March 31, 2020, there was $7.9 million borrowed against the line of credit, and $67.1 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, 2019.

The Company is in compliance with all of its loan covenants as of March 31, 2020.

NOTE 9 - CASH DIVIDENDS

The Company paid cash dividends of $2,643,000 and $2,587,000 in the six months ended December 31, 2019 and 2018, respectively.

Dividends on restricted stock units in the amount of $52,383 and $34,631 were accrued as of December 31, 2019 and 2018, respectively.

The Company paid cash dividends of $3,958,000 and $3,882,000 in the nine months ended March 31, 2020 and 2019, respectively.

Dividends on restricted stock units in the amount of $59,077 and $40,798 were accrued as of March 31, 2020 and 2019, respectively.

These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients.

In February 2020, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 26, 2020 to shareholders of record as of February 18, 2020.

In April 2020, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable May 12, 2020 to shareholders of record as of May 4, 2020.

The indicated annual cash dividend rate is $0.20 per share.

4 unchanged sentences

The number of shares of common stock authorized for issuance under the 2019 Omnibus Plan is 2,650,000 which were combined with the remaining shares available under the 2012 Stock Plan.

The number of shares reserved for issuance under the 2019 Omnibus Plan is 3,802,363, all of which are available for future grant or award as of December 31, 2019.

The number of shares reserved for issuance under the 2019 Omnibus Plan is 3,812,997, all of which are available for future grant or award as of March 31, 2020.

The 2019 Omnibus Plan implements the use of a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation.

The 2019 Omnibus Plan allows for the grant of non-qualified stock options, stock appreciation rights, restricted stock awards, performance stock units, and other stock-based awards.

In the third quarter of fiscal 2020, the Company granted 150,000 inducement stock options with an exercise price of $6.51.

In the first quarter of fiscal 2020, the Company granted 455,429 non-qualified serviced-based stock options with an exercise price of $3.83 and 199,310 Performance Stock Units and 81,917 Restricted Stock Units at a fair value of $3.83.

Stock compensation expense was $199,000 and $176,000 for the three months ended December 31, 2019 and 2018, respectively and $597,000 and $727,000 for the six months ended December 31, 2019 and 2018, respectively.

Stock compensation expense was $(103,000) and $224,000 for the three months ended March 31, 2020 and 2019, respectively and $494,000 and $951,000 for the nine months ended March 31, 2020 and 2019, respectively.

NOTE 1 1 - SUPPLEMENTAL CASH FLOW INFORMATION

Six Months Ended

Nine Months Ended

(In thousands)

9 unchanged sentences

The Company may occasionally issue a standby letter of credit in favor of third parties.

As of December 31, 2019, there were no such standby letters of credit issued.

As of March 31, 2020, there were no such standby letters of credit issued.

NOTE 1 3 – SEVERANCE COSTS

4 unchanged sentences

Balance at end of period

Of the total $861,000 severance reserve reported as of December 31, 2019, $601,000 has been classified as a current liability and will be paid out over the next twelve months.

Of the total $726,000 severance reserve reported as of March 31, 2020, $612,000 has been classified as a current liability and will be paid out over the next twelve months.

The remaining $114,000 has been classified as a long-term liability.

1 unchanged sentence

In the first quarter of fiscal 2020, the Company sold its New Windsor, New York facility.

The net proceeds from the sale was $12.3 million resulting in a gain of $4.8 million.

The net proceeds from the sale were $12.3 million resulting in a gain of $4.8 million.

Restructuring costs incurred in the first quarter of fiscal 2020 related to the closure of the New Windsor facility, which impacted both the Lighting and Graphics segment.

1 unchanged sentence

The realignment occurred as the result of the movement of equipment related to the closure of the New Windsor facility along with preparations to receive additional equipment resulting from the relocation of the North Canton, Ohio facility.

Total restructuring costs were $276,000 and $509,000 for the three and six months ended December 31, 2019, respectively.

In the third quarter of fiscal 2020, the Company sold its North Canton, Ohio facility.

The net proceeds from the sale were $7.7 million resulting in a net gain of $3.7 million.

Restructuring charges incurred in the third quarter of fiscal 2020 related to the relocation of the North Canton facility, which impacted the Graphics Segment.

The Company will relocate the production at the North Canton facility to a smaller, leased facility in Akron, Ohio during the fourth quarter of fiscal 2020.

The Company also incurred $451,000 of expense to write-down inventory which is not included in the tables below.

Total restructuring costs were $235,000 and $744,000 for the three and nine months ended March 31, 2020, respectively.

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

Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands)

12 unchanged sentences

NOTE 15 - LEASES

The Company leases two of its manufacturing facilities along with a small office space, a company vehicle, several forklifts, several small tooling items, and various items of office equipment.

The Company leases certain manufacturing facilities along with a small office space, a company vehicle, several forklifts, several small tooling items, and various items of office equipment.

All of the Company’s leases are operating leases and are included in other long-term assets with the corresponding liability in other long-term liabilities.

4 unchanged sentences

The Company elected not to record these leases on the balance sheet.

For the three and six months ended December 31, 2019, the rent expense for these leases is immaterial.

For the three and nine months ended March 31, 2020, the rent expense for these leases is immaterial.

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

4 unchanged sentences

Three months ended

Six months ended

Nine months ended

(In thousands)

December 31, 2019

March 31, 2020

Operating lease cost

Supplemental Cash Flow Information:

Six months ended

Nine months ended

(In thousands)

December 31, 2019

March 31, 2020

Operating cash flows from operating leases

2 unchanged sentences

Operating Leases:

At December 31, 2019

At March 31, 2020

Total operating right-of-use asset (Other long-term assets)

Accrued liabilities (Current liabilities)

Accrued expenses (Current liabilities)

Long-term operating lease liability (Other long-term liabilities)

11 unchanged sentences

Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

In December 2019, the Company signed a definitive agreement to sell a graphics manufacturing facility in North Canton, Ohio.

This sale is expected to result in a capital gain during fiscal 2020 resulting in a tax benefit due to the utilization of a capital loss carryforward, which reduces the anticipated full year estimated effective income tax rate.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020.

The CARES Act allowed the Company to utilize a Net Operating Loss (NOL) Carryback resulting in a revaluation of its deferred tax assets creating a favorable impact of $0.3 million in the third quarter of fiscal 2020.

In addition, the Company sold its North Canton, Ohio facility in the third quarter of fiscal 2020 resulting in a book gain of $3.7 million.

The sale generated a capital gain during the quarter resulting in a tax benefit due to the utilization of a capital loss carryforward, which reduced the anticipated full year estimated effective income tax rate.

In the first quarter of fiscal 2020, the Company sold its New Windsor, New York facility resulting in a book gain of $4.8 million.

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Reconciliation of effective tax rate:

1 unchanged sentence

Uncertain tax positions

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

Deferred income tax adjustments

Shared-based compensation

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements