Annual Report and
Form 10-K, FY 2020
Transforming
a Great American Company
Profitable Sales
Throughout FY 2020, we stayed
true to our planned migration
toward a higher-value sales mix,
resulting in improved margin
realization during the year. This
sharpened commercial focus,
combined with an increasingly
lean cost structure, contributed
to a year-over-year improvement
in gross margin rate, operating
income and net income. Within
our Lighting Segment, our year-
over-year gross margin rate
improved by approximately 300
basis points, while our Graphics
Segment delivered another
consecutive full year of growth.
Enhancing Shareholder Value
At LSI, we strive to enhance
shareholder value in all that we
do. Although challenged by the
global pandemic of 2020, we
did not dilute our shareholders’
interests by halting our dividend,
issuing shares of company stock
or assuming additional debt.
In fact, our shareholders were
rewarded as investors saw the
value of their LSI stock increase
by approximately 78 percent in FY
2020.
Strengthening the Balance Sheet
During FY 2020, our executive
management team took decisive
action to lower both fixed and
variable costs throughout the
business and reduce debt. The
company sold its New Windsor,
NY and North Canton, OH
manufacturing plants, serving to
improve capacity utilization and
systemic production efficiencies.
The company received $20 million
in total cash proceeds from those
asset sales and anticipates more
$40M Debt
Reduced to $0
than $4 million of total annualized
cost savings resulting from the
divestitures.
In addition, with market conditions
adversely affected by COVID-19,
we intensified our efforts to
reduce costs and conserve cash
during the third and fourth
78%
Stock Price Appreciation
in FY 2020
quarters of FY 2020 through a
number of operational and sales
actions. These initiatives helped
LSI end FY 2020 with free cash
flow of $47.1 million.
Long-Term Growth, Sustained
Profitability
Despite the headwinds associated
with COVID-19, we continued
to move in the direction of
long-term growth coupled with
sustained profitability in FY
2020 – preparing the company
for America’s eventual economic
recovery. We took, and continue
to take, the steps necessary to
operate more efficiently and
cost-effectively in order to reach
our potential. For example,
our executive leadership team
spent significant time with
our sales agents in FY 2020
to better understand their
needs, as well as the needs of
our end-use customers. We
also worked with our suppliers
to source more components
domestically, control costs
and optimize our supply chain,
and we consolidated various
plant operations and assembly
lines to enhance quality and
productivity. Most importantly, we
did all of this without sacrificing
employee safety or producing
any interruptions in service to our
customers.
James A. Clark
President and
Chief Executive Officer
Thanks to the hard work and
dedication of our employees,
LSI continued its transformation
and finished fiscal year 2020
in strong fashion. Despite the
challenges associated with the
COVID-19 global pandemic, we
improved across virtually all
facets of our business, and we
are well-positioned for the future.
For the full-year of FY 2020,
LSI achieved net income of $9.6
million on net sales of $305.6
million – in line with our planned
migration toward a higher-value
sales mix. In addition, we reduced
outstanding debt from nearly $40
million at the end of FY 2019 to
zero at the end of FY 2020, all
while controlling costs and adding
value for our shareholders.
A Focused Approach
At LSI, we believe that when
we do our jobs, and we do
them well, then great things are
possible. In order to compete,
and to win, in the markets we
serve, every member of the LSI
team recommitted themselves
to: operating with a sense of
urgency while maintaining quality
and safety, respecting all of
our constituents and striving to
get the little things done right
the first time. This was our
approach to the business in FY
2020 as we remained focused on
profitable sales growth, enhancing
shareholder value, strengthening
our balance sheet and positioning
the company for long-term
growth and sustained profitability.
FY 2021
Growth Oriented
These essential businesses
included heath care facilities,
petroleum stations, grocery stores,
pharmacies and convenience
stores, among others.
A Strong Foundation, a Stronger
Future
While work remains to be done,
LSI made considerable progress
in FY 2020. During the year, our
transformation efforts helped
LSI improve earnings, reduce
outstanding debt to zero and
position the company for future
growth opportunities. Indeed,
there is much to be proud of at
LSI, but I believe our best years
are yet to come.
In FY 2020, our team at LSI
demonstrated their commitment
to doing their jobs and getting
things done right. In FY 2021,
we will be equally determined to
emerge as a stronger company
– ready to compete, and win,
against anyone.
Serving our Valued Customers
At LSI, we strive to serve our
customers better than anyone
else in our industry, and we were
rewarded for our efforts in FY
2020. Of special note, one of
our long-standing quick service
restaurant (QSR) customers
awarded us new business in FY
2020 valued at more than $100
million through calendar year-end
2022. Ranked among America’s
top fast food chains by annual
revenue, the customer will have
LSI digital menu boards installed
at more than 6,000 locations
throughout North America.
Under the terms of the award,
LSI will manufacture the menu
boards, perform the lead system
integrator function, which includes
program management and
installation responsibilities, and
provide post-sales support and
ongoing, recurring management
of the systems.
In addition, LSI received a four
year contract extension in FY
2020 with ChevronTexaco – one of
the largest petroleum companies
in the word. We are honored
to be their primary supplier of
image-oriented graphics and
lighting products.
These are outstanding
achievements, and they reflect
the level of trust we strive to build
with each and every customer.
$100 Million
Multi-Year QSR Contract
Awarded in FY 2020
New Products and Solutions
Throughout FY 2020, our team
members did an excellent job
of anticipating market needs
– launching 20 new products
that help customers enhance
safety, reduce energy costs and
comply with applicable energy
regulations.
In regard to outdoor lighting,
we introduced our new SCM
gas station canopy luminaire,
a full line of commercial flood
and area light fixtures, and new
universal replacement poles that
can be secured to virtually any
existing anchor bolt pattern in the
marketplace.
On the indoor lighting front, we
launched our Alliance Generation
2 and MHB high bay luminaires, as
well as two new field selectable
products, including our SFP edge-
lit flat panel and multi-setting OPT
troffer.
Our most innovative product
launch of the year was our
AirLink™ Blue wireless outdoor
lighting control system. This
simple, highly-configurable
product uses Bluetooth mesh
technology to manage designated
zones of outdoor illumination on
commercial property. AirLink Blue
is among the most turnkey, cost-
effective lighting control solutions
available for parking lots, gasoline
station canopies and parking
garage applications, and we will
continue to expand the system’s
capabilities and features.
Responding to COVID-19
From the onset of the pandemic
in March of 2020, our top priority
at LSI was to maintain the safety
and well-being of our employees
– our valued workforce that is
dedicated to ensuring we can
serve our customers. We were,
and continue to be, committed
to providing a safe work
environment by adhering to the
U.S. Centers for Disease Control
and Prevention guidelines. We
also deployed a COVID-19 hotline
and internal website, and our
executive team provided updates
to our employees and agents on a
scheduled basis.
In addition, LSI’s lighting and
graphics products, including
safety graphics that promote
social distancing, were available
to customers operating in critical
infrastructure industries.
Petroleum | C-Store
Lighting & Graphics
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:59)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
OR
(cid:134)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
Commission File No. 0-13375
LSI INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
10000 Alliance Road
Cincinnati, Ohio 45242
(Address of principal executive offices)
IRS Employer I.D.
No. 31-0888951
(513) 793-3200
(Telephone of principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Common shares, no par value
LYTS
Name of each exchange on which
registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No (cid:59)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes
No (cid:59)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:59) No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes (cid:59) No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company(cid:17)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:179)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:85)(cid:15)(cid:180)(cid:3)(cid:179)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:85)(cid:15)(cid:180)(cid:3)
(cid:179)(cid:86)(cid:80)aller reporting company(cid:15)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71) (cid:179)(cid:72)(cid:80)(cid:72)(cid:85)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:3)in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
Accelerated filer (cid:59)
Non-accelerated filer
Smaller reporting company(cid:59)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:59)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No (cid:59)(cid:3)
As of December 31, 2019(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:81)(cid:82)(cid:81)-affiliates of the registrant
was approximately $153,525,829 based upon a closing sale price of $6.05 per share as reported on The NASDAQ Global
Select Market.
At August 31, 2020 there were 26,331,777 no par value Common Shares issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the 2020 Annual Meeting of
Shareholders to be held on November 10, 2020 are incorporated by reference in Part III, as specified.
LSI INDUSTRIES INC.
2020 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Begins on
Page
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR (cid:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:38)(cid:50)(cid:48)(cid:48)(cid:50)(cid:49)(cid:3)(cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60)(cid:15)(cid:3)(cid:53)(cid:40)(cid:47)(cid:36)(cid:55)(cid:40)(cid:39)(cid:3)(cid:54)(cid:55)(cid:50)(cid:38)(cid:46)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:3)(cid:48)(cid:36)(cid:55)(cid:55)(cid:40)(cid:53)(cid:54)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
(cid:44)(cid:55)(cid:40)(cid:48)(cid:3)(cid:26)(cid:17)(cid:3)(cid:48)(cid:36)(cid:49)(cid:36)(cid:42)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1
4
10
10
11
11
12
12
12
12
13
13
13
14
14
14
14
14
14
15
ITEM 16. FORM 10-K SUMMARY 17
Note about Forward-Looking Statements
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results
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of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may
(cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:85)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:29)(cid:3)(cid:179)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:180)(cid:3)(cid:11)(cid:51)(cid:68)(cid:85)(cid:87)(cid:3)(cid:44)(cid:15)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80) 1 of this Form 10-(cid:46)(cid:12)(cid:15)(cid:3)(cid:179)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:41)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:180)(cid:3)
(Part I, Item 1A of this Form 10-(cid:46)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86) of Financial Condition and Results of
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:180)(cid:3)(cid:11)(cid:51)(cid:68)(cid:85)(cid:87)(cid:3)(cid:44)(cid:44)(cid:15)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80) 7 of this Form 10-K). These forward-looking statements generally are identified by the words
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(cid:179)(cid:80)(cid:68)(cid:92)(cid:15)(cid:180)(cid:3)(cid:179)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:15)(cid:180)(cid:3)(cid:179)(cid:90)(cid:76)(cid:79)(cid:79)(cid:15)(cid:180)(cid:3)(cid:179)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:15)(cid:180)(cid:3)(cid:179)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:15)(cid:180)(cid:3)(cid:179)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:15)(cid:180)(cid:3)(cid:179)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:15)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:41)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)-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
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(cid:68)(cid:81)(cid:71)(cid:3)(cid:52)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:53)(cid:76)(cid:86)(cid:78)(cid:180)(cid:3)(cid:11)(cid:51)(cid:68)(cid:85)(cid:87)(cid:3)(cid:44)(cid:44)(cid:15)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80) 7A of this Form 10-K). Readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update
or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
ITEM 1. BUSINESS
Overview
PART I
LSI Industries is a leading producer of high-performance, American-made lighting and graphics (cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
strength in outdoor lighting applications creates opportunities for it to introduce additional solutions to its customers. LS(cid:44)(cid:182)(cid:86)(cid:3)
indoor and outdoor products and services, including its digital and print graphics capabilities, are valued by architects,
engineers, distributors and contractors for their quality, reliability, and innovation.
Our business is organized as follows: the Lighting Segment, which represented 67% of our fiscal 2020 net sales and the
Graphics Segment, which represented 33% of our fiscal 2020 net sales. See Note 2 of Notes to Consolidated Financial
Statements beginning on page 42 of this Form 10-K for additional information on business segments. Net sales by segment are
as follows (in thousands):
Lighting Segment
Graphics Segment
Total Net Sales
Lighting Segment
2020
206,199
99,359
305,558
$
$
2019
$
$
235,114
93,738
328,852
Our Lighting Segment manufactures, markets, and sells outdoor and indoor lighting solutions to the following markets
including but not limited to: petroleum/convenience markets, parking lot and garage markets, quick-service restaurant market,
grocery and pharmacy store markets, the automotive market, and national retail accounts. The Company reaches these
customers through multiple channels including: project job business sold through electrical distributors and shipped direct to
the customer; standard products sold to and stocked by distributors; and direct to end-use customers. Our products are designed
and manufactured to provide maximum value and meet the high-quality, competitively priced product requirements of the
markets we serve. Focusing on key market applications allows us to deliver unique product solutions which in turn provides
value to our customers.
Our lighting fixtures, poles and brackets are produced in a variety of designs, styles and finishes. Important functional
variations include types of mounting, such as pole, bracket and surface, and the nature of the light requirement, such as interior
and exterior down-lighting, wall-wash lighting, canopy lighting, flood-lighting, emergency exit lighting, area lighting and
security lighting. Our engineering staff performs photometric analyses and wind load safety studies for our light fixtures. In
addition, our light fixtures are certified to UL, DLC, ROHS, and (for outdoor lighting) IDA standards. Our lighting products
utilize LED light sources. The major products and services offered within our lighting segment include exterior area lighting,
interior lighting, canopy lighting, landscape lighting, lighting controls, light poles, lighting system design, and photometric
layouts. All of our products are designed for performance, reliability, ease of installation and service, as well as attractive
appearance. The Company also has a focus on designing lighting system solutions and implementing strategies related to
energy savings in all markets served.
We offer our customers expertise in developing and utilizing high-performance solid-state LED solutions, which when
c(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:79)(cid:76)(cid:74)(cid:75)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:91)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:87)(cid:76)(cid:86)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:15)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:69)(cid:85)(cid:82)(cid:68)(cid:71)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:85)(cid:88)(cid:80)
of white light LED fixtures that offer equivalent or improved lighting performance with significant energy and maintenance
savings as compared to conventional light sources.
Graphics Segment
Our Graphics Segment manufactures, sells and installs exterior and interior visual image elements such as traditional print
graphics, interior branding, electrical and architectural signage, active digital signage along with the management of media
content related to digital signage, and menu board systems that are either digital or print by design. The major products and
services offered within our Graphics Segment include the following: signage and canopy graphics, pump dispenser graphics,
building fascia graphics, decals, interior signage and marketing graphics, aisle markers, wall mural graphics, fleet graphics,
menu boards, digital signage and media content management. We also manage and execute the implementation of large rollout
programs. These programs provide graphics displays and visual image upgrades in several markets, including the
petroleum/convenience store market, quick-service restaurant market, the grocery store and pharmacy markets, as well as
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customers with multi-site retail operations. Our extensive lighting and graphics expertise, product offering, and visual image
solution implementation capabilities represent significant competitive advantages. We work with our customers and design
(cid:73)(cid:76)(cid:85)(cid:80)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:89)(cid:76)(cid:86)(cid:88)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:68)(cid:74)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:69)(cid:85)(cid:68)(cid:81)(cid:71)(cid:17)(cid:3)(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:79)(cid:92),
we have become the primary supplier of exterior and interior graphics for our customers. We also offer installation
management services for those customers who require the installation of interior or exterior products (utilizing pre-qualified
independent subcontractors throughout the United States).
Sales, Customers and Marketing
Sales: Our lighting products including lighting controls, are sold primarily throughout the United States, but also in Canada,
Mexico, Australia, and Latin America (approximately 5% of consolidated net sales are outside the United States) using a
combination of regional sales managers and independent sales representatives for the various markets we serve. Our lighting
product sales originate from two primary revenue streams. The first revenue stream is from project-based business, quoting and
receiving orders as a preferred vendor for product sales to multiple end-users, including customer-owned as well as franchised
and licensed dealer operations. The second revenue stream is from selling standard product to stocking distributors, who
subsequently provide product to electrical contractors and end users for a variety of lighting applications. Our graphics
products, which in many instances are program-driven, are sold primarily through our own sales force.
Customers: Sales are developed through a wide variety of contacts such as, but not limited to, national retail marketers,
branded product companies, franchises, and dealer operations. In addition, sales are also achieved through recommendations
from local architects, engineers, petroleum and electrical distributors and contractors. The Company utilizes the latest
technology to track sales leads and customer quotes with the goal to turn them into orders from our customers. Our sales are
partially seasonal as installation of outdoor lighting and graphic systems in the northern states decreases during the winter
months. The Company did not have any customers whose annual consolidated sales exceeded 10 percent of total net sales in
fiscal 2020 or 2019.
Marketing: The Company markets its products and service capabilities to end users in multiple channels through a broad
spectrum of marketing and promotional methods, including direct customer contact, trade shows, on-site training, print
advertising in industry publications, product brochures and other literature, as well as the internet and social media. We have
(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17) Our
marketing approach and means of distribution vary by product line and by market.
Manufacturing and Distribution
We currently operate out of seven manufacturing facilities in four U.S. states. In the first quarter of fiscal 2020, the Company
sold its New Windsor, New York facility, and moved production from this location to our Cincinnati, Ohio and Independence,
Kentucky locations. In the third quarter, the Company sold its North Canton, Ohio facility. In conjunction with the sale of the
North Canton facility, we moved to a smaller manufacturing facility in Akron, Ohio. These changes allowed us to leverage our
existing footprint in Ohio, Kentucky, North Carolina, and Texas while strengthening our commitment to U.S. based
manufacturing along with a diverse and redundant supply chain.
We design, engineer and manufacture most of our lighting and graphics products through the utilization of lean manufacturing
principles. Our investment in our production facilities is focused primarily on improving capabilities, product quality, and
manufacturing efficiency as well as environmental, health, and safety compliance. The majority of products we sell are
engineered, designed and assembled by the Company, while a small portion of the products we sell are purchased from select
qualified vendors .Our lighting and graphics products are delivered directly from our manufacturing facilities to our customers
utilizing third-party common carriers.
The principal raw materials and purchased components used in the manufacturing of our products are steel, aluminum,
aluminum castings, fabrications, LEDs, power supplies, powder paint, steel tubing, wire harnesses, acrylic, silicon and glass
lenses, inks, various graphics substrates such as Aluminum Composite Material (ACM), Expanded PVC sheet (EPVC), vinyl
film, styrene, foamboards, and digital screens. We source these materials and components from a variety of
suppliers. Although an interruption of these supplies and components could disrupt our operations, we believe generally that
alternative sources of supply exist and could be readily arranged. We are not dependent on any one supplier for critical
component parts. We strive to reduce price volatility in our purchases of raw materials and components through annual
contracts with strategic suppliers. Our Lighting operations generally carry a certain level of sub-assemblies and finished goods
(cid:76)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:84)(cid:88)(cid:76)(cid:70)(cid:78)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:71)(cid:72)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:47)(cid:40)(cid:39)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:70)(cid:68)(cid:85)(cid:85)(cid:92)(cid:3)(cid:47)(cid:40)(cid:39)(cid:3)
and LED component inventory due to longer lead times. Most lighting products are made to order and shipped shortly after
they are manufactured. Our Graphics operations manufacture custom graphics products for customers who require us to stock
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certain amounts of finished goods in exchange for their commitment to that inventory. Our digital signage business requires us
to carry an inventory of digital screens to meet the demands of a large roll-out program. In some Graphics programs, customers
also give us a cash advance for the inventory that we stock for them.
Research and Development:
We invest in the development of new products and solutions as well as the enhancement of existing product offerings to meet
the needs of our customers. 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. Research and development costs related to both product and software development totaled $3.6 million
and $5.3 million for the fiscal years ended June 30, 2020 and 2019, respectively.
Competition
We experience competition in both segments and in all markets we serve based on numerous factors, including price, brand
name recognition, product quality, product design, prompt delivery, energy efficiency, customer relationships, reputation, and
service capabilities. Although we have many competitors, some of which have greater financial and other resources, we do not
compete with the same companies across both segments and all markets. In addition, there have been a growing number of new
competitors in the lighting segment, most notably those companies selling lower cost Asian imports.
Working Capital
(cid:41)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:15)(cid:3)(cid:86)(cid:72)(cid:72)(cid:3)(cid:179)(cid:47)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80) (cid:26)(cid:15)(cid:3)(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
Analysis of Financial Condition and Results of Operations."
Backlog Orders
We had a backlog of orders, which we believe to be firm, of $26.2 million and $30.7 million at June 30, 2020 and 2019,
respectively. All orders are expected to be shippable or installed within twelve months.
Environmental Regulations
We are subject to a variety of federal, state, and local provisions regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. These include statutory and regulatory provisions under which we are
responsible for the management of hazardous materials we use and the disposition of hazardous wastes resulting from our
manufacturing processes. Failure to comply with such provisions could result in fines and other liabilities to the government or
third parties.
Employees
We have 1,072 full-time employees and 29 agency employees as of June 30, 2020. We offer a comprehensive compensation
and benefits program to our employees, including competitive wages, medical and dental insurance and a 401(k) retirement
savings plan. The Company offers a nonqualified deferred compensation plan, an equity-based incentive plan and an incentive
(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:74)(cid:82)(cid:68)(cid:79)(cid:86), for certain employees.
Information Concerning LSI Industries Inc.
(cid:58)(cid:72)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:54)(cid:40)(cid:38)(cid:180)(cid:12)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:86)(cid:3)(cid:20)(cid:19)-K, 10-Q and 8-K. The SEC maintains an
internet website that contains reports, proxy and information statements and other information regarding us. The address of that
site is http://www.sec.gov. Our internet address is http://www.lsicorp.com. We make available free of charge through our
internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended,
as soon as reasonably practical after we electronically file them with the SEC.
- 3 -
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the following factors which could
materially affect our business, financial condition, cash flows or future results. Any one of these factors could cause the
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:89)(cid:68)(cid:85)(cid:92)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)nt results or from anticipated future results. The risks described below are
not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
RISKS RELATED TO OUR STRATEGY
Our financial condition and results of operations for fiscal 2021 and future periods may be adversely affected by the
recent (cid:81)(cid:82)(cid:89)(cid:72)(cid:79)(cid:3)(cid:70)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:11)(cid:179)COVID-19(cid:180)(cid:12) outbreak or other outbreaks of infectious disease or similar public
health threats and the resulting economic impact.
COVID-19 continues to spread globally and has resulted in authorities implementing numerous measures to try to contain the
virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. These measures have impacted
and may continue to impact our workforce and operations, the operations of our customers, and those of our respective vendors
and suppliers. We have experienced some limited disruptions in supply from some of our suppliers, although the disruptions to
date have not been significant. Additionally, there was a disruption to the construction markets, as well as inventory de-
stocking by our distributors, which had a negative impact to sales. Restrictions on access to our manufacturing facilities or on
our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of
transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit
our capacity to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and
results of operations.
The outbreak has increased economic and demand uncertainty. These uncertainties also make it more difficult for us to assess
the quality of our product order backlog and to estimate future financial results. The current outbreak of COVID-19 has caused
an economic slowdown, and it is increasingly possible that its continued spread will lead to a global recession, which could
have a material adverse effect on demand for our products and on our financial condition and results of operations. The spread
of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations,
cancellation of physical participation in meetings, events and conferences and a conscientious effort to control spending), and
we may take further actions as may be required by government authorities or that we determine are in the best interests of our
employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks
posed by the virus, and our ability to perform critical functions could be harmed. In addition, given the concerns about the
spread of COVID-19, our workforce has at times been operating at reduced levels at our manufacturing facilities, which may
continue to have an adverse impact on our ability to timely meet future customer orders.
The duration of the business disruption and related financial impact cannot be reasonably estimated at this time. However, it
may materially affect our ability to obtain raw materials, manage customer credit risk, manufacture products or deliver
inventory in a timely manner, and it also may impair our ability to meet customer demand for products, result in lost sales,
additional costs, or penalties, or damage our reputation. The extent to which COVID-19 or any other health epidemic will
further impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its
impact, among others. Further, the pandemic may adversely impact the health of our workforce, which could result in higher
healthcare costs.
Lower levels of economic activity in our end markets could adversely affect our operating results.
Our businesses operate in several market segments including, but not limited to, commercial, industrial, retail, petroleum /
convenience store and automotive. Operating results can be negatively impacted by volatility in these markets. Future
downturns in any of the markets we serve could adversely affect our overall sales, profitability and cash flow. In addition,
customer difficulties in the future could result from economic declines or issues arising from the cyclical nature of their
business and, in turn, result in decreases in product demand, increases in bad debt write-offs, decreases in timely collection of
accounts receivable and adjustments to our allowance for doubtful accounts receivable, resulting in material reductions to our
revenues and net earnings.
- 4 -
The markets in which we operate are subject to competitive pressures that could affect selling prices, and therefore
could adversely affect our operating results.
Our businesses operate in markets that are highly competitive, and we compete on the basis of price, quality, service and/or
brand name across the industries and markets served. Some of our competitors for certain products, primarily in the Lighting
Segment, have greater sales, assets and financial resources. Some of our competitors are based in foreign countries and have
cost structures and prices in foreign currencies. Accordingly, currency fluctuations could cause our U.S. dollar-priced products
(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)t
prices we charge our customers or demand for our products, which could adversely affect our operating results. Additionally,
customers for our products may attempt to reduce the number of vendors from which they purchase in order to reduce the size
and diversity of their inventories and their transaction costs. To remain competitive, we will need to invest continuously in
research and development, manufacturing, marketing, customer service and support, and our distribution networks. We may
not have sufficient resources to continue to make such investments and we may be unable to maintain our competitive position.
Our operating results may be adversely affected by unfavorable economic, political and market conditions.
Economic and political conditions worldwide have from time to time contributed to slowdowns in our industry at large, as well
as to the specific segments and markets in which we operate. When combined with ongoing customer consolidation activity
and periodic manufacturing and inventory initiatives, an uncertain macro-economic and political climate, including but not
limited to the effects of possible weakness in domestic and foreign financial and credit markets, could lead to reduced demand
from our customers and increased price competition for our products, increased risk of excess and obsolete inventories and
uncollectible receivables, and higher overhead costs as a percentage of revenue. If the markets in which we participate
experience further economic downturns, as well as a slow recovery period, this could negatively impact our sales and revenue
generation, margins and operating expenses, and consequently have a material adverse effect on our business, financial
condition and results of operations.
We have a concentration of net sales to the petroleum / convenience store market, and any substantial change in this
market could have an adverse effect on our business.
Approximately 36% of our net sales in fiscal year 2020 are concentrated in the petroleum / convenience store market. Sales to
this market segment are dependent upon the general conditions prevailing in and the profitability of the petroleum/convenience
store industries and general market conditions. Our petroleum market business can be subject to reactions by the petroleum
industry to world political events, particularly those in the Middle East, to the price and supply of oil and to a decline in
demand resulting from an economic recession or other factors. Major disruptions in the petroleum industry generally result in a
curtailment of retail marketing efforts, including expansion and refurbishing of retail outlets, by the petroleum industry and
adversely affect our business. Any substantial change in purchasing decisions by one or more of our larger customers whether
due to actions by our competitors, customer financial constraints, and industry factors or otherwise, could have an adverse
effect on our business.
The Company may pursue future growth through strategic acquisitions, alliances, or investments, which may not yield
anticipated benefits
The Company has strengthened its business through strategic acquisitions, alliances, and investments and may continue to do
so as opportunities arise in the future. The Company will benefit from such activity only to the extent that it can effectively
leverage and integrate the assets or capabilities of the acquired businesses and alliances including, but not limited to, personnel,
technology, and operating processes. Moreover, unanticipated events, negative revisions to valuation assumptions and
(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:15)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:73)(cid:73)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:87)(cid:87)(cid:68)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:86)(cid:92)(cid:81)(cid:72)(cid:85)(cid:74)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)
particularly those related to acquired goodwill and intangible assets or non-controlling interests. In addition, such investment
(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:82)(cid:88)(cid:86)(cid:17)(cid:3)(cid:3)
If we do not develop the appropriate new products or if customers do not accept new products, we could experience a
loss of competitive position which could adversely affect future revenues.
The Company is committed to product innovation on a timely basis to meet customer demands. Development of new products
for targeted markets requires the Company to develop or otherwise leverage leading technologies in a cost-effective and timely
manner. Failure to meet these changing demands could result in a loss of competitive position and seriously impact future
(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:17)(cid:3)(cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:69)(cid:86)(cid:82)(cid:79)(cid:72)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)
noncompetitive. A fundamental shift in technologies in key product markets could have a material adverse effect on the
- 5 -
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:17)(cid:3)(cid:3)(cid:48)(cid:82)(cid:85)(cid:72)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:82)(cid:85)(cid:3)
enhanced products is a complex and uncertain process requiring the anticipation of technological and market trends. Rapidly
changing product technologies could adversely impact operating results due to potential technological obsolescence of certain
inventories or increased warranty expense related to newly developed LED lighting products. We may experience design,
manufacturing, marketing or other difficulties, such as an inability to attract a sufficient number of experienced engineers that
could delay or prevent our development, introduction or marketing of new products or enhancements and result in unexpected
expenses. Such difficulties could cause us to lose business from our customers and could adversely affect our competitive
position. In addition, added expenses could decrease the profitability associated with those products that do not gain market
acceptance.
Our business is cyclical and seasonal, and in downward economic cycles our operating profits and cash flows could be
adversely affected.
Historically, sales of our products have been subject to cyclical variations caused by changes in general economic conditions.
The demand for our products reflects the capital investment decisions of our customers, which depend upon the general
economic conditions of the markets that our customers serve, including and particularly, the petroleum/convenience store
industries. During periods of expansion in construction and industrial activity, we generally have benefited from increased
demand for our products. Conversely, downward economic cycles in these industries result in reductions in sales and pricing of
our products, which may reduce our profits and cash flow. During economic downturns, customers also tend to delay purchases
of new products. The cyclical and seasonal nature of our business could at times adversely affect our liquidity and financial
results.
If we are unable to adequately protect our intellectual property, we may lose some of our competitive advantage.
Our success is determined in part by our ability to obtain United States and foreign patent protection for our technology and to
preserve our trade secrets. Our ability to compete and the ability of our business to grow could suffer if our intellectual
property rights are not adequately protected. There can be no assurance that our patent applications will result in patents being
issued or that current or additional patents will afford protection against competitors. We rely on a combination of patents,
copyrights, trademarks and trade secret protection and contractual rights to establish and protect our intellectual property.
Failure of our patents, copyrights, trademarks and trade secret protection, non-disclosure agreements and other measures to
provide protection of our technology and our intellectual property rights could enable our competitors to more effectively
compete with us and have an adverse effect on our business, financial condition and results of operations. In addition, our trade
secrets and proprietary know-how may otherwise become known or be independently discovered by others. No guarantee can
be given that others will not independently develop substantially equivalent proprietary information or techniques, or otherwise
gain access to our proprietary technology.
RISKS RELATED TO OUR OPERATIONS
Sudden or unexpected changes in a cu(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:90)(cid:85)(cid:76)(cid:87)(cid:72)-
offs.
The Company takes a conservative approach when extending credit to its customers. Customers are granted an appropriate
credit limit based upon the due diligence performed on the customer which includes, among other things, the review of the
(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
Company. At any given time, the Company can have a significant amount of credit exposure with its larger customers. While
the Company is frequently monitoring its outstanding receivables with its customers, the likelihood does exist that a customer
with large credit exposure is unable to make payment on its outstanding receivables which could result in a significant write-
off of accounts receivable.
Price increases or significant shortages of raw materials and components could adversely affect our operating margin.
The Company purchases large quantities of raw materials and components such as steel, aluminum, LEDs, electronic
components, plastic lenses, glass lenses, vinyls, inks, and corrugated cartons. Materials comprise the largest component of
costs, representing approximately 60% and 62% of the cost of sales in 2020 and 2019, respectively. While we have multiple
sources of supply for most of our material requirements, significant shortages could disrupt the supply of raw materials. Further
significant tariffs or increases in the price of these raw materials (cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
operating costs and materially adversely affect margins. Although the Company attempts to pass along increased costs in the
form of price increases to customers, the Company may be unsuccessful in doing so for competitive reasons. Even when price
increases are successful, the timing of such price increases may lag significantly behind the incurrence of higher costs. On
- 6 -
occasion, there are selected electronic component parts and certain other parts shortages in the marketplace, some of which
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available. The lead times of these suppliers can increase and the prices of some of these parts have increased during periods of
shortages.
Our information technology systems are subject to certain cyber risks and disasters that are beyond our control.
We depend heavily on the proper functioning and availability of our information, communications, and data processing systems,
including operating and financial reporting systems, in operating our business. Our systems and those of our technology and
communications providers are vulnerable to interruptions caused by natural disasters, power loss, telecommunication and internet
failures, cyber-attack, and other events beyond our control. Accordingly, information security and the continued development
and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from
attack, damage or unauthorized access remain a priority for us.
We have been, and in the future may be, subject to cybersecurity and malware attacks and other intentional hacking. Any
failure to identify and address or to prevent a cyber- or malware-attack could result in service interruptions, operational
difficulties, loss of revenues or market share, liability to our customers or others, the diversion of corporate resources, injury to
our reputation and increased service and maintenance costs. In August 2020, we experienced a malware incident affecting
certain of our network systems. Immediately following the incident, actions were taken to recover the affected systems and to
verify through third-party testing that no confidential data was extracted or compromised. There was minimal business
interruption and immaterial net financial impact resulting from the incident. We are enhancing our cybersecurity controls as we
continue to assess this incident and monitor its effects in order to minimize the likelihood of any reoccurrence.
Although our information systems are protected through physical and software security as well as redundant backup systems,
they remain susceptible to cyber security risks. Some of our software systems are utilized by third parties who provide
outsourced processing services which may increase the risk of a cyber-security incident. We have invested and continue to
invest in technology security initiatives, employee training, information technology risk management and disaster recovery
plans. The development and maintenance of these measures is costly and requires ongoing monitoring and updating as
technologies change and efforts to overcome security measures become increasingly more sophisticated. Despite our efforts,
we are not fully insulated from data breaches, technology disruptions or data loss, which could adversely impact our
competitiveness and results of operations. Any future successful cyber-attack or catastrophic natural disaster could
significantly affect our operating and financial systems and could temporarily disrupt our ability to provide required services to
our customers, impact our ability to manage our operations and perform vital financial processes, any of which could have a
materially adverse effect on our business.
(cid:44)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:15)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:71)(cid:15)(cid:3)(cid:83)(cid:68)(cid:70)(cid:78)(cid:68)(cid:74)(cid:72)(cid:71)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:68)(cid:69)(cid:72)(cid:79)(cid:72)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
recall those items, may have increased warranty costs, and could be the target of product liability claims
The Company may need to recall products if they are improperly designed, manufactured, packaged, or labeled, and the
Company does not maintain insurance for such recall events. Many of the Company's products and solutions have become
more complex in recent years and include more sophisticated and sensitive electronic components. The Company has
increasingly manufactured certain of those components and products in its own facilities. The Company has previously
initiated product recalls as a result of potentially faulty components, assembly, installation, and packaging of its products.
Widespread product recalls could result in significant losses due to the costs of a recall, the destruction of product inventory,
penalties, and lost sales due to the unavailability of a product for a period of time. In addition, products developed by the
Company that incorporate new technologies, such as LED technology, generally provide for more extensive warranty
protection which may result in higher costs if warranty claims on these products are higher than historical amounts. The
Company may also be liable if the use of any of its products causes harm and could suffer losses from a significant product
liability judgment against the Company in excess of its insurance limits. The Company may not be able to obtain indemnity or
reimbursement from its suppliers or other third parties for the warranty costs or liabilities associated with its products. A
significant product recall, warranty claim, or product liability case could also result in adverse publicity, damage to the
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:73)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:17)
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:90)(cid:85)(cid:76)(cid:87)(cid:72)-
offs.
(cid:56)(cid:83)(cid:74)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:79)(cid:68)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:80)(cid:68)(cid:74)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:81)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:70)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:3)
customer. This is particularly true in the Graphics Segment. In as many instances as possible, we require a commitment from
the customer before the inventory is produced. Our request for a commitment can range from a single site or store to a large
- 7 -
roll-out program involving many sites or stores. The risk does exist that a customer cannot or will not honor its commitment to
us. The reasons a customer cannot or will not honor its commitment can range from the bankruptcy of the customer, to the
change in the image during the roll-out program, to canceling the program before its completion and before the inventory is
sold to the customer. In each of these instances, we could be left with significant amounts of inventory required to support the
(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)-imaging. While all efforts are made to hold the customer accountable for its commitment, there is the risk that a
significant amount of inventory could be deemed obsolete or no longer usable which could result in significant inventory write-
offs.
The turnover of independent commissioned sales representatives could cause a significant disruption in sales volume.
Commissioned sales representatives are critical to generating business in the Lighting Segment. From time to time,
commissioned sales representatives representing a particular region resign or are terminated and replaced with new
commissioned sales representatives. During this period of transition from the previous agency to the new one, sales in the
particular region will likely fall as business is disrupted. It may take several months for the new sales representative to
generate sales that will equal or exceed the previous sales representative. There is also the risk that the new sales agency will
not attain the sales volume of the previous agency. These sales representative changes may occur individually as one agency is
replaced due to lack of performance or changes may occur as a result of the mergers or acquisitions within the lighting
industry. On the other hand, these sales representative changes can be widespread as a result of the competitive nature of the
lighting industry as LSI and its competition vie for the strongest sales agency in a particular region.
The Company may be unable to sustain significant customer and/or channel partner relationships.
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no individual customer exceeded 10% of sales during the current fiscal year, the loss of or a substantial decrease in the volume
of purchases by certain large customers could harm the Company in a meaningful manner. The Company has relationships
with channel partners such as electrical distributors, home improvement retailers, independent sales agencies, system
integrators, and value-added resellers. While the Company maintains positive, and in many cases long-term relationships with
these channel partners, the loss of a number of channel partners or substantial decrease in the volume of purchases from a
major channel partner or group of channel partners could adversely affect the Company.
A loss of key personnel or inability to attract qualified personnel could have an adverse effect on our operating results.
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finance personnel, and, to a significant extent, upon the efforts a(cid:81)(cid:71)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
management philosophy of cost-control results in a lean workforce. Future success of the Company will depend on, among
other factors, the ability to attract and retain other qualified personnel, particularly management, research and development
engineers and technical sales professionals. The loss of the services of any key employees or the failure to attract or retain other
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RISKS RELATED TO LEGAL AND REGULATORY MATTERS
Any actual or perceived failure by us to comply with legal or regulatory requirements related to privacy or data
security in one or multiple jurisdictions could result in proceedings, actions or penalties against us.
There are numerous state, federal and foreign laws, regulations, decisions and directives regarding privacy and the collection,
storage, transmission, use, processing, disclosure and protection of personally identifiable information and other personal,
customer or other data, the scope of which is continually evolving and subject to differing interpretations. For example, in the
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associate to protect the confidentiality of patient health information, and the Federal Trade Commission has begun to assert
authority over protection of privacy and the use of cyber security in information systems. In Europe, the General Data
(cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:53)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:42)(cid:39)(cid:51)(cid:53)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:90)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:48)(cid:68)(cid:92)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)(cid:3)(cid:86)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:85)(cid:76)(cid:81)(cid:74)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:79)(cid:72)(cid:85)(cid:86)(cid:3)
and processors of personal data that will increase our obligations and, in the event of violations, may impose significant fines
o(cid:73)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:23)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:188)(cid:21)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:46)(cid:15)(cid:3)(cid:68)(cid:3)(cid:39)(cid:68)(cid:87)(cid:68)(cid:3)(cid:51)(cid:85)(cid:82)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:37)(cid:76)(cid:79)(cid:79)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)
implements the GDPR became law in May 2018. China and Russia have also passed laws that require individually identifiable
data on their citizens to be maintained on local servers and that may restrict transfer or processing of that data. Further, in June
(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3)(cid:83)(cid:68)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:51)(cid:85)(cid:76)(cid:89)(cid:68)(cid:70)(cid:92)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:11)(cid:179)(cid:38)(cid:38)(cid:51)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)became effective on January 1, 2020.
CCPA imposes stringent data privacy and data protection requirements for the data of California residents, and provides for
penalties for noncompliance of up to $7,500 per violation. The restrictions imposed by these laws and regulations may limit the
use and adoption of our products, reduce overall demand for our products, require us to modify our data handling practices and
- 8 -
impose additional costs and burdens. In addition, U.S. and international laws that have been applied to protect user privacy
(including laws regarding unfair and deceptive practices in the U.S. and GDPR in the EU) may be subject to evolving
interpretations or applications in light of privacy developments. As a result, we may be subject to significant consequences,
including penalties and fines, for any failure to comply with such laws, regulations and directives.
Data protection legislation around the world is comprehensive and complex and there has been a recent trend towards more
stringent enforcement of requirements regarding protection and confidentiality of personal data. The restrictions imposed by
such laws and regulations may limit the use and adoption of our products and services, reduce overall demand for our products
and services, require us to modify our data handling practices, and impose additional costs and burdens. With increasing
enforcement of privacy, data protection and cyber security laws and regulations, there is no guarantee that we will not be
subject to enforcement actions by governmental bodies or that our costs of compliance will not increase significantly.
Enforcement actions can be costly and interrupt regular operations of our business. In addition, there has been a developing
trend of civil lawsuits and class actions relating to breaches of consumer data held by large companies. While we have not been
named in any such suits, if a substantial breach or loss of data from our records were to occur, we could become a target of
such litigation. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with
applicable laws, regulations, policies, industry standards, contractual obligations, or other legal obligations could result in
additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business. Our failure to comply
with applicable laws and regulations could result in enforcement action against us, including fines and public censure, claims
for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to
existing customers and prospective customers), any of which could harm our business, results of operations and financial
condition.
U.S. Government trade actions could have an adverse impact on our business, financial position, and results of
operation.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:81)(cid:68)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:81)(cid:72)(cid:74)(cid:82)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:75)(cid:76)(cid:81)(cid:72)(cid:86)(cid:72)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:87)(cid:86)(cid:15)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
practices related to technology transfer, intellectual property, and innovation that the Trump Administration has found to be
unreasonable and burdensome to US commerce. To date, the President has used his authority under Section 301 of the Trade
Act of 1974 three times to levy a 25% retaliatory tariff on 6,830 subheading categories of imported Chinese high-tech and
consumer goods valued at $250 billion per year. Although List 3, alone valued at $200 billion, had originally set an additional
duty rate at 10%, that rate was increased to 25% effective May 10, 2019. Moreover, in August 2019, the President announced a
10% tariff on a fourth list of goods valued at nearly $300 billion to take effect September 1, 2019, which was subsequently
delayed until December 15, 2019. These tariffs, along with any additional tariffs or other trade actions that have been
implemented, have increased the cost of certain materials and/or products that we import from China, thereby adversely
affecting our profitability. These actions required us to raise our prices, which impacted the demand for our products. As a
(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:79)(cid:76)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:38)(cid:75)(cid:76)(cid:81)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:72)(cid:86)(cid:70)(cid:68)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:179)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:90)(cid:68)(cid:85)(cid:180)(cid:15) may
adversely impact our business. Given the uncertainty regarding the scope and duration of these trade actions by the United
States or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains
uncertain.
The costs of litigation and compliance with environmental regulations, if significantly increased, could have an adverse
effect on our operating profits.
We are, and may in the future be, a party to any number of legal proceedings and claims, including those involving patent
litigation, product liability, employment matters, and environmental matters, which could be significant. Given the inherent
uncertainty of litigation, we can offer no assurance that existing litigation or a future adverse development will not have a
material adverse impact. We are also subject to various laws and regulations relating to environmental protection and the
discharge of materials into the environment, and it could potentially be possible we could incur substantial costs as a result of
the noncompliance with or liability for clean up or other costs or damages under environmental laws.
RISKS RELATED TO FINANCIAL MATTERS
Our stock price has experienced a significant decline, which could further adversely affect our ability to raise additional
capital.
The market price of our common stock has experienced a significant decline from which it has not fully recovered. During
fiscal year 2020, the sales price of our common stock, as reported on the Nasdaq Global Select Market, declined from a high of
$7.30 in February 2020 to a low of $2.50 on March 18, 2020. Most recently, on August 31, 2020, the market price of our
common stock, as reported on the Nasdaq Global Select Market, closed at a price of $6.86 per share. Our progress in
- 9 -
developing and commercializing our products, our quarterly operating results, announcements of new products by us or our
competitors, our perceived prospects, changes in general conditions in the economy or the financial markets, adverse events
related to our strategic relationships, and other developments affecting us or our competitors could cause the market price of
our common stock to fluctuate substantially. In addition, in recent years, including in fiscal 2020, the stock market has
experienced significant price and volume fluctuations. This volatility has had a significant effect on the market prices of
securities issued by many companies for reasons unrelated to their operating performance. These market fluctuations,
regardless of the cause, may materially and adversely affect our stock price, regardless of our operating results.
Changes in the method of determining London Interbank Offered Rate ("LIBOR"), or the replacement of LIBOR with
an alternative reference rate, may adversely affect interest expense related to outstanding debt.
Amounts drawn under our credit facility may bear interest rates in relation to LIBOR, depending on our selection of repayment
(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:50)(cid:81)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:21)(cid:26)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:36)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:11)(cid:179)(cid:41)(cid:38)(cid:36)(cid:180)) in the UK announced that it would phase out LIBOR as a
benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it
continues to exist after 2021. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index
called the Broad Treasury Financing Rate, calculated with a broad set of short-term repurchase agreements backed by treasury
securities. If LIBOR ceases to exist, we will need to renegotiate our credit facility and may not able to do so with terms that are
favorable to us. The overall financial market may be disrupted as a result of the phase-out or replacement of LIBOR.
Disruption in the financial market or the inability to renegotiate our credit facility with favorable terms could have a material
adverse effect on our business, financial position, and operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Description
Size
Location
Status
1)
2)
3)
4)
5)
LSI Industries Corporate Headquarters and
lighting fixture manufacturing
243,000 sq. ft. (includes 66,000
sq. ft of office space)
Cincinnati, OH
Owned
LSI Lighting pole manufacturing and dry
powder-coat painting
122,000 sq. ft.
Cincinnati, OH
Owned
LSI Industries technology center
1,000 sq. ft.
Cincinnati, OH
Leased
LSI Lighting Fabrication manufacturing and
dry powder-coat painting
96,000 sq. ft. (includes 5,000 sq.
ft. of office space
Independence,
KY
Owned
LSI Graphics office; screen printing
manufacturing; and architectural graphics
manufacturing
183,000 sq. ft. (includes 34,000
sq. ft. of office space)
Houston, TX
Leased
6)
LSI Graphics office and manufacturing
46,000 sq. ft. (includes 10,000 sq.
ft. of office space
Akron, OH
Leased
7)
LSI Lighting office and manufacturing
57,000 sq. ft. (includes 5,000 sq.
ft. of office space)
Columbus, OH
Owned
8)
LSI Lighting Office and manufacturing
336,000 sq. ft. (includes 60,000
sq. ft. of office space)
Burlington, NC
Leased
The Company considers these eight operating facilities adequate for its current level of operations.
- 10 -
ITEM 3. LEGAL PROCEEDINGS
See Note 13 of Notes to the Consolidated Financial Statements beginning on page 55 of this Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
- 11 -
PART II
ITEM 5. MARKET FOR (cid:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:38)(cid:50)(cid:48)(cid:48)(cid:50)(cid:49)(cid:3)(cid:40)(cid:52)(cid:56)(cid:44)(cid:55)(cid:60)(cid:15)(cid:3)(cid:53)(cid:40)(cid:47)(cid:36)(cid:55)(cid:40)(cid:39)(cid:3)(cid:54)(cid:55)(cid:50)(cid:38)(cid:46)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:3)(cid:48)(cid:36)(cid:55)(cid:55)(cid:40)(cid:53)(cid:54)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:44)(cid:54)(cid:54)(cid:56)(cid:40)(cid:53)(cid:3)
PURCHASES OF EQUITY SECURITIES
(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:36)(cid:54)(cid:39)(cid:36)(cid:52)(cid:3)(cid:42)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:54)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:92)(cid:80)(cid:69)(cid:82)(cid:79)(cid:3)(cid:179)(cid:47)(cid:60)(cid:55)(cid:54)(cid:17)(cid:180) At August 31,
2020, there were approximately 634 shareholders of record. The Company believes this represents approximately 3,000
beneficial shareholders.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)Board of Directors has adopted a dividend policy 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 by the Board of
Directors. The Company has paid annual cash dividends beginning in fiscal 1987 through fiscal 1994, and quarterly cash
(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:20)(cid:28)(cid:28)(cid:24)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:90)(cid:68)(cid:86)
$0.20 per share.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
(cid:44)(cid:55)(cid:40)(cid:48)(cid:3)(cid:26)(cid:17)(cid:3)(cid:3)(cid:48)(cid:36)(cid:49)(cid:36)(cid:42)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:39)(cid:44)(cid:54)(cid:38)(cid:56)(cid:54)(cid:54)(cid:44)(cid:50)(cid:49)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:36)(cid:49)(cid:36)(cid:47)(cid:60)(cid:54)(cid:44)(cid:54)(cid:3)(cid:50)(cid:41)(cid:3)(cid:41)(cid:44)(cid:49)(cid:36)(cid:49)(cid:38)(cid:44)(cid:36)(cid:47)(cid:3)(cid:38)(cid:50)(cid:49)(cid:39)(cid:44)(cid:55)(cid:44)(cid:50)(cid:49)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:53)(cid:40)(cid:54)(cid:56)(cid:47)(cid:55)(cid:54)(cid:3)(cid:50)(cid:41)(cid:3)
OPERATIONS
(cid:179)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:180)(cid:3)(cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)19 through 27 of
this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in variable interest rates, changes in prices of raw materials and
purchased component parts, and changes in foreign currency translation rates. Each of these risks is discussed below.
Interest Rate Risk
The Company earns interest income on its cash, cash equivalents, and short-term investments (if any) and pays interest expense
on its debt (if any). Because of variable interest rates, the Company is exposed to the risk of interest rate fluctuations, which
impact interest income, interest expense, and cash flows.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:7)(cid:26)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)
on this line of credit. Additionally, the Company expects to generate cash from its operations that will subsequently be used to
pay down as much of the debt (if any is outstanding) as possible or invest cash in short-term investments (if no debt is
outstanding), while still funding the growth of the Company.
Raw Material Price Risk
The Company purchases large quantities of raw materials and components, mainly steel, aluminum, castings, fabrications,
LEDs, electronic components, power supplies, powder paint, glass lenses, Aluminum Composite Material (ACM), inks, vinyl
films (cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:85)(cid:85)(cid:88)(cid:74)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:85)(cid:87)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:3)(cid:68)(cid:3)(cid:73)(cid:72)(cid:90)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)
(cid:73)(cid:79)(cid:88)(cid:70)(cid:87)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:80)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:69)(cid:92)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72)(cid:3)suppliers
for a commodity to avoid significant dependence on any single supplier. While the possibility does exist of industry-wide
supply shortages at any time in the future, the Company has not experienced any significant supply problems in recent years.
Price risk for these materials is related to price increases in commodity items that affect all users of the materials, including the
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17) For the fiscal year ended June 30, 2020, the raw material component of cost of goods sold subject to
price risk was approximately $139 million. The Company does not actively hedge or use derivative instruments to manage its
risk in this area. The Company does, however, seek and qualify new suppliers, negotiate with existing suppliers, and arranges
stoc(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)(cid:50)(cid:81)(cid:3)(cid:82)(cid:70)(cid:70)(cid:68)(cid:86)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:47)(cid:76)(cid:74)(cid:75)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)
announced price increases with customers to offset raw material price increases and to mitigate the impact of trade tariffs. The
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:42)(cid:85)(cid:68)(cid:83)(cid:75)ics Segment generally establishes new sales prices, reflective of the then current raw material prices, for each
custom graphics program as it begins.
- 12 -
Foreign Currency Translation Risk
The Company has minimal foreign currency risk with respect to its Mexican subsidiary. The sales transacted by this subsidiary
in pesos represent approximately 3% of (cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)consolidated net sales. All other business conducted by the Company is
in U.S. dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Financial Statements:
Begins
on Page
28
29
30
31
32
33
35
36
37
59
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)On Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended June 30, 2020 and 2019
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets at June 30, 2020 and 2019
(cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)years ended June 30, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended June 30, 2020 and 2019
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II (cid:177) Valuation and Qualifying Accounts for the years ended June 30, 2020 and 2019
Schedules other than those listed above are omitted for the reason(s) that they are either not applicable or not required or
because the information required is contained in the financial statements or notes thereto. Selected quarterly financial data is
found in Note 17 of the accompanying consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the
(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:22)(cid:23)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:80)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:40)(cid:91)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:36)(cid:70)(cid:87)(cid:180)(cid:12)(cid:15)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:81)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)e
disclosed by the Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported
(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:3)(cid:86)(cid:83)(cid:72)(cid:70)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:40)(cid:38)(cid:182)(cid:86)(cid:3)(cid:85)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:86)(cid:17)(cid:3)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)
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.
- 13 -
We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer,
an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, as of June 30, 2020, our disclosure controls and procedures were effective. Management believes that
the consolidated financial statements included in this Annual Report on Form 10-K are fairly presented in all material respects
(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:56)(cid:17)(cid:54)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)s Chief Executive Officer and Chief Financial Officer have certified that,
based on their knowledge, the consolidated financial statements included in this report fairly present in all material respects the
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:3)
presented in this report.
Management's Report on Internal Control over Financial Reporting appearing on page 28 of this report is incorporated by
reference in this Item 9A.
Changes in Internal Control
(cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:81)(cid:82)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:11)(cid:68)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:53)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:20)(cid:22)(cid:68)-15(f) and 15d-
15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2020, that have materially affected, or are reasonably
(cid:79)(cid:76)(cid:78)(cid:72)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:17)(cid:3)(cid:54)(cid:72)(cid:72)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:50)(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)
Control Over Financial Reporting on page 28.
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:73)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:179)(cid:49)(cid:82)(cid:80)(cid:76)(cid:81)(cid:72)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:179)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:51)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)olders to be held November 10, 2020 (the
(cid:179)(cid:51)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:180)(cid:12)(cid:17)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:73)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
Proxy Statement. That information is incorporated herein by reference.
We have adopted a code of ethics that applies to all of our employees, including our Chief Executive Officer, Chief Financial
Officer, Chief Accounting Officer, and other finance organization employees. The code of ethics is publicly available on our
website at lsicorp.com. If we make any substantive amendments to the code of ethics or grant any waiver, including any
implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting
Officer, we will disclose the nature of the amendment or waiver on that website or in a report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:179)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:180)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:180)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:79)(cid:82)(cid:70)(cid:78)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:44)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:3)(cid:51)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:180)(cid:3)(cid:76)(cid:86)(cid:3)
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information in the Proxy Stat(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:179)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:50)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:15)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)
(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:180)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:179)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:42)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:53)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:51)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:3)
(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:180)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3)
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
- 14 -
Information concerning principal accountant (cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:91)(cid:92)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:179)(cid:53)(cid:68)(cid:87)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:36)(cid:83)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:51)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:3)
by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report:
PART IV
(1) Consolidated Financial Statements appear as part of Item 8 of this Form 10-K.
(2) Exhibits (cid:177) Exhibits set forth below are either on file with the Securities and Exchange Commission and are
incorporated by reference as exhibits hereto, or are filed with this Form 10-K.
- 15 -
Exhibit
No.
Exhibit Description
3.1
Certificate of Amended Articles of Incorporation of LSI.
3.2
Amended and Restated Code of Regulations of LSI
4.1
Description of Securities (incorporated by reference to Exhibit 4.1 of (cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)Annual Report on Form 10-K filed on
September 6, 2019).
4.2
Warrant Agreement issued by LSI Industries Inc. (cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:23)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K
filed on February 21, 2017).
10.1
Third Amendment to Loan Documents dated February 21, 2017 between LSI and PNC Bank, National
(cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:23)(cid:17)(cid:21)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on February 21, 2017).
10.2
Fourth Amendment to Loan Documents dated February 28, 2019 between LSI and PNC Bank, National
(cid:36)(cid:86)(cid:86)(cid:82)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:21)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed on May 8, 2019).
10.3
Amended and Restated Loan Agreement dated as of June 19, 2014 between LSI and PNC Bank, National
Association (incorporated by reference (cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:82)(cid:73)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-K filed on September 10, 2014)
10.4*
Amended and Restated 2012 Stock Incentive Plan amended as of November 17, 2016 (incorporated by reference
(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed on February 3, 2017).
10.5*
Form of Indemnification Agreement (incorporated by reference (cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:82)(cid:73)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on June
23, 2016)
10.6*
LSI Industries Inc. Nonqualified Deferred Compensation Plan (Amended and Restated as of December 30, 2019)
(incorporated by reference to Exhibit 10.2 (cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 10-Q filed on February 6, 2020).
10.7*
(cid:40)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:47)(cid:54)(cid:44)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:45)(cid:68)(cid:80)(cid:72)(cid:86)(cid:3)(cid:36)(cid:17)(cid:3)(cid:38)(cid:79)(cid:68)(cid:85)(cid:78)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:27)-K
filed on October 17, 2018).
10.8*
Employment Offer Letter between LSI and James E. Galeese (incorporated by reference to Exhibit 10.1 to (cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)
Form 8-K filed on June 13, 2017).
10.9*
Employment Offer Letter between LSI and Thomas A. Caneris (incorporated by reference to Exhibit 10.1 to
(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on August 5, 2019).
10.10*
Employment Offer Letter between LSI (cid:68)(cid:81)(cid:71)(cid:3)(cid:48)(cid:76)(cid:70)(cid:75)(cid:68)(cid:72)(cid:79)(cid:3)(cid:38)(cid:17)(cid:3)(cid:37)(cid:72)(cid:70)(cid:78)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)
Form 8-K filed on January 16, 2019).
10.11* (cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:51)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on October 3, 2011).
10.12*
Form of Restricted Stock Unit Award Agreement (cid:177) Amended and Restated 2012 Stock Incentive Plan
(incorporated by reference to Exh(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:22)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on July 6, 2015).
10.13*
Form of Non-qualified Stock Option Agreement / Inducement Awards (cid:177) Amended and Restated 2012 Stock
Incentive Plan (cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed on November 7, 2018).
10.14*
Form of Nonqualified Stock Option Award Agreement - Service-Based (cid:177) Amended and Restated 2012 Stock
Incentive Plan (cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:24)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on July 6, 2015).
10.15*
Form of Nonqualified Stock Option Award Agreement (cid:177) Performance-Based (cid:177) Amended and Restated 2012
Stock Incentive Plan (cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:23)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on July 6, 2015).
- 16 -
10.16*
Form of Incentive Stock Option Award Agreement (cid:177) Amended and Restated 2012 Stock Incentive Plan
(incorpo(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:25)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:27)-K filed on July 6, 2015).
10.17*
(cid:41)(cid:60)(cid:21)(cid:19)(cid:3)(cid:47)(cid:82)(cid:81)(cid:74)(cid:3)(cid:55)(cid:72)(cid:85)(cid:80)(cid:3)(cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:13)(cid:14)(cid:14)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed on
November 7, 2019).
10.18*
FY20 Short Term Incentive Plan*++ (incorporated by reference to Exhibit 10.2 (cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed on
November 7, 2019).
10.19*
Form of Performance Share Unit Award Agreement (cid:177) Amended and Restated 2012 Stock Incentive Plan*++
(incorporated by reference to Exhibit 10.3 (cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-Q filed on November 7, 2019).
10.20*
(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:50)(cid:80)(cid:81)(cid:76)(cid:69)(cid:88)(cid:86)(cid:3)(cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:40)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)S-8 Registration Statement
File No. 333-234556 filed on November 7, 2019).
14
Code of Ethics (cid:11)(cid:76)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:3)(cid:20)(cid:23)(cid:3)(cid:87)(cid:82)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80) 10-K for the fiscal year ended June 30,
2004).
21
Subsidiaries of the Registrant
23.1
Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP)
24
Power of Attorney (included as part of signature page)
31.1
Certification of Principal Executive Officer required by Rule 13a-14(a)
31.2
Certification of Principal Financial Officer required by Rule 13a-14(a)
32.1
18 U.S.C. Section 1350 Certification of Principal Executive Officer
32.2
18 U.S.C. Section 1350 Certification of Principal Financial Officer
101.INS
(cid:3)
101.SCH
(cid:3)
101.CAL
(cid:3)
101.LAB
(cid:3)
101.PRE
(cid:3)
101.DEF
XBRL Instance Document
(cid:3)
XBRL Taxonomy Extension Schema
(cid:3)
XBRL Taxonomy Extension Calculation Linkbase
(cid:3)
XBRL Taxonomy Extension Label Linkbase
(cid:3)
XBRL Taxonomy Extension Presentation Linkbase
(cid:3)
XBRL Taxonomy Extension Definition Document
*Management compensatory agreement.
++ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The omitted information
is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to
furnish a copy of any omitted portion to the SEC upon request.
LSI will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to
(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:88)(cid:85)(cid:81)(cid:76)(cid:86)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:72)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:75)(cid:76)(cid:69)(cid:76)(cid:87)(cid:86)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:75)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)being filed with the SEC have been so
filed with the SEC but may not be included in this version of the Annual Report to Shareholders.
ITEM 16. FORM 10-K SUMMARY
Not included.
- 17 -
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
September 11, 2020
Date
LSI INDUSTRIES INC.
BY:
/s/ James A. Clark
James A. Clark
Chief Executive Officer and President
We, the undersigned directors and officers of LSI Industries Inc. hereby severally constitute James A. Clark and James E.
Galeese, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in
our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ James A. Clark
James A. Clark
Date: September 11, 2020
/s/ James E. Galeese
James E. Galeese
Date: September 11, 2020
/s/ Jeffery S. Bastian
Jeffery S. Bastian
Date: September 11, 2020
/s/ Robert P. Beech
Robert P. Beech
Date: September 11, 2020
/s/ Ronald D. Brown
Ronald D. Brown
Date: September 9, 2020
/s/ Amy L. Hanson
Amy L. Hanson
Date: September 11, 2020
/s/ Chantel E. Lenard
Chantel E. Lenard
Date: September 11, 2020
/s/ John K. Morgan
John K. Morgan
Date: September 11, 2020
(cid:18)(cid:86)(cid:18)(cid:3)(cid:58)(cid:76)(cid:79)(cid:73)(cid:85)(cid:72)(cid:71)(cid:3)(cid:55)(cid:17)(cid:3)(cid:50)(cid:182)(cid:42)(cid:68)(cid:85)(cid:68)
(cid:58)(cid:76)(cid:79)(cid:73)(cid:85)(cid:72)(cid:71)(cid:3)(cid:55)(cid:17)(cid:3)(cid:50)(cid:182)(cid:42)(cid:68)(cid:85)(cid:68)
Date: September 11, 2020
Chief Executive Officer and President
(Principal Executive Officer)
Executive Vice President, and Chief Financial Officer
(Principal Financial Officer)
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Chairman of the Board of Directors
- 18 -
(cid:48)(cid:36)(cid:49)(cid:36)(cid:42)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:39)(cid:44)(cid:54)(cid:38)(cid:56)(cid:54)(cid:54)(cid:44)(cid:50)(cid:49)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:36)(cid:49)(cid:36)(cid:47)(cid:60)(cid:54)(cid:44)(cid:54)(cid:3)(cid:50)(cid:41)(cid:3)FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:179)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:79)(cid:76)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)-(cid:46)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:54)(cid:68)(cid:73)(cid:72)(cid:3)(cid:43)(cid:68)(cid:85)(cid:69)(cid:82)(cid:85)(cid:180)(cid:3)
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:82)tes presented later in this Form
10-(cid:46)(cid:3)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
Operations.
Overview
LSI Industries is a leading producer of high-performance, American-made lighting solutions. Our strength in outdoor lighting
(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:88)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:87)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:71)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:82)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:87)(cid:71)(cid:82)(cid:82)(cid:85)
products and services, including our digital and print graphics capabilities, are valued by architects, engineers, distributors and
contractors for their quality, reliability and innovation. Our products are used extensively in automotive dealerships, petroleum
stations, quick service restaurants, grocery stores and pharmacies, retail establishments, sports complexes, parking lots and
garages, and commercial and industrial buildings.
COVID-19 Pandemic
Our business is significantly vulnerable to the economic effects of pandemics and other public health crises, including the
(cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:82)(cid:89)(cid:72)(cid:79)(cid:3)(cid:70)(cid:82)(cid:85)(cid:82)(cid:81)(cid:68)(cid:89)(cid:76)(cid:85)(cid:88)(cid:86)(cid:3)(cid:11)(cid:179)(cid:38)(cid:50)(cid:57)(cid:44)(cid:39)-(cid:20)(cid:28)(cid:180)(cid:12)(cid:3)(cid:82)(cid:88)(cid:87)(cid:69)(cid:85)(cid:72)(cid:68)(cid:78)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)continues to spread in the U.S. and globally. During the fourth quarter
of fiscal 2020, we experienced a decline in the demand for our products and services across all of our markets as a result of the
impact of the spread of COVID-19 and the resulting disruptions to the non-residential construction market.
We continue to assess the ongoing impact of COVID-19 on our business results and remain committed to taking actions to
address the health, safety and welfare of our employees, customers, agents and suppliers as well as the negative effects from
demand disruption and production impacts, including, but not limited to, the following:
(cid:120) Operating our business with a focus on our employee health and safety, which includes minimizing travel,
implementing appropriate distancing programs, enhanced and more frequent cleaning within our facilities, and
requiring use of personal protective equipment;
(cid:120) Monitoring of our liquidity, reduction of supply flows into our manufacturing facilities, disciplined inventory
management, and continued scrutiny of our capital expenditures; and
(cid:120) Continuously reviewing our financial strategy to strengthen financial flexibility in these volatile financial markets.
We continue to maintain a strong balance sheet with a cash balance of $3.5 million and no long-term debt as of June 30, 2020.
We believe that our liquidity position is adequate to meet our projected needs in the reasonably foreseeable future.
Future developments, such as the potential of additional outbreaks of COVID-19 in the U.S. and globally and the actions taken
by governmental authorities in response to future resurgence, that are highly uncertain and not able to be predicted will
determine the extent to which the COVID-19 outbreak continues to impact our results of operations and financial conditions.
See Item 1A, Risk Factors, included in Part I of this Annual Report on Form 10-K for an additional discussion of risks related
to COVID-19.
Summary of Consolidated Results
Net Sales by Business Segment
(In thousands)
Lighting Segment
Graphics Segment
Total Net Sales
- 19 -
2020
2019
$
$
206,199
99,359
305,558
$
$
235,114
93,738
328,852
Operating Income (Loss) by Business Segment
(In thousands)
2020
2019
Lighting Segment
Graphics Segment
Corporate and Eliminations
Total Operating Income (Loss)
$
$
16,123
8,218
(11,265)
13,076
(12,211)
3,112
(10,791)
(19,890)
$
$
Fiscal 2020 net sales of $305.6 million decreased $23.3 million or 7% as compared to fiscal 2019 net sales of $328.9 million.
Net sales were favorably influenced by increased net sales in the Graphics Segment (up $5.6 million or 6%) and were
unfavorably influenced by decreased net sales in the Lighting Segment (down $28.9 million or 12%).
Fiscal 2020 operating income of $13.1 million represents a $33.0 million increase from fiscal 2019 operating loss of ($19.9)
million. The $33.0 million improvement from operating loss in fiscal 2019 was favorably impacted by the $4.8 million pre-tax
gain on the sale of the New Windsor, New York facility and the $3.7 million pre-tax gain on the sale of the North Canton, Ohio
facility, both of which occurred in fiscal 2020, and a $20.2 million pre-tax goodwill impairment charge in fiscal 2019 in the
Lighting Segment. The year over year increase in operating income was partially offset by a one-time adjustment to a
Company benefit plan in fiscal 2019 which resulted in a favorable pre-tax adjustment to earnings of $1.2 million. Non-GAAP
adjusted operating income in fiscal 2020 of $6.4 million increased $2.4 million or 58% from adjusted fiscal 2019 operating
income of $4.0 million. (cid:53)(cid:72)(cid:73)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:179)(cid:49)(cid:82)(cid:81)-(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:48)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:180)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)Non-GAAP financial
measures to U.S. GAAP measures. The increase in adjusted operating income was the net result of a higher-value sales mix,
lower selling and administrative expenses and cost savings from the closure of the New Windsor, New York facility, partially
offset by a decrease in net sales.
Non-GAAP Financial Measures
We believe it is appropriate to evaluate our performance after making adjustments to the as-reported U.S. GAAP operating
income, net income, and earnings per share. Adjusted operating income, net income and earnings per share, which exclude the
impact of restructuring and plant closure (gains) costs, severance costs, goodwill impairment charges, and transition and re-
alignment costs are Non-GAAP financial measures. Also included below are Non-GAAP financial measures including
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA and Adjusted EBITDA), Free Cash Flow and Net
Debt. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business.
These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business
results. We exclude these items because they are not representative of the ongoing results of operations of our business. These
Non-GAAP measures may be different from Non-GAAP measures used by other companies. In addition, the Non-GAAP
measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations, in
that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these
measures should only be used to evaluate our results in conjunction with corresponding GAAP measures. Below is a
reconciliation of these non-GAAP measures to operating income, net income, and earnings per share for the periods indicated
along with the calculation of EBITDA and Adjusted EBITDA, Free Cash Flow and Net Debt.
Reconciliation of operating income (loss) to adjusted operating income:
(In thousands)
Operating Income (Loss) as reported
Restructuring, plant closure (gain) costs and related inventory write-downs
Severance costs
Goodwill impairment
Transition and re-alignment costs
Adjusted Operating Income
- 20 -
2020
2019
$
13,076
$
(19,890)
(7,038)
346
-
-
3,073
560
20,165
120
$
6,384
$
4,028
Reconciliation of net income (loss) to adjusted net income
(In thousands, except per share data)
2020
2019
Diluted EPS
Diluted EPS
Net Income (Loss) as reported
$
9,592
$
0.36
$
(16,339)
$
(0.63)
Restructuring, plant closure (gain) costs and related inventory write-downs
(5,774)
(1)
Severance costs
Goodwill impairment
Transition and re-alignment costs
Tax impact from the anticipated sale of New Windsor assets
Tax impact due to the change in the estimated annual tax rate used for
GAAP reporting purposes
(0.22)
0.01
-
-
2,410
(3)
426
(4)
15,325
(5)
91
(6)
0.09
0.02
0.59
-
$
-
(928)
(0.04)
245
(2)
-
-
-
(851)
(0.03)
-
-
Net Income adjusted
$
3,212
$
0.12
$
985
$
0.04
The following represents the income tax effects of the adjustments in the tables above, which were calculated using the
estimated combined U.S. and Mexico effective income tax rates for the periods indicated:
(1) $(1,264)
(2) $101
(3) $663
(4) $134
(5) $4,840
(6) $29
The reconciliation of reported earnings per share to adjusted earnings per share may not produce identical amounts due to
rounding differences and due to the difference between basic and dilutive weighted average shares outstanding in the
computation of earnings per share.
Reconciliation of operating income (loss) to EBITDA and Adjusted EBITDA
(In thousands)
Operating Income (Loss) as reported
Depreciation and Amortization
EBITDA
Restructuring, plant closure (gain) costs and related inventory write-downs
Severance costs
Goodwill impairment
Transition and re-alignment costs
Adjusted EBITDA
2020
2019
$
13,076
$
(19,890)
8,654
10,221
$
21,730
$
(9,669)
(7,038)
346
-
-
3,073
560
20,165
120
$
15,038
$
14,249
- 21 -
Reconciliation of cash flow from operations to free cash flow
(In thousands)
Cash Flow from Operations
Proceeds from sale of assets
Capital expenditures
Free Cash Flow
Reconciliation of Net Debt
(In thousands)
Long-Term Debt as reported
Less:
Cash and cash equivalents as reported
Net Debt
2020
2019
$
29,710
$
11,491
20,150
(2,739)
-
(2,618)
$
47,121
$
8,873
June 30,
2020
June 30,
2019
$
-
$
39,541
3,517
966
$
(3,517)
$
38,575
- 22 -
Results of Operations
2020 Compared to 2019
Lighting Segment
(In thousands)
Net Sales
Gross Profit
Operating Income (Loss)
2020
2019
$
$
$
206,199
56,855
16,123
$
$
$
235,114
55,119
(12,211)
Lighting Segment net sales of $206.2 million in fiscal 2020 decreased 12% from fiscal 2019 same period net sales of $235.1
million. The 12% drop in sales is attributed to the impact of COVID-19 disruptions on construction markets in the fourth
quarter of fiscal 2020, inventory de-stocking by distributors, and continued competitiveness in our project and stock and flow
markets.
Gross profit of $56.9 million in fiscal 2020 increased $1.7 million or 3% from the same period of fiscal 2019 and increased
from 23.4% to 27.1% as a percentage of Lighting Segment net sales. The growth in gross profit and gross profit as a percentage
of sales reflects the progress in transitioning toward a higher-value sales mix, cost savings from the closure of the New
Windsor facility, the successful introduction of new products and operating cost reductions.
Selling and administrative expenses of $40.7 million in fiscal year 2020 decreased $26.6 million or 39% from the same period
of fiscal 2019 selling and administrative expenses of $67.3 million, primarily due to the $4.8 million pre-tax gain on the sale of
the New Windsor facility in fiscal 2020 and the $20.2 million pre-tax goodwill impairment charge in fiscal 2019. When the
$4.8 million gain is removed from fiscal 2020 results and the goodwill impairment charge is removed from fiscal 2019 results,
there was a $1.6 million or 3% decrease in selling and administrative expenses. The decrease in selling and administrative
expenses is mostly driven by lower commission expense in fiscal 2020 as a result of lower sales and a conscientious effort to
reduce spending as a result of the pandemic, partially offset by a one-time adjustment to a Company benefit plan in fiscal 2019
with no comparable event in fiscal 2020.
The Lighting Segment fiscal 2020 operating income of $16.1 increased $28.3 million from an operating loss of ($12.2) million
in the same period of fiscal 2019 primarily due to the $4.8 million pre-tax gain on the sale of the New Windsor facility in fiscal
2020 and a $20.2 million pre-tax goodwill impairment charge in fiscal 2019. Fiscal 2020 Non-GAAP adjusted operating
income of $11.6 million was $0.4 million higher than fiscal 2019 on-GAAP adjusted operating income of $11.2 million (refer
to the Non-GAAP table below for a reconciliation of Lighting Segment operating income (loss) to adjusted operating income).
The increase in Non-GAAP adjusted operating income is primarily due to a favorable mix of sales on lower sales volume,
improved productivity from manufacturing facility consolidation and lower operating expenses.
Reconciliation of Lighting Segment operating income (loss) to adjusted operating income:
(In thousands)
2020
2019
$
$
16,123
(4,674)
167
-
11,616
(12,211)
3,024
240
20,165
11,218
$
$
Operating Income (Loss)
Restructuring and plant closure (gain) costs
Severance
Goodwill impairment
Adjusted operating income
- 23 -
Graphics Segment
(In thousands)
Net Sales
Gross Profit
Operating Income
2020
2019
$
$
$
99,359
16,649
8,218
$
$
$
93,738
18,602
3,112
Graphics Segment net sales of $99.4 million increased $5.6 million or 6% from fiscal 2019 net sales of $93.7 million. Growth
was realized across the petroleum market and digital sales, partially offset by interruptions to product installation schedules in
the fourth quarter of fiscal 2020 caused by COVID-19 restrictions limiting construction activity in many states.
Gross profit of $16.6 million in fiscal 2020 decreased $2.0 million or 10% from the fiscal 2019. Gross profit as a percentage of
segment net sales (customer plus inter-segment net sales) decreased from 19.8% in fiscal 2019 to 16.7% in fiscal 2020. The
decrease in the amount of gross profit is due to the net effect of increased net sales (customer plus inter-segment net sales)
offset by a change in customer program mix. Graphics gross margin was unfavorably impacted by new and early stage
petroleum products and start-up costs associated therewith and the cost associated with the re-alignment of manufacturing
resources required to support the transition from print to digital in certain market applications.
Selling and administrative expenses of $8.4 million in fiscal 2020 decreased $7.1 million or 46% from the same period of fiscal
2019, primarily as a result of the $3.7 million pre-tax gain on the sale of the North Canton facility in fiscal 2020. When the
$3.7 million gain is removed from fiscal 2020 results, there was a $3.3 million or 21% decrease in selling and administrative
expenses. The decrease in selling and administrative expenses was due to lower operating costs as a result of an organizational
realignment executed earlier in the fiscal year and overall cost management.
Graphics Segment fiscal 2020 operating income of $8.2 million increased $5.1 million from operating income of $3.1 million
in the same period of fiscal 2019. The increase of $5.1 million was primarily the result of the $3.7 million pre-tax gain on the
sale of the North Canton facility and lower operating costs.
Corporate and Eliminations
(In thousands)
Gross Profit (Loss)
Operating (Loss)
2020
2019
$
$
26
(11,265)
$
$
(8)
(10,791)
The gross profit (loss) relates to the intercompany profit in inventory elimination.
Administrative expenses of $11.3 million in fiscal 2020 increased $0.5 million or 5% from the same period of the prior year.
The increase is primarily the result of filling key vacancies in corporate administration.
Consolidated Results
We reported $0.9 million net interest expense in fiscal 2020 compared to $2.2 million net interest expense in fiscal 2019. The
decrease in interest expense from fiscal 2019 to fiscal 2020 is the result of reduced borrowings against our line of credit. We
also recorded other expense of $0.5 million in fiscal 2020 and $0.1 million in fiscal 2019, both of which relate to net foreign
currency transaction losses through our Mexican subsidiary. The increase in other expense was due to the devaluation of the
Mexican Peso as a result of market conditions surrounding the COVID-19 pandemic.
The $2.1 million income tax expense in fiscal 2020 represents a consolidated effective tax rate of 18.0%. The effective tax rate
is mostly driven by the following: 1) a tax rate benefit resulting from carryback of a net operating loss (NOL) allowed due to
the enactment of the Coronavirus Aid, Relief and Economic Security (CARES) Act; 2) the utilization of a capital loss
carryforward related to the capital gain on the sale of the North Canton facility, and; 3) a discrete item related to stock-based
compensation expense. The $5.9 million income tax benefit in fiscal 2019 represents a consolidated effective tax rate of 26.6%,
which is inclusive of a $0.9 million tax benefit from the sale of the New Windsor facility. The tax benefit results from the
- 24 -
reduction of a valuation allowance for a capital loss deferred tax asset that can be utilized against the gain on sale. The effective
tax rate also varied from the statutory rate due to a 30% tax rate on our Mexican subsidiary(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3) certain permanent
book-tax differences and adjustments related to uncertain income tax positions.
We reported net income of $9.6 million in fiscal 2020 compared to net loss of ($16.3) million in fiscal 2019. The change from
net loss from fiscal 2019 to net income in fiscal 2020 is mostly driven by the $3.7 million pre-tax gain on the sale of the North
Canton facility and the $4.8 million pre-tax gain on the sale of the New Windsor facility in fiscal 2020 and the $20.2 million
pre-tax goodwill impairment charge in fiscal 2019. Also contributing to the period-over-period results is a one-time adjustment
(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:73)(cid:76)(cid:87)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)the first quarter of fiscal 2019 which resulted in a favorable pre-tax adjustment to earnings
of $1.2 million. When the impact of all Non-GAAP items is removed from both fiscal years, the fiscal 2020 Non-GAAP
adjusted net income of $3.2 million increased $2.2 million from fiscal 2019 adjusted net income of $1.0 million (Refer to the
Non-GAAP tables above). The increase in Non-GAAP adjusted net income is primarily the net result of an improved gross
profit margin and a decrease in interest expense, partially offset by decreased net sales and higher foreign currency transaction
losses. Diluted earnings per share of $0.36 was reported in fiscal 2020 compared to diluted loss per share of ($0.63) in fiscal
2019. The weighted average common shares outstanding for purposes of computing diluted earnings per share in fiscal 2020
were 26,473,000 shares as compared to 26,109,000 shares in the same period last year.
- 25 -
Liquidity and Capital Resources
We consider our level of cash on hand, borrowing capacity, current ratio and working capital levels to be our most important
measures of short-term liquidity. For long-term liquidity indicators, we believe our ratio of long-term debt to equity and our
historical levels of net cash flows from operating activities to be the most important measures.
At June 30, 2020 we had working capital of $51.2 million, compared to $71.1 million at June 30, 2019. The ratio of current
assets to current liabilities was 2.48 to 1 as compared to a ratio of 2.78 to 1 at June 30, 2019. The balance sheet at June 30,
2019 included as asset held for sale of $7.5 million which was sold in the first quarter of fiscal 2020. When June 30, 2019
current assets are revised to exclude the asset held for sale, adjusted working capital, a non-GAAP financial measure, and the
ratio of current assets to current liability are $63.6 million and 2.59 to 1, respectively, as of June 30, 2019. The $12.4 million
decrease in working capital from June 30, 2019 to June 30, 2020 (as adjusted and excludes held for sale assets) is primarily
driven by a $16.9 million decrease in accounts receivable, a $4.8 million decrease in inventory, a $4.4 million decrease in
accounts payable, partially offset by a $2.6 million increase in cash and a $1.9 million increase in refundable taxes.
We generated $29.7 million of cash from operating activities in fiscal 2020 compared to $11.5 million in fiscal 2019. The
$18.2 million increase in net cash flows from operating activity is the result of our improved earnings as well as our ongoing
strategy to aggressively manage our working capital which includes the reduction in accounts receivable days sales outstanding
(DSO), increasing inventory turns while simultaneously reducing inventory levels, and effectively managing our supply chain
which includes partnering with our suppliers to find the appropriate service level while effectively managing payment terms.
Net accounts receivable were $37.8 million and $54.7 million at June 30, 2020 and June 30, 2019, respectively. DSO decreased
from 63 days at June 30, 2019 to 56 days at June 30, 2020. We believe that our receivables are ultimately collectible or
recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.
Net inventories of $38.8 million at June 30, 2020 decreased $4.8 million from $43.5 million at June 30, 2019. The decrease of
$4.8 million is the result of a decrease in gross inventory of $5.5 million and a decrease in obsolescence reserves of $0.7
million. Based on a strategy of balancing inventory reductions with customer service and the timing of shipments, net
inventory decreased $3.4 million in the Graphics Segment and decreased $1.4 million in the Lighting Segment in fiscal
2020.
Cash generated from operations and borrowing capacity under our line of credit is our primary source of liquidity. We have a
secured $75 million revolving line of credit with our bank, with $75 million of the credit line available as of August 26, 2020.
We amended our revolving line of credit in the third quarter of fiscal 2019 and reduced our available line of credit from $100
million to $75 million in order to better match our financing needs with an appropriate borrowing capacity. This line of credit
is a $75 million five-year credit line expiring in the third quarter of fiscal 2022. We are in compliance with all of our loan
covenants. We believe that our $75 million line of credit plus cash flows from operating activities are adequate for calendar
year 2020 operational and capital expenditure needs. However, as the impact of COVID-19 on the economy evolves, we will
continue to assess our liquidity needs.
We had a source of cash of $17.4 million in investing activities in fiscal 2020 as compared to a use of cash of $2.6 million in
fiscal 2019, resulting in a favorable change of $20.0 million. Capital expenditures increased from $2.6 million in fiscal 2019 to
$2.7 million in fiscal 2020. We sold our New Windsor manufacturing facility for $12.3 million and our North Canton facility
for $7.7 million in fiscal 2020, which were the primary contributing factors to the increase in cash flow from investing
activities from fiscal 2019 to fiscal 2020.
We used $44.4 million of cash related to financing activities in fiscal 2020 compared to $11.1 million in fiscal 2019. The $33.3
million change in cash flow was primarily the net result of payments of long-term debt in excess of borrowings which was
primarily driven by the cash flow from operations and the sale of the New Windsor and North Canton facilities.
We have on our balance sheet financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit,
and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity
and/or variable, market-driven interest rates.
Off-Balance Sheet Arrangements
We have no financial instruments with off-balance sheet risk.
- 26 -
Cash Dividends
In August 2020, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable September 8,
2020 to shareholders of record as of August 31, 2020. The indicated annual cash dividend rate for fiscal 2020 was $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 at its discretion based upon its evaluation of earnings, cash flow requirements, financial conditions, debt
levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.
Critical Accounting Policies and Estimates
A summary of our significant accounting policies is included in Note 1 to the audited consolidated financial statements of the
(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)20 Annual Report on Form 10-K.
We are required to make estimates and judgments in the preparation of our financial statements that affect the reported amounts
of assets, liabilities, revenues and expenses, and related footnote disclosures. We base our 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. We continually review these estimates and their
underlying assumptions to ensure they remain appropriate. We believe 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
(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17) 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.
- 27 -
M(cid:36)(cid:49)(cid:36)(cid:42)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:182)(cid:54)(cid:3)(cid:53)(cid:40)(cid:51)(cid:50)(cid:53)(cid:55)(cid:3)(cid:50)(cid:49)(cid:3)(cid:44)(cid:49)(cid:55)(cid:40)(cid:53)(cid:49)(cid:36)(cid:47)(cid:3)(cid:38)(cid:50)(cid:49)(cid:55)(cid:53)(cid:50)(cid:47)(cid:3)(cid:50)(cid:57)(cid:40)(cid:53)(cid:3)(cid:41)(cid:44)(cid:49)(cid:36)(cid:49)(cid:38)(cid:44)(cid:36)(cid:47)(cid:3)(cid:53)(cid:40)(cid:51)(cid:50)(cid:53)(cid:55)(cid:44)(cid:49)(cid:42)
The Management of LSI Industries Inc. and subsidiarie(cid:86)(cid:3)(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:47)(cid:54)(cid:44)(cid:180)(cid:12)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:68)(cid:70)(cid:70)(cid:88)(cid:85)(cid:68)(cid:70)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:17)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange
Act Rules 13a-(cid:20)(cid:24)(cid:11)(cid:73)(cid:12)(cid:17)(cid:3)(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over
financial reporting as of June 30, 2020(cid:15)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:85)(cid:76)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:3)(cid:86)(cid:72)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:179)the 2013 Internal Control (cid:177) (cid:44)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:180)(cid:3)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the
control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include
the reality that judgments in decision making can be faulty, the possibility of human error, and the circumvention or overriding
of the controls and procedures.
In meeting its responsibility for the reliability of the financial statements, the Company depends upon its system of internal
accounting controls. The system is designed to provide reasonable assurance that assets are safeguarded and that transactions
are properly authorized and recorded. The system is supported by policies and guidelines, and by careful selection and training
of financial management personnel. The Company also has a Disclosure Controls Committee, whose responsibility is to help
ensure appropriate disclosures and presentation of the financial statements and notes thereto. Additionally, the Company has an
Internal Audit Department to assist in monitoring compliance with financial policies and procedures.
The Bo(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:86)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)
Committee which is composed entirely of independent Directors who are not employees of the Company. The Audit
Committee meets periodically with Management and Internal Audit to review and assess the activities of each in meeting their
respective responsibilities. Grant Thornton LLP has full access to the Audit Committee to discuss the results of their audit
work, the adequacy of internal accounting controls, and the quality of financial reporting.
Based upon L(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)
control over financial reporting was effective as of June 30, 2020. We (cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)
the Audit Committee of our Board of Directors. Additionally, our independent registered public accounting firm audited and
(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)financial reporting. Grant Thornton LLP, an
independent registered public accounting firm, has issued an opinion (cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)
over financial reporting, which is presented in the financial statements.
James A. Clark
President and Chief Executive Officer
(Principal Executive Officer)
James E. Galeese
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
- 28 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
LSI Industries Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of LSI Industries Inc. (an Ohio corporation) and subsidiaries (the
(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:12)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:22)(cid:19)(cid:15) 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by
(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:54)(cid:83)(cid:82)(cid:81)(cid:86)(cid:82)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:71)(cid:90)(cid:68)(cid:92)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:38)(cid:50)(cid:54)(cid:50)(cid:180)(cid:12)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)
maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(cid:11)(cid:179)(cid:51)(cid:38)(cid:36)(cid:50)(cid:37)(cid:180)(cid:12)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:22)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)
dated September 11, 2020 expressed an unqualified opinion on those financial statements.
Basis for opinion
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(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)
Report O(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:50)(cid:89)(cid:72)(cid:85)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
(cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:85)easonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:17)(cid:3)(cid:36)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)es those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Cincinnati, Ohio
September 11, 2020
- 29 -
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
Board of Directors and Shareholders
LSI Industries Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of LSI Industries Inc. (an Ohio corporation) and subsidiaries
(cid:11)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:12)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:22)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)ts of operations, comprehensive income,
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:22)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:70)(cid:75)(cid:72)(cid:71)(cid:88)(cid:79)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:20)(cid:24)(cid:11)(cid:68)(cid:12)(cid:3)(cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)
the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and
2019, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2020, in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(cid:11)(cid:179)(cid:51)(cid:38)(cid:36)(cid:50)(cid:37)(cid:180)(cid:12)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:22)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:15)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:70)(cid:85)(cid:76)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:38)(cid:50)(cid:54)(cid:50)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)11, 2020 expressed an unqualified opinion.
Basis for opinion
These financial statements are the respon(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:85)(cid:80)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:38)(cid:36)(cid:50)(cid:37)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in the year
ended June 30, 2020 due to the adoption of Account Standards Update 2016-02, Leases (Topic 842).
/s/ GRANT THORNTON LLP
(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)(cid:17)
Cincinnati, Ohio
September 11, 2020
- 30 -
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30, 2020 and 2019
(In thousands, except per share data)
Net Sales
Cost of products and services sold
Restructuring costs
Severance costs
Gross profit
Selling and administrative expenses
Restructuring (gains) costs
Severance costs
Impairment of goodwill
Transition and realignment costs
Operating income (loss)
Interest (income)
Interest expense
Other expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per common share (see Note 3)
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
The accompanying notes are an integral part of these financial statements.
- 31 -
2020
2019
$
305,558
$
328,852
230,944
253,621
980
104
73,530
68,783
(8,571)
242
-
-
1,441
77
73,713
72,470
365
483
20,165
120
13,076
(19,890)
(3)
873
513
11,693
2,101
(38)
2,278
138
(22,268)
(5,929)
$
9,592
$
(16,339)
$
$
0.37
0.36
$
$
(0.63)
(0.63)
26,274
26,473
26,109
26,109
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended June 30, 2020 and 2019
(In thousands)
Net Income (Loss)
Foreign currency translation adjustment
Comprehensive Income (Loss)
The accompanying notes are an integral part of these financial statements.
2020
2019
$
9,592
$
(16,339)
(109)
16
$
9,483
$
(16,323)
- 32 -
LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2020 and 2019
(In thousands, except shares)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$273 and $879, respectively
Inventories
Refundable income tax
Asset held for sale
Other current assets
Total current assets
Property, Plant and Equipment, at cost
Land
Buildings
Machinery and equipment
Buildings under finance leases
Construction in progress
Less accumulated depreciation
Net property, plant and equipment
Goodwill
Other Intangible Assets, net
Operating Lease Right-of-Use Assets
June 30,
2020
June 30,
2019
$
3,517
$
966
37,836
38,752
2,776
-
2,977
54,728
43,512
882
7,512
3,380
85,858
110,980
3,933
20,638
67,796
2,033
440
94,840
(68,305)
26,535
10,373
29,960
8,663
4,576
27,015
73,185
-
455
105,231
(73,255)
31,976
10,373
32,647
-
Other Long-Term Assets, net
10,874
15,124
Total assets
$
172,263
$
201,100
The accompanying notes are an integral part of these financial statements.
- 33 -
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued expenses
Total current liabilities
Long-Term Debt
Finance Lease Liabilities
Operating Lease Liabilities
Other Long-Term Liabilities
Commitments and Contingencies (Note 13)
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 26,286,009 and 25,967,275 shares, respectively
Treasury shares, without par value
Deferred compensation plan
Retained (loss)
Accumulated other comprehensive (loss) income
June 30,
2020
June 30,
2019
$
14,216
20,433
$
18,664
21,211
34,649
-
1,755
9,021
1,138
-
-
127,713
(1,121)
1,121
(1,920)
(93)
39,875
39,541
-
-
1,747
-
-
125,729
(1,468)
1,468
(5,808)
16
Total shareholders' equity
125,700
119,937
Total liabilities & shareholders' equity
$
172,263
$
201,100
The accompanying notes are an integral part of these financial statements.
- 34 -
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS(cid:182) EQUITY
For the years ended June 30, 2020 and 2019
(In thousands, except shares)
Common Shares
Treasury Shares
Number Of
Shares
Amount
Number Of
Shares
Amount
Key Executive
Compensation
Amount
Accumulated Other
Comprehensive
Income (Loss)
Retained
Earnings
(Loss)
Total
Shareholders'
Equity
Balance at June 30, 2018
25,884
$
124,104
(242)
$
(2,110)
$2,133
Net Loss
Other comprehensive income
Stock compensation awards
Restricted stock units issued
Shares issued for deferred compensation
Activity of treasury shares, net
Deferred stock compensation
Stock-based compensation expense
Dividends (cid:886)(cid:3)$0.20 per share
Cumulative effect of adoption of accounting
guidance
-
-
104
114
74
-
-
-
-
-
-
-
354
-
290
-
-
981
-
-
-
-
-
-
-
33
-
-
-
-
-
-
-
-
-
642
-
-
-
-
-
-
-
-
-
-
(665)
-
-
-
-
-
16
-
-
-
-
-
-
-
-
$
15,124
$
139,251
(16,339)
-
-
-
-
-
-
-
(5,184)
(16,339)
16
354
-
290
642
(665)
981
(5,184)
591
591
Balance at June 30, 2019
26,176
$
125,729
(209)
$
(1,468)
$1,468
$
16
$
(5,808)
$
119,937
Net Income
Other comprehensive loss
Stock compensation awards
Restricted stock units issued
Shares issued for deferred compensation
Activity of treasury shares, net
Deferred stock compensation
Stock-based compensation expense
Stock options exercised, net
Dividends (cid:886)(cid:3)$0.20 per share
Cumulative effect of adoption of accounting
guidance
-
-
72
21
85
-
-
-
112
-
-
-
-
300
-
473
-
-
599
612
-
-
-
-
-
-
-
29
-
-
-
-
-
-
-
-
-
-
347
-
-
-
-
-
-
-
-
-
-
-
(347)
-
-
-
-
-
(109)
-
-
-
-
-
-
-
-
-
9,592
-
-
-
-
-
-
-
-
(5,276)
(428)
9,592
(109)
300
-
473
347
(347)
599
612
(5,276)
(428)
Balance at June 30, 2020
26,466
$
127,713
(180)
$
(1,121)
$
1,121
$
(93)
$
(1,920)
$
125,700
The accompanying notes are an integral part of these financial statements.
- 35 -
LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2020 and 2019
(In thousands)
Cash Flows from Operating Activities
Net income (loss)
Non-cash items included in net income (loss)
Depreciation and amortization
Deferred income taxes
Impairment of goodwill
Deferred compensation plan
Stock compensation expense
Issuance of common shares as compensation
Gain on disposition of fixed assets
Allowance for doubtful accounts
Inventory obsolescence reserve
Changes in certain assets and liabilities
Accounts receivable
Inventories
Refundable income taxes
Accounts payable
Accrued expenses and other
Customer prepayments
Net cash flows provided by operating activities
Cash Flows from Investing Activities
Proceeds from the sale of fixed assets
Purchases of property, plant and equipment
Net cash flows provided by (used in) investing activities
Cash Flows from Financing Activities
Payments of long-term debt
Borrowings of long-term debt
Cash dividends paid
Shares withheld for employees' taxes
Payments on financing lease obligations
Proceeds from stock option exercises
Net cash flows used in financing activities
Change related to foreign currency
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
2020
2019
$
9,592
$
(16,339)
8,654
3,925
-
473
599
300
(8,521)
19
2,454
16,340
2,246
(1,893)
(3,883)
(546)
(47)
29,712
20,150
(2,739)
17,411
(204,676)
165,135
(5,276)
(152)
(39)
612
(44,396)
10,221
(6,370)
20,165
266
981
355
(32)
776
3,607
74
(326)
902
684
(4,171)
698
11,491
32
(2,618)
(2,586)
(126,431)
120,612
(5,184)
(114)
-
-
(11,117)
(176)
-
2,551
966
(2,212)
3,178
Cash and cash equivalents at end of period
$
3,517
$
966
The accompanying notes are an integral part of these financial statements.
- 36 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 (cid:178) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
The consolidated financial statements include the accounts of LSI Industries Inc. (an Ohio corporation) and its subsidiaries
(cid:11)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:90)(cid:75)(cid:82)(cid:79)(cid:79)(cid:92)(cid:3)(cid:82)(cid:90)(cid:81)(cid:72)(cid:71)(cid:17) All intercompany transactions and balances have been
eliminated in consolidation.
Impact of COVID-19:
The COVID-19 (cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:80)(cid:76)(cid:70)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)of
its suppliers, vendors and customers. The pandemic continues to significantly impact global economic conditions and in the
U.S. as federal, state and local governments react to the public health crisis with mitigation measures, creating significant
(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:17)(cid:54)(cid:17)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:80)(cid:76)(cid:70)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
business, operations and financial results will depend on numerous factors that it may not be able to accurately predict and
which may cause the actual results to differ from the estimates and assumptions the Company is required to make in
preparation of financial statements according to U.S. GAAP. See Risk Factors in Part I, Item 1A of this Form 10-K for further
discussion of the possible impact of the COVID-(cid:20)(cid:28)(cid:3)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:80)(cid:76)(cid:70)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86).
Revenue Recognition:
The Company recognizes revenue when it satisfies the performance obligations in its customer contracts or purchase orders.
(cid:48)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:86)(cid:76)(cid:81)(cid:74)(cid:79)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:68)(cid:87)(cid:76)(cid:86)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:76)(cid:86)(cid:3)
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 our terms with the customer. The Company offers standard warranties that do not
represent separate performance obligations.
Installation is a separate performance obligation, except for our digital signage products. For digital signage products,
installation is not a separate performance obligation as the product and installation is the combined item promised in digital
signage contracts. The Company is not always responsible for installation of products it sells and has no post-installation
responsibilities other than standard warranties.
A number of the Company's graphics and select lighting products are highly customized for specific customers. As a result,
these customized products do not have an alternative use. For these products, the Company generally 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:
(cid:120) Customer specific branded print graphics
(cid:120) Electrical components based on customer specifications
(cid:120) Digital signage and related media content
The Company also offers installation services for its graphics and select lighting products. Installation revenue is recognized
over time as our customer simultaneously receives and consumes the benefits provided through the installation process.
For these customized products and installation services, revenue is recognized using a cost-based input method: recognizing
revenue and gross profit as work is performed based on the relationship between the actual cost incurred and the total estimated
cost for the contract.
Disaggregation of Revenue
The Company disaggregates the revenue from contracts with customers by the timing of revenue recognition because the
Company believes it best depicts the nature, amount, and timing of our revenue and cash flows. The table presents a
reconciliation of the disaggregation by reportable segments.
- 37 -
(In thousands)
Timing of revenue recognition
Products and services transferred at a point in time
Products and services transferred over time
Type of Product and Services
LED lighting, digital signage solutions, electronic circuit boards
Legacy products
Turnkey services and other
Twelve Months Ended
June 30, 2020
Lighting
Segment
Graphics
Segment
$
$
181,613
24,586
206,199
$
$
66,605
32,754
99,359
$
$
177,000
26,964
2,235
206,199
15,075
62,409
21,875
99,359
$
$
Legacy products include lighting fixtures utilizing light sources other than LED technology, poles used to mount the fixtures
and printed two and three dimensional graphic products. Turnkey services and other includes installation services along with
shipping and handling charges.
Practical Expedients and Exemptions
(cid:120) (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:88)(cid:85)(cid:68)tion of one year or less, as such the Company applies
the practical expedient to expense sales commissions as incurred, and have omitted disclosures on the amount of
remaining performance obligations.
(cid:120) Shipping costs that are not material in context of the delivery of products are expensed as incurred.
(cid:120) (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:88)(cid:81)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)
its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance
obligation and invoicing, therefore, payments do not contain significant financing components.
(cid:120) The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from
revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services
sold on the Consolidated Statements of Operations.
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. (cid:44)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
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
(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:81)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:83)(cid:85)(cid:82)(cid:69)(cid:79)(cid:72)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:87) the
various aging categories based on the due date of the remaining receivables. The resulting allowance for doubtful accounts
(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)the current economic
climate 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.
- 38 -
(cid:55)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:17)
(In thousands)
June 30, 2020
June 30, 2019
Accounts receivable
Less: Allowance for doubtful accounts
Accounts receivable, net
Cash and Cash Equivalents:
$
$
38,109
(273)
37,836
$
$
55,607
(879)
54,728
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 and Mexico. In the United States, the
FDIC limit for insurance coverage on non-interest bearing accounts is $250,000. As of June 30, 2020 and June 30, 2019, the
Company had bank balances of $3.7 million and $1.5 million, respectively, without insurance coverage.
Inventories and Inventory Reserves:
Inventories are stated at the lower of cost or net realizable value. Cost of inventories includes the cost of purchased raw
materials and purchased components, direct labor, as well as manufacturing overhead which is generally applied to inventory
based on direct labor and on material content, 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. Judgment is 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.
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
Machinery and equipment
Computer software
28 - 40 years
3 - 10 years
3 - 8 years
C(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3)
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.
The Company recorded $6.0 million and $7.5 million of depreciation expense in the years ended June 30, 2020 and, 2019
respectively.
Goodwill and Intangible Assets:
Intangible assets consisting of customer relationships, trade names and trademarks, patents, technology and software are
recorded on the Company's balance sheet. The definite-lived intangible assets are being amortized to expense over periods
ranging between eight 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 6.
Fair Value:
The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, accounts
receivable, accounts payable, and long-term debt. The fair value of these financial instruments approximates carrying value
- 39 -
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 and long-lived asset impairment analyses. 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 10 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 amount as necessary.
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:90)(cid:68)(cid:85)(cid:85)(cid:68)(cid:81)(cid:87)(cid:92)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:85)(cid:88)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
balance sheets, during the periods indicated below were as follows:
(In thousands)
June 30, 2020
June 30, 2019
Balance at beginning of the period
Additions charged to expense
Deductions for repairs and replacements
Balance at end of the period
Employee Benefit Plans:
$
$
7,687
2,482
(3,213)
6,956
6,876
5,190
(4,379)
7,687
$
$
The Company has a 401(k) retirement plan whereby empl(cid:82)(cid:92)(cid:72)(cid:72)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)401(k) are matched by the Company. The
401(k) match program covers substantially all of its employees. The Company also has a nonqualified deferred compensation
plan covering certain employees. The costs of employee benefit plans are charged to expense and funded annually. Total costs
were $1.3 million and $1.3 million in June 30, 2020 and 2019, respectively.
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
expensed as incurred and are included in selling and administrative expenses. Research and development costs related to both
product and software development totaled $3.6 million and $5.3 million for the fiscal years ended June 30, 2020 and 2019,
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
(cid:76)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:79)(cid:68)(cid:69)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)installation and service
revenue along with the management of media content.
Earnings (Loss) Per Common Share:
The computation of basic earnings (loss) per common share is based on the weighted average common shares outstanding for
(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:81)(cid:82)(cid:81)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:76)ed deferred compensation plan. The computation of diluted
earnings (loss) per share is based on the weighted average common shares outstanding for the period and includes common
- 40 -
share equivalents. Common share equivalents include the dilutive effect of stock options, restricted stock units, stock warrants,
contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled 368,000
shares and 324,000 shares in fiscal 2020 and 2019, respectively. See further discussion in Note 3.
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 (cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
sheet. (cid:54)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
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.
Foreign Exchange:
The functional currency of the (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)Mexican subsidiary is the Mexican Peso. Assets and liabilities of foreign operations
are translated using period end exchange rates. Revenue and expenses are translated using average exchange rates during each
period reported. Translation losses (gains) are reported in accumulated other comprehensive loss (gain) as a component of
shareholders equity and were $109,000 and ($16,000) as of June 30, 2020 and 2019, respectively. The Company recognizes
foreign currency transaction (gains) and losses on certain assets and liabilities that are denominated in the Mexican Peso. These
transaction (gains) and losses are reported in other expense in the consolidated statements of operations and were $0.5 million
and $0.1 million for the twelve months ended June 30, 2020 and 2019, respectively.
New Accounting Pronouncements:
In June 2016, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update (cid:11)(cid:179)(cid:36)(cid:54)(cid:56)(cid:180)(cid:12)(cid:3)2016-13
(cid:11)(cid:179)(cid:36)(cid:54)(cid:56)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)-13), "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"
(ASC 326 or "CECL"), which amends the impairment model by requiring entities to use a forward-looking approach based on
expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade
receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for public companies
for annual periods beginning after December 13, 2019, including interim periods within those fiscal years. The Company will
adopt this guidance effective in the first quarter of fiscal 2021. The Company does not expect the adoption of ASU 2016-13 to
have a material impact on the its consolidated financial statements and disclosures.
On July 1, 2018, the Company adopted ASU 2014-09. (cid:179)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:38)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:180)(cid:3)(cid:11)(cid:55)(cid:82)(cid:83)(cid:76)(cid:70)(cid:3)(cid:25)(cid:19)(cid:25)(cid:12)(cid:3)using the
modified retrospective adoption method which requires a cumulative effect adjustment to the opening balance of retained
earnings. This approach was applied to contracts that were not completed as of June 30, 2018. Results for reporting periods
beginning July 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and were reported under
the accounting standards in effect for the prior period. 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.
(In thousands)
Assets:
Accounts receivable, net
Inventories, net
Other long-term assets, net
Shareholder's Equity:
Retained earnings
Balance as of
June 30, 2018
Adjustments
Opening
Balance as of
July 1, 2018
$
$
$
50,609
50,994
9,786
$
$
$
4,935
(4,167)
(177)
$
$
$
55,544
46,827
9,609
$
15,124
$
591
$
15,715
On July 1, 2019, the Company adopted ASU 2016-(cid:19)(cid:21)(cid:15)(cid:3)(cid:179)(cid:47)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86),(cid:180)(cid:3)using a modified-retrospective transition method, under which
it elected not to adjust comparative periods. The Company elected the package of practical expedients permitted under the new
guidance. In addition, the Company elected accounting policies to not record short-term leases on the balance sheet and to not
separate lease and non-lease components.
- 41 -
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72) those related to certain manufacturing facilities along with a small office space.
Besides these real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts and
various office equipment. The adoption of the new lease standard resulted in the recognition of right-of-use assets (ROU
assets) of $10.4 million, lease liabilities of $10.8 million which includes the impact of existing deferred rents and tenant
improvement allowances and a $0.4 million adjustment to retained earnings on the consolidated balance sheets as of July 1,
(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:71)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:81)(cid:82)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
statements of operations or consolidated statements of cash flow. Refer to Note 10.
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.
Reclassifications:
Certain amounts reported in the prior year in Note 10 have been reclassifie(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:182)(cid:86)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)
Subsequent Events:
The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated
financial statements were filed. No items were identified during this evaluation that required adjustment to or disclosure in the
accompanying consolidated financial statements.
NOTE 2 (cid:178) BUSINESS SEGMENT 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 (th(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:38)(cid:50)(cid:39)(cid:48)(cid:180)(cid:12)(cid:3)(cid:76)(cid:81)(cid:3)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:75)(cid:82)(cid:90)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:47)(cid:76)(cid:74)(cid:75)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
Graphics, with one executive team under the organizational structure reporting directly to the CODM with responsibilities for
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reported in the segment information.
The Lighting Segment includes outdoor and indoor lighting utilizing LED light sources that have been fabricated and
(cid:68)(cid:86)(cid:86)(cid:72)(cid:80)(cid:69)(cid:79)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:83)(cid:72)(cid:87)(cid:85)(cid:82)(cid:79)(cid:72)(cid:88)(cid:80)(cid:3)(cid:18)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:81)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:87)(cid:82)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)parking lot and garage markets, automotive
dealerships, quick-service restaurants, grocery and pharmacy stores, and retail/national accounts. The Company also services
lighting product customers through the commercial industrial, stock and flow, and renovation channels. The Lighting Segment
also includes the design, engineering and manufacturing of electronic circuit boards, assemblies and sub-assemblies which are
sold directly to customers.
The Graphics Segment designs, manufactures and installs exterior and interior visual image elements such as traditional
graphics, interior branding, electrical and architectural signage, active digital signage along with the management of media
content related to digital signage and menu board systems that are either digital or traditional by design. These products are
used in visual image programs in several markets including the petroleum/convenience store market, quick-service restaurant
market, the grocery store and pharmacy markets, as well as customers with multi-site retail operations. The Graphics Segment
implements, installs and provides program management services related to products sold by the Graphics Segment and by the
Lighting Segment.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:79)(cid:76)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
primarily include intercompany profit in inventory eliminations, expense related to certain corporate officers and support staff,
(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:86)(cid:87)(cid:68)(cid:73)(cid:73)(cid:15)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)
various equity awards granted to corporate administration employees, certain consulting expenses, investor relations activities,
(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:15)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:73)(cid:72)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87) of
cash, invested cash (if any), refundable income taxes (if any), and deferred income taxes.
(cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:19)(cid:8)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
fiscal years ended June 30, 2020 and 2019. There was no concentration of accounts receivable at June 30, 2020 or 2019.
- 42 -
(cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)
of June 30, 2020 and June 30, 2019:
(In thousands)
Net Sales:
Lighting Segment
Graphics Segment
Operating Income (Loss):
Lighting Segment
Graphics Segment
Corporate and Eliminations
Capital Expenditures:
Lighting Segment
Graphics Segment
Corporate and Eliminations
Depreciation and Amortization:
Lighting Segment
Graphics Segment
Corporate and Eliminations
Identifiable Assets:
Lighting Segment
Graphics Segment
Corporate and Eliminations
2020
2019
$
$
206,199
99,359
305,558
$
$
235,114
93,738
328,852
$
$
16,123
8,218
(11,265)
13,076
$
$
(12,211)
3,112
(10,791)
(19,890)
2,239
342
37
2,618
7,648
1,594
979
10,221
142,105
40,914
18,081
201,100
$
$
$
$
$
$
1,386
1,093
260
2,739
6,714
1,436
504
8,654
$
$
June 30, 2020
June 30, 2019
$
$
118,819
35,021
18,423
172,263
$
$
The segment net sales reported above represent sales to external customers. Segment operating income (loss), which is used in
(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:72)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)(cid:44)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:82)se
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:
(In thousands)
Lighting Segment inter-segment net sales
Graphics Segment inter-segment net sales
NOTE 3 (cid:178) EARNINGS (LOSS) PER COMMON SHARE
2020
$
$
3,718
552
2019
$
$
2,043
928
The following table presents the amounts used to compute basic and diluted earnings (loss) per common share, as well as the
effect of dilutive potential common shares on weighted average shares outstanding:
- 43 -
(In thousands, except per share data)
BASIC EARNINGS (LOSS) PER SHARE
2020
2019
Net income (loss)
$
9,592
$
(16,339)
Weighted average shares outstanding during the period, net of treasury shares
26,105
25,858
Weighted average vested restricted stock units outstanding
7
36
Weighted average shares outstanding in the Deferred Compensation Plan
during the period
Weighted average shares outstanding
162
26,274
215
26,109
Basic income (loss) per share
$
0.37
$
(0.63)
DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss)
$
9,592
$
(16,339)
Weighted average shares outstanding
Basic
26,274
26,109
Effect of dilutive securities (a):
Impact of common shares to be issued under stock option plans, and
contingently issuable shares, if any
Weighted average shares outstanding
199
26,473
-
26,109
Diluted income (loss) per share
$
0.36
$
(0.63)
Anti-dilutive securities (b)
1,957
3,556
(a) (cid:38)(cid:68)(cid:79)(cid:70)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:180)(cid:3)(cid:80)(cid:72)(cid:87)(cid:75)(cid:82)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:76)(cid:73)(cid:3)(cid:71)(cid:76)(cid:79)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
purchase common shares at the average market price during the period.
(b) Anti-dilutive securities were excluded in the computation of diluted earnings per share for the year ended June 30,
2020 because the exercise price was greater than the fair market price of the common shares or because the assumed
(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:182)(cid:86)(cid:3)(cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:17)(cid:3)
For the year ended June 30, 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.
- 44 -
NOTE 4 (cid:178) INVENTORIES
The following information is provided as of the dates indicated:
(In thousands)
June 30, 2020
June 30, 2019
Inventories:
Raw materials
Work-in-progress
Finished goods
Total Inventories
NOTE 5 (cid:178) ACCRUED EXPENSES
The following information is provided as of the dates indicated:
(In thousands)
Accrued Expenses:
Compensation and benefits
Customer prepayments
Accrued sales commissions
Accrued warranty
Operating lease liabilities
Finance lease liabilities
Other accrued expenses
Total Accrued Expenses
$
$
27,331
1,566
9,855
38,752
27,927
2,193
13,392
43,512
$
$
June 30, 2020
June 30, 2019
$
$
6,001
1,698
1,289
6,956
376
239
3,874
20,433
5,319
1,768
1,301
7,687
-
-
5,136
21,211
$
$
NOTE 6 (cid:178) 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-(cid:79)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
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 currently
has two reporting units that contain goodwill. There is one reporting unit within the Lighting Segment and one reporting unit
within the Graphics Segment. The Company relies upon a number of factors, judgments and estimates when conducting its
impairment testing including, but not (cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:72)(cid:70)(cid:68)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)
flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the
analysis of goodwill impairment.
Fiscal 2020:
As of March 1, 2020, the Company performed its annual goodwill impairment test on the two reporting units that contain
goodwill. The 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 goodwill impairment test of the
- 45 -
reporting unit in the Graphics Segment passed with a business enterprise value of $4.7 million or 619% above the carrying
value of the reporting unit including goodwill.
(cid:36)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:50)(cid:57)(cid:44)(cid:39)-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 Company has performed an assessment of its goodwill from the date of the interim test as of March 31, 2020 through the
balance sheet date for possible triggering events and has concluded that there were no triggering events that would indicate the
assets are impaired.
Fiscal 2019:
(cid:36)(cid:3)(cid:86)(cid:88)(cid:86)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:79)(cid:72)(cid:71)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)
believe that a triggering event occurred and that an interim goodwill impairment test was required for one of the two reporting
units in the Lighting Segment that contained goodwill, as of December 31, 2018. The result of the impairment test on the
reporting unit in the Lighting Segment indicated that goodwill was fully impaired by $20.2 million. As a result of the full
impairment of the goodwill of this reporting unit, the Company has two remaining reporting units that contain goodwill; one
reporting unit in the Lighting Segment and one reporting unit in the Graphics Segment.
As of March 1, 2019, the Company performed its annual goodwill impairment test on the two remaining reporting units that
contain goodwill. The preliminary goodwill impairment test on one reporting unit in the Lighting Segment passed with a
business enterprise value that was $38.9 million or 54% above the carrying value of this reporting unit including goodwill. The
goodwill impairment test of the reporting unit with goodwill in the Graphics Segment passed with an estimated business
enterprise value that was $3.0 million or 297% above the carrying value of the reporting unit including goodwill. The
Company has performed an assessment of its goodwill from the date of the annual test through the balance sheet date for
possible triggering events and has concluded that there were no triggering events that would indicate the assets are impaired.
The following table presents information about the Company's goodwill on the dates or for the periods indicated:
(In thousands)
Balance as of June 30, 2019
Goodwill
Accumulated impairment losses
Goodwill, net as of June 30, 2019
Balance as of June 30, 2020
Goodwill
Accumulated impairment losses
Goodwill, net as of June 30, 2020
Lighting
Segment
Graphics
Segment
Total
$
$
$
$
$
$
28,690
(27,525)
1,165
28,690
(27,525)
1,165
123,254
(112,881)
10,373
115,401
(105,028)
10,373
$
$
$
$
$
$
94,564
(85,356)
9,208
86,711
(77,503)
9,208
In fiscal 2020, the Company wrote-off the goodwill and impairment loss for a dissolved entity. The net impact to the
consolidated financial statements, including the goodwill, net balance, was zero.
The Company performed its annual review of its indefinite-lived intangible asset as of March 1, 2020 and determined there was
no impairment. The indefinite-lived intangible impairment test passed with a fair market value that was $16.8 million or 392%
above its carrying value. The Company has performed an assessment of its intangible asset from the date of the annual test
through the balance sheet date for possible triggering events and has concluded that there were no triggering events that would
indicate the asset is impaired.
The Company performed its annual review of its indefinite-lived intangible asset as of March 1, 2019 and determined there was
no impairment. The indefinite-lived intangible impairment test passed with a fair market value that was $19.2 million or 462%
above its carrying value.
- 46 -
The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:
Other Intangible Assets
(In thousands)
Amortized Intangible Assets
Customer relationships
Patents
LED technology firmware, software
Trade name
Total Amortized Intangible Assets
Indefinite-lived Intangible Assets
Trademarks and trade names
Total indefinite-lived Intangible Assets
June 30, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amount
$
35,563
338
16,066
2,658
54,625
$
14,129
277
12,852
829
28,087
$
21,434
61
3,214
1,829
26,538
3,422
3,422
-
-
3,422
3,422
Total Other Intangible Assets
$
58,047
$
28,087
$
29,960
Other Intangible Assets
(In thousands)
Amortized Intangible Assets
Customer relationships
Patents
LED technology firmware, software
Trade name
Total Amortized Intangible Assets
Indefinite-lived Intangible Assets
Trademarks and trade names
Total indefinite-lived Intangible Assets
June 30, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amount
$
35,563
338
16,066
2,658
54,625
$
12,070
247
12,364
719
25,400
$
23,493
91
3,702
1,939
29,225
3,422
3,422
-
-
3,422
3,422
Total Other Intangible Assets
$
58,047
$
25,400
$
32,647
(In thousands)
2020
2019
Amortization Expense of Other Intangible Assets
$
2,687
$
2,762
The Company expects to record annual amortization expense as follows:
(In thousands)
2021
2022
2023
2024
2025
After 2025
$
$
$
$
$
$
2,682
2,461
2,412
2,412
2,412
14,159
- 47 -
NOTE 7 (cid:178) REVOLVING LINE OF CREDIT AND LONG-TERM DEBT
In February 2019, the Company amended its secured line of credit to a $75 million facility from a $100 million facility in order
to better match its financing needs with an appropriate borrowing capacity. The line of credit expires in the third quarter of
fiscal 2022. Interest on the revolving line of credit is charged based upon an increment over the LIBOR rate as periodically
(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:71)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:182)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:47)(cid:44)(cid:37)(cid:50)(cid:53)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)
periodically determined, fluctuates between 125 and 250 basis points depending upon the ratio of indebtedness to earnings
(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:15)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:15)(cid:3)(cid:71)(cid:72)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:11)(cid:179)(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:180)(cid:12)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
over LIBOR borrowing rate will be 125 basis points for the first quarter of fiscal 2021. 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 June 30, 2020, there were no borrowings against the line of
credit, and $75.0 million was available as of that date. Based on the terms of the line of credit and the maturity date, the debt
has been classified as long term.
The Company is in compliance with all of its loan covenants as of June 30, 2020.
NOTE 8 (cid:178) CASH DIVIDENDS
The Company paid cash dividends of $5.3 million and $5.2 million in fiscal years 2020 and 2019, respectively. Dividends on
restricted stock units in the amount of $63,796 and $28,158 were accrued as of June 30, 2020 and 2019, respectively. These
dividends are paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In August 2020,
the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable September 8, 2020 to shareholders
of record August 31, 2020.
NOTE 9 (cid:178) EQUITY COMPENSATION
In November 2019, the Company(cid:182)(cid:86) (cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:50)(cid:80)(cid:81)(cid:76)(cid:69)(cid:88)(cid:86)(cid:3)(cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:179)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:50)(cid:80)(cid:81)(cid:76)(cid:69)(cid:88)(cid:86)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)
purpose of the 2019 Omnibus Plan is to provide a means through which the Company may attract and retain key personnel and
to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company.
The 2019 Omnibus Plan replaced the (cid:21)(cid:19)(cid:20)(cid:21)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:44)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:11)(cid:179)2012 Stock (cid:51)(cid:79)(cid:68)(cid:81)(cid:180)(cid:12). 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 3,907,749 shares all of
which are available for future grant or award as of June 30, 2020. The Plan contains 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, restricted stock units, performance
stock units and other stock-based awards.
The Company has made time-based and performance-based stock option awards. Options generally have a three- or four-year
ratable vesting period beginning one year after the date of grant. The maximum exercise period of service-based and
performance-based stock options granted under the Plan is ten years.
Inducement stock option agreements are granted by the Company to attract and retain key executives. Inducement stock
options are separately registered securities and are not part of the 2019 Omnibus Plan. Some options granted have a three-year
ratable vesting period whereas other options vest upon speci(cid:73)(cid:76)(cid:70)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:17)(cid:3)(cid:36)(cid:79)(cid:79)(cid:3)(cid:44)(cid:81)(cid:71)(cid:88)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)
options have a term of ten years only if the employee is employed for three years from the date of grant. In fiscal 2020,
280,000 Inducement stock options were granted.
Restricted Stock Units (RSUs) ratably vest over a three- or four-year period beginning one year after the date of award.
Performance Stock Units (PSUs) vest if the Company meets certain financial metrics over a three-year period.
Stock Warrants
The Company has outstanding 200,000 fully exercisable stock warrants with an exercise price of $9.95 as of June 30, 2020. As
of June 30, 2020, the warrants had a remaining contractual life of 1.6 years. The fair value of the warrants on the date of grant
was estimated using the Black-Scholes option pricing model. The following table summarizes the weighted-average
assumptions used in the Black-Scholes option price model to value the warrants in the period indicated:
- 48 -
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
Fair value per share
Stock Options
February 21,
2017
2.01%
39%
1.80%
4.5
2.87
$
The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The following
table summarizes the weighted-average assumptions used in the Black-Scholes option pricing model to value the stock options
granted in the periods indicated:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
Fair value per share
2020
2019
4.7%
43%
1.4%
6.0
1.22
$
4.6%
42%
2.8%
4.9
1.48
$
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 Plan, net of forfeitures. The forfeiture rate is based on
historical rates and reduces the compensation expense recognized. The (cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:89)(cid:82)(cid:79)(cid:68)(cid:87)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)
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
(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:72)(cid:84)(cid:88)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)
exercised. (cid:44)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)(cid:71)(cid:15)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:86)(cid:75)(cid:68)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:71)(cid:17)
The Company recorded $0.4 million and $0.9 million of expense related to stock options in fiscal years 2020 and 2019,
respectively.
A summary of stock option activity as of June 30, 2020 and changes during the period from July 1, 2019 through June 30, 2020
are as follows:
Weighted
Average
Exercise
Price
$
$
$
$
$
$
$
$
7.23
4.51
5.57
7.69
8.24
6.20
8.35
6.26
Shares
2,749,626
735,429
(143,766)
(889,351)
(169,000)
2,282,938
1,017,148
2,206,744
Weighted
Average
Remaining
Contractual
Term
(in years)
6.8
7.1
5.1
7.0
Aggregate
Intrinsic
Value
$
23,500
$
$
$
2,731,949
100,719
2,574,232
Outstanding at June 30, 2019
Granted
Exercised
Forfeited
Expired
Outstanding at June 30, 2020
Exercisable at June 30, 2020
Vested and expected to vest at June 30, 2020
The aggregate intrinsic value of options exercised during the years ended June 30, 2020 and June 30, 2019 was $0.1 million
and $0, respectively. The Company received $0.6 million of proceeds from stock options exercises in fiscal 2020. There were
no exercises of stock options in fiscal 2019.
- 49 -
As of June 30, 2020, there was $1.0 million of unrecognized compensation cost, net of forfeitures, related to stock options,
which is expected to be recognized over a weighted-average remaining period of 2.4 years.
For fiscal year 2020, the Company recognized a current income tax benefit of $43,000 for tax deductions related to equity
compensation. A discrete tax expense of $0.4 million was recognized to reduce deferred tax assets for cancelled awards and
detriments in excess of the tax deductions.
For fiscal year 2019, the Company recognized a current income tax benefit of $0.1 million for tax deductions related to equity
compensation. A discrete tax expense of $0.3 million was recognized to reduce deferred tax assets for cancelled awards and
detriments in excess of the tax deductions.
Restricted Stock Units
A total of 81,917 RSUs with a weighted average fair value of $3.83 per share were awarded to employees during fiscal 2020.
There were no RSUs awarded to employees during fiscal 2019. RSUs awarded during fiscal 2020 have a three-year ratable
vesting period. The Company determined the fair value of the awards based on the closing price of the Company stock on the
date the RSUs were awarded. The unvested RSUs are non-voting, but accrue cash dividends at the same per share rate as those
(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:17) Dividends on RSUs in the amount of $16,931 and $16,848 were
accrued as of June 30, 2020 and 2019, respectively. Accrued dividends are paid to the holder upon vesting of the RSUs and
issuance of shares.
The Company recorded $0.1 million of expense related to RSUs during fiscal year 2020.
A summary of outstanding and unvested RSU activity as of June 30, 2020 and changes during the period from July 1, 2019
through June 30, 2020 are as follows:
Unvested at June 30, 2019
Granted
Vested
Forfeited
Unvested at June 30, 2020
Weighted-
Average Grant
Date Fair Value
$
7.72
$
3.83
$
8.06
$
5.00
$
4.03
Shares
33,042
81,917
(21,126)
(21,013)
72,820
As of June 30, 2020, there was $0.2 million of unrecognized compensation cost, net of forfeitures, related to RSUs, which is
expected to be recognized over a weighted-average remaining period of 2.1 years. The total fair value of RSUs that became
fully vested during fiscal 2020 was $0.1 million.
Performance Stock Units
A total of 199,310 PSUs with a weighted average fair value of $3.83 per share were awarded to employees during fiscal 2020.
The Company determined the fair value of the awards based on the closing price of the Company stock on the date the PSUs
were awarded. The PSUs are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared
(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:47)(cid:54)(cid:44)(cid:182)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:17) Dividends on PSUs in the amount of $46,865 and $11,310 were accrued as of June 30, 2020
and 2019, respectively. Accrued dividends are paid to the holder upon vesting of the PSUs and issuance of shares.
The Company recorded $0.1 million and $0.1 million of expense related to PSUs during fiscal years 2020 and 2019,
respectively.
A summary of outstanding and unvested PSU activity as of June 30, 2020 and changes during the period from July 1, 2019
through June 30, 2020 are as follows:
- 50 -
Unvested at June 30, 2019
Granted
Vested
Forfeited
Unvested at June 30, 2020
Weighted-
Average Grant
Date Fair Value
$
4.94
$
3.83
$
-
$
4.49
$
3.98
Shares
56,550
199,310
-
(48,886)
206,974
As of June 30, 2020, there was $0.4 million of unrecognized compensation cost, net of forfeitures, related to PSUs, which is
expected to be recognized over a weighted-average remaining period of 2.1 years.
Director and Employee Stock Compensation Awards
The Company awarded a total of 71,581 and 104,020 common shares as stock compensation awards in fiscal years 2020 and
2019, respectively. These common shares were valued at their approximate $0.3 million and $0.4 million 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.
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 June 30, 2020, there were 26 participants, all with fully vested account balances. A total of 180,264 common
shares with a cost of $1.1 million, and 208,965 common shares with a cost of $1.5 million were held in the plan as of June 30,
2020 and 2019, 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 purchases of shares on the open stock market or newly
issued shares as compensation deferred into the plan offset by distributions to terminated employees. The Company issued
85,560 and 74,721 new common shares for purposes of the non-qualified deferred compensation plan during fiscal 2020 and
during fiscal 2019, respectively.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:81)(cid:82)(cid:81)-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 Plan.
NOTE 10 (cid:178) LEASES AND PURCHASE COMMITMENTS
Purchase commitments of the Company totaled $14.3 million and $19.7 million as of June 30, 2020 and June 30, 2019,
respectively.
The Company leases certain manufacturing facilities along with a small office space, a company vehicle, several forklifts,
several small tooling it(cid:72)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:36)(cid:79)(cid:79)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:17)(cid:3)(cid:47)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)
have a remaining term of one to five years some of which have an option to renew. The Company does not assume renewals in
determining the lease term unless the renewals are deemed reasonably certain. The lease agreements do not contain any
material residual guarantees or material variable lease payments.
The Company has periodically entered into short-term operating leases with an initial term of twelve months or less. The
Company elected not to record these leases on the balance sheet. The rent expense for these leases is immaterial for fiscal 2020.
The Company has certain leases that contain lease and non-lease components and has elected to utilize the practical expedient
to account for these components together as a single lease component.
Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate
when determining the present value of lease payments. The adoption of the new lease standard resulted in the recognition of
right-of-use (ROU) assets of $10.4 million and lease liabilities of $10.8 million which includes the impact of existing deferred
(cid:85)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:88)(cid:79)(cid:92)(cid:3)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:3)(cid:72)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)
- 51 -
leases. The adoption of the new standard resulted in no material impact to the consolidated statements of operations or
consolidated statements of cash flow.
(In thousands)
Operating lease cost
Financing lease cost:
Amortization of right of use assets
Interest on lease liabilities
Variable Lease Cost
Total lease Cost
Supplemental Cash Flow Information:
2020
$
2,308
48
16
6
2,378
$
(In thousands)
2020
Cash flows from operating leases
Fixed payments - operating cash flows
Liability reduction - operating cash flows
Cash flows from finance leases
Interest - operating cash flows
Repayments of principal portion - financing cash flows
Operating Leases:
Total operating right-of-use assets
Accrued expenses (Current liabilities)
Long-term operating lease liability
Total operating lease liabilities
$
$
2,296
1,810
$
$
16
39
At June 30, 2020
$
8,663
$
$
376
9,021
9,397
Weighted Average remaining Lease Term (in years)
Weighted Average Discount Rate
4.59
4.85%
Finance Leases:
At June 30, 2020
Buildings under finance leases
Accumulated depreciation
Total finance lease assets, net
Accrued expenses (Current liabilities)
Long-term finance lease liability
Total finance lease liabilities
$
$
$
$
2,033
(48)
1,985
239
1,755
1,994
Weighted Average remaining Lease Term (in years)
Weighted Average Discount Rate
6.83
4.86%
- 52 -
Maturities of Lease Liability:
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Interest
Present Value of Lease Liabilities
Operating Lease
Liabilities
Finance Lease
Liabilities
$
$
486
2,323
2,299
2,250
1,923
1,704
10,985
(1,588)
9,397
329
329
329
335
362
664
2,348
(354)
1,994
$
$
NOTE 11 (cid:178) INCOME TAXES
The following information is provided for the years ended June 30:
(In thousands)
2020
2019
Components of income (loss) before income taxes:
United States
Foreign
Income (loss) before income taxes
Provision for income taxes
U.S. Federal
Foreign
State and local
Total current
Deferred
Total provision for income taxes
(In thousands)
Reconciliation to federal statutory rate:
Federal statutory rate
State and local taxes, net of federal benefit
Foreign operations
Federal tax credits
Valuation allowance
Expiration of capital loss carryforward
Uncertain tax position activity
Stock-based compensation
Tax rate changes
Other
Effective tax rate
$
$
11,494
199
11,693
$
$
(23,005)
737
(22,268)
$
(2,082)
83
175
(1,824)
$
88
221
132
441
3,925
2,101
$
(6,370)
(5,929)
$
2020
2019
21.0
2.0
0.4
(0.7)
(13.4)
8.9
(0.5)
3.6
(5.4)
2.1
18.0
%
%
21.0
3.3
(0.3)
0.8
3.8
-
0.3
(1.3)
(0.2)
(0.8)
26.6
%
%
- 53 -
The favorable tax rate change for the year ended June 30, 2020 is due to the enactment of the CARES Act. The CARES Act
allows the Company to carryback a federal net operating loss to prior tax years, offset taxable income in those earlier tax years,
and obtain a refund of income taxes that were paid at a higher statutory tax rate.
The components of deferred income tax assets and (liabilities) at June 30, 2020 and 2019 are as follows:
(In thousands)
2020
2019
Uncertain tax positions
Reserves against current assets
Accrued expenses
Interest
Deferred compensation
Stock-based compensation
State net operating loss carryover and credits
Long term capital loss carryforward
Right of use asset
Goodwill, acquisition costs and intangible assets
U.S. Federal net operating loss carryover and credits
Deferred income tax asset before valuation allowance
Valuation allowance
Deferred income tax asset
Depreciation
Lease liability
Deferred income tax liability
$
125
798
2,196
-
235
597
2,194
-
1,992
8,040
217
16,394
(2,194)
14,200
(1,837)
(1,992)
(3,829)
$
128
1,800
1,722
388
308
926
2,374
2,555
-
8,949
1,139
20,289
(3,820)
16,469
(2,169)
-
(2,169)
Net deferred income tax asset
$
10,371
$
14,300
The Company has deferred tax assets for US federal net operating loss carry forwards of $0.1 million and $0.9 million at June
30, 2020 and June 30, 2019, respectively. The $0.1 million was acquired from Virticus Corporation and will expire over a 3-
year period beginning in June 30, 2029. The acquired federal net operating loss is subject to Internal Revenue Code Section
382. The Company has determined, more likely than not, the amount will be realized before expiration.
The Company has deferred tax assets for research and development credits of $0.1 million and $0.2 million, at June 30, 2020
and June 30, 2019, respectively. Of the $0.1 million, $45,000 will expire on June 30, 2039 and the remainder, which was
acquired from Virticus Corporation, will expire over a 2-year period beginning June 30, 2029. The acquired credit is limited by
Internal Revenue Code Section 382. The Company has determined, more likely than not, the amount will be realized before
expiration.
The Company has state net operating loss carryovers and credits of $2.4 million at both June 30, 2020 and June 30, 2019. The
amount recognized in fiscal 2020 relates to net deferred tax assets of $0.1 million from various state net operating losses.
Also related to the acquisition of Virticus Corporation, the Company has recorded a deferred state income tax asset related to a
state net operating loss carryover and a state research and development credit in Oregon in the amount of $0.1 million for both
fiscal years 2020 and 2019. The Company has determined this asset, more likely than not, will not be realized and that a full
valuation reserve is required. The Oregon net operating loss will expire over a period of 4 years, beginning in June 30, 2027.
The Company has recorded a deferred state income tax asset net of federal tax benefits related to non-refundable New York
state tax credits in the amount of $2.1 million at both June 30, 2020 and June 30, 2019. These credits do not expire, but
pursuant to New York state legislation enacted in fiscal 2014, the Company has determined that this asset, more likely than not,
will not be realized. As of June 30, 2020, and 2019, the Company has recorded a full valuation reserve in the amount of $2.1
million.
- 54 -
The Company had a capital loss carry forward of $10.7 million at June 30, 2019 that was generated from the sale of a Canadian
subsidiary during fiscal 2015. During fiscal 2020, the Company sold its North Canton, Ohio and New Windsor, New York
facilities, resulting in taxable capital gain and expects to use $6.6 million of the capital loss carry forward to offset the
gain. The remaining capital loss carryforward of $4.2 million expired unused. The Company recognized the tax benefits of
utilizing the capital loss of $0.6 million and $0.8 million in the fiscal years 2020 and 2019 by releasing the related valuation
allowance.
Considering all items discussed above, the Company has recorded valuation reserves of $2.2 million and $3.8 million as of
June 30, 2020 and 2019, respectively.
At June 30, 2020, tax, interest, and penalties, net of potential federal tax benefits, were $0.5 million, $0.3 million, and $0.1
million, respectively, of the total reserve for uncertain tax positions of $0.9 million. The entire uncertain tax position of $0.5
million, net of federal tax benefit, would impact the effective tax rate if recognized. At June 30, 2019, tax, interest, and
penalties, net of potential federal tax benefits, were $0.6 million, $0.2 million and $0.2 million, respectively, of the total
reserve for uncertain tax positions of $1.0 million. The entire uncertain tax position of $0.6 million net of federal tax benefit,
would impact the effective tax rate if recognized. The liability for uncertain tax position is included in Other Long-Term
Liabilities.
The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component
of tax expense in the Consolidated Statements of Operations. The Company recognized a $0.1 million net tax benefit in both
fiscal 2020 and fiscal 2019, related to the change in reserves for uncertain tax positions. The Company recognized interest net
of federal benefit and penalties of $0 and $13,000, respectively, in fiscal 2020 and $14,000 and $7,000, respectively, in fiscal
2019. The reserve for uncertain tax positions is not expected to change significantly in the next twelve months.
The tax activity in the liability for uncertain tax positions was as follows:
(In thousands)
2020
2019
Balance at the beginning of the fiscal year
Decreases - tax positions in prior period
Increase - tax positions in current period
Increases - tax positions in prior period
Settlements and payments
Lapse of statute of limitations
Balance at end of the fiscal year
$
675
(70)
15
-
(13)
-
607
$
736
(120)
59
-
-
-
675
The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax
returns in several state and local jurisdictions and Mexico. With limited exceptions, the Company is no longer subject to U.S.
Federal, state and local tax examinations by tax authorities for fiscal years ending prior to June 30, 2017.
NOTE 12 (cid:178) SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
Cash Payments:
Interest
Income taxes
2020
2019
$
990
$
6
$
$
2,222
86
Non-cash investing and financing activities
Issuance of common shares as compensation
Issuance of common shares to fund deferred compensation plan
$
$
300
473
$
$
355
290
NOTE 13 (cid:178) 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
- 55 -
does not disclose a range of potential loss because the likelihood of such a loss is remote. In the opinion of management, the
(cid:88)(cid:79)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)
operations, cash flows or liquidity.
The Company may occasionally issue a standby letter of credit in favor of third parties. As of June 30, 2020, there were no
such standby letters of credit issued. In August 2020, the Company experienced a cybersecurity incident. For details regarding
this incident, see risk factor on page 7 of this Form 10-K.
NOTE 14 (cid:177) SEVERANCE COSTS
The Company recorded severance charges of $0.3 million and $0.6 million in fiscal 2020 and 2019, respectively. This
severance expense was related to reductions in staffing not related to plant restructuring. See further discussion of restructuring
expenses in Note 15.
The (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)s accrued severance liability was as follows for the twelve months ended June 30, 2020 and 2019:
(In thousands)
Balance at beginning of period
Accrual of expense
Payments
Balance at end of period
June 30,
2020
June 30,
2019
$
$
1,134
344
(839)
639
1,772
560
(1,198)
1,134
$
$
The $0.6 million severance reserve reported as of June 30, 2020 has been classified as a current liability and will be paid out
over the next twelve months.
NOTE 15 (cid:177) RESTRUCTURING COSTS
In fiscal 2019, the Company closed its 12,000 square foot leased facility in Hawthorne, California. The facility was used as a
warehouse and for light assembly of light fixtures. The Company moved the light assembly to its Cincinnati, Ohio facility. The
restructuring charges consist primarily of transportation costs to move inventory to Cincinnati, the impairment of equipment,
costs to restore the leased facility, and severance benefits. As of June 30, 2019, the Company incurred restructuring costs of
$0.1 million related to the closure of the Hawthorne facility. The Company also incurred $0.1 million of expense to write-down
inventory which is a re-valuation of the previous estimate and which is not included in the tables below.
Also occurring in fiscal 2019, the Company announced plans to close its lighting manufacturing facility in New Windsor, New
York. The closure was (cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:79)(cid:76)(cid:74)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:76)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)
requirements of the lighting market. The Company moved production to its other existing facilities in the second half of fiscal
2019. The closure allowed the Company to improve utilization of existing manufacturing capacity and will generate annual
savings of approximately $4.0 million. The sale of the facility is listed as an asset held for sale as of June 30, 2019. As of June
30, 2019, the Company incurred restructuring costs of $1.7 million related to the closure of the New Windsor facility. The
Company also incurred $1.1 million of expense in fiscal 2019 to write-down inventory which is not included in the tables
below.
The sale of the New Windsor facility occurred during the first quarter of fiscal 2020. The net proceeds were $12.3 million
resulting in a gain of $4.8 million. In addition, in the third quarter of fiscal 2020, the Company sold its North Canton, Ohio
facility. The net proceeds were $7.7 million resulting in a net gain of $3.7 million. The Company relocated the production at
the North Canton facility to smaller, leased facility in Akron, Ohio during the fourth quarter of fiscal 2020. The Company also
incurred $0.6 million of expense to write-down inventory which is not includes in the tables below. Other restructuring costs
inc(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:74)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:82)(cid:87)(cid:83)(cid:85)(cid:76)(cid:81)(cid:87)(cid:3)(cid:68)(cid:87)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:43)(cid:82)(cid:88)(cid:86)(cid:87)(cid:82)(cid:81)(cid:15)(cid:3)(cid:55)(cid:72)(cid:91)(cid:68)(cid:86)(cid:3)(cid:73)(cid:68)(cid:70)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)
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 facility.
The following table presents information about restructuring (gains) costs recorded in fiscal years 2020 and 2019:
- 56 -
(In thousands)
2020
2019
Severance benefits
Impairment of fixed assets and accelerated depreciation
Gain on sale of facility
Exit costs
Manufacturing realignment costs
Total
$
-
59
(8,562)
636
276
(7,591)
$
$
$
The following table presents restructuring (gains) costs incurred by line item in the consolidated statement of operations in
which the costs are included:
The following table presents information about restructuring (gains) costs by segment for the periods indicated:
537
427
-
842
-
1,806
1,441
365
1,806
1,757
-
49
1,806
2020
2019
$
$
$
$
980
(8,571)
(7,591)
2020
2019
$
$
(4,674)
(2,940)
23
(7,591)
$
$
(In thousands)
Cost of goods sold
Operating expenses
Total
(In thousands)
Lighting Segment
Graphics Segment
Corporate and Eliminations
Total
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,
2019
Restructuring
Expense
Payments
Adjustments
Severance and termination benefits
Other restructuring costs
Total
236
$
-
$
236
-
$
912
912
$
$
$
(209)
(912)
(1,121)
-
$
-
$
-
Balance as of
June 30,
2020
27
$
-
$
27
Refer to Note 14 for information regarding additional severance expenses that are not included in the restructuring costs
identified in this footnote.
NOTE 16 (cid:178) RELATED PARTY TRANSACTIONS
(cid:58)(cid:72)(cid:86)(cid:70)(cid:82)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:15)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:15)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:79)(cid:76)(cid:74)(cid:75)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:91)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)
from the Company.
The Company has recognized revenue related to the following related party transactions in the fiscal years indicated:
(In thousands)
Wesco International
2020
2019
$
1,575
$
1,347
- 57 -
As of the balance sheet date indicated, the Company had the following accounts receivable recorded with respect to related
party transactions:
(In thousands)
Wesco International
2020
2019
$
108
$
55
NOTE 17 (cid:178) SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(In thousands except per share data)
Sep. 30
Dec. 31
Mar. 31
Jun. 30
Fiscal Year
Quarter Ended
2020
Net Sales
Gross profit
Net Income (loss)
Earnings (loss) per share
Basic
Diluted
Range of share prices
High
Low
2019
Net Sales
Gross profit
Net Income (loss)
Earnings (loss) per share
Basic
Diluted
Range of share prices
High
Low
$
88,701
21,855
4,475
$
82,377
19,964
1,743
$
71,010
15,942
1,861
$
63,470
15,769
1,513
$
305,558
73,530
9,592
$
$
0.17
0.17
$
$
0.07
0.07
$
$
0.07
0.07
$
$
0.06
0.06
$
$
0.37
0.36
(a)
(a)
$
$
5.22
3.63
$
$
6.30
4.90
$
$
7.28
2.59
$
$
6.81
3.51
$
$
7.28
2.59
$
84,957
21,261
1,749
$
89,541
19,656
(15,782)
72,832
15,337
(3,168)
$
81,522
17,459
862
$
328,852
73,713
(16,339)
$
$
0.07
0.07
$
$
(0.61)
(0.61)
$
$
(0.12)
(0.12)
$
$
0.03
0.03
$
$
(0.63)
(0.63)
(a)
(a)
$
$
5.62
4.20
$
$
4.63
3.15
$
$
3.86
2.51
$
$
3.72
2.59
$
$
5.62
2.51
(a) The total of the earnings per share for each of the four quarters does not equal the total earnings per share for the full
year because the calculations are based on the average shares outstanding during each of the individual periods. There
is no difference between basic and diluted shares due to losses.
- 58 -
LSI INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II (cid:178) VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2020 and 2019
(In thousands)
COLUMN A
Description
COLUMN B
Balance
Beginning
of Period
COLUMN C COLUMN D
Additions
from
Company
Acquired
Additions
Charged to
Costs and
Expenses
COLUMN E
COLUMN F
Deductions
(a)
Balance
End of
Period
Allowance for Doubtful Accounts:
Year Ended June 30, 2020
Year Ended June 30, 2019
Inventory Obsolescence Reserve:
Year Ended June 30, 2020
Year Ended June 30, 2019
Deferred Tax Asset Valuation Reserve:
Year Ended June 30, 2020
Year Ended June 30, 2019
$
$
879
409
$
$
19
776
-
$
$
-
$
$
(625)
(306)
$
$
273
879
$
$
4,605
3,632
$
$
2,454
3,641
$
10
$
-
$
$
(3,248)
(2,668)
$
$
3,821
4,605
$
$
3,820
4,749
$
-
$
-
-
$
$
-
$
$
(1,626)
(929)
$
$
2,194
3,820
(a) For Allowance for Doubtful Accounts, deductions are uncollectible accounts charged off, less recoveries.
- 59 -
PAGE IS INTENTIONALLY BLANK
Automotive
Lighting & Graphics
Sports
Lighting
Grocery
Lighting & Graphics
Corporate Office
10000 Alliance Road
Blue Ash, OH 45242
(513) 793-3200
Transfer Agent
Computershare
P.O. BOX 30170
College Station, TX 77842-3170
(866) 770-0656
web.queries@computershare.com
www.computershare.com/Investor
Drip / Stock Purchase
The LSI Industries Automatic Dividend
Reinvestment and Stock Purchase Plan offers
registered shareholders and employees an
opportunity to purchase additional shares
through automatic dividend reinvestment
and/or optional cash investments.
For additional information contact:
Computershare
250 Royall Street
Canton, MA 02021
866-770-0656
web.queries@computershare.com
www.computershare.com
LSI Contacts
Investors and Analysts
Noel R. Ryan, IRC
Senior Partner, Vallum Advisors
(720) 778-2415
Media
Michael P. Wallner
Sr. Manager, Communications
(513) 372-3417
©2020 LSI Industries Inc. All Rights Reserved. • www.lsicorp.com
Board of Directors
Wilfred T. O’Gara2,3
Chairman of the Board of LSI Industries Inc.
James A. Clark3
Chief Executive Officer of LSI Industries
Robert P. Beech1,2
Chair, Nominating and Corporate
Governance Committee
Ronald D. Brown3,4
Amy L. Hanson1,2,4
Chair, Audit Committee
Chantel E. Lenard1,4
John K. Morgan1,4,5
Chair, Compensation Committee
Executive Officers
James A. Clark
Chief Executive Officer
James E. Galeese
Executive Vice President and
Chief Financial Officer
Thomas A. Caneris
Senior Vice President of Human Resources
and General Counsel
Michael C. Beck
Senior Vice President of Operations
Michael A. Prachar
Chief Marketing Officer
Jeffery S. Bastian
Vice President and Chief Accounting Officer
FOOTNOTES:
1. Member of the Audit Committee
2. Member of the Nominating and Corporate Governance Committee
3. Member of the Executive Committee
4. Member of the Compensation Committee
5. Retires from the Board in November 2020