lyts20200930_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

_________________________

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020 OR

 

 

 

 

 

 

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

 

 

Commission File No. 0-13375

 

LSI Industries Inc.

(Exact name of registrant as specified in its charter)

 

Ohio

 

31-0888951

(State or other jurisdiction

of incorporation or organization)

 

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

 

10000 Alliance Road, Cincinnati, Ohio

 

45242

(Address of principal executive offices)

 

(Zip Code)

(513) 793-3200

Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

LYTS

NASDAQ Global Select Market

 

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

 

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒   No ☐

 

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

 

Large accelerated filer ☐  

Accelerated filer ☒                  

Emerging growth company

Non-accelerated filer ☐ 

Smaller reporting company

 

 

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

 

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

 

As of October 30, 2020, there were 26,355,467 shares of the registrant's common stock, no par value per share, outstanding.  

  

 

 

 

LSI INDUSTRIES INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

 

INDEX

 

 

 

Begins on Page

PART I.  Financial Information

  

  

  

  

  

  

  

  

ITEM 1.

Financial Statements (Unaudited)

  

  

  

  

  

  

  

  

  

Condensed Consolidated Statements of Operations

  

3

   

Condensed Consolidated Statements of Comprehensive Income

 

4

  

  

Condensed Consolidated Balance Sheets

  

5

   

Condensed Consolidated Statements of Shareholders’ Equity

 

7

  

  

Condensed Consolidated Statements of Cash Flows

  

8

  

  

  

  

  

  

  

Notes to Condensed Consolidated Financial Statements

  

9

  

  

  

  

  

  

ITEM 2.

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

  

21

  

  

  

  

  

  

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

  

27

  

  

  

  

  

  

ITEM 4.

Controls and Procedures

  

27

  

  

  

  

  

PART II.  Other Information

  

  

         

  

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

  

28

  

  

  

  

  

  

ITEM 6.

Exhibits

  

29

  

  

  

  

  

Signatures

 

30

 

 

Page 2

  

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   

Three Months Ended

 
   

September 30

 

(In thousands, except per share data)

 

2020

   

2019

 
                 

Net Sales

  $ 70,006     $ 88,701  
                 

Cost of products and services sold

    51,731       66,588  
                 

Restructuring costs

    3       258  
                 

Gross profit

    18,272       21,855  
                 

Selling and administrative expenses

    16,070       19,862  
                 

Restructuring gains

    -       (4,846 )
                 

Operating income

    2,202       6,839  
                 

Interest (income)

    (1 )     (1 )
                 

Interest expense

    58       432  
                 

Other (income) expense

    (105 )     82  
                 

Income before income taxes

    2,250       6,326  
                 

Income tax expense

    260       1,851  
                 

Net income

  $ 1,990     $ 4,475  
                 
                 

Earnings per common share (see Note 4)

               

Basic

  $ 0.08     $ 0.17  

Diluted

  $ 0.07     $ 0.17  
                 
                 

Weighted average common shares outstanding

               

Basic

    26,520       26,236  

Diluted

    26,968       26,293  

 

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

 

Page 3

 

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

  

Three Months Ended

 
  

September 30

 

(In thousands)

 

2020

  

2019

 
         

Net Income

 $1,990  $4,475 
         

Foreign currency translation adjustment

  45   (23)
         

Comprehensive Income

 $2,035  $4,452 

 

Page 4

 

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

  

September 30,

  

June 30,

 

(In thousands, except shares)

 

2020

  

2020

 
         

ASSETS

        
         

Current assets

        
         

Cash and cash equivalents

 $9,463  $3,517 
         

Accounts receivable, less allowance for doubtful accounts of $219 and $273, respectively

  44,122   37,836 
         

Inventories

  37,351   38,752 
         

Refundable income tax

  3,175   2,776 
         

Other current assets

  3,832   2,977 
         

Total current assets

  97,943   85,858 
         

Property, Plant and Equipment, at cost

        

Land

  3,933   3,933 

Buildings

  20,660   20,638 

Machinery and equipment

  67,737   67,796 

Buildings under finance leases

  2,033   2,033 

Construction in progress

  772   440 
   95,135   94,840 

Less accumulated depreciation

  (69,533)  (68,305)

Net property, plant and equipment

  25,602   26,535 
         

Goodwill

  10,373   10,373 
         

Other Intangible Assets, net

  29,289   29,960 
         

Operating Lease Right-of-Use Assets

  8,195   8,663 
         

Other Long-Term Assets, net

  10,393   10,874 
         

Total assets

 $181,795  $172,263 

 

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

 

Page 5

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

  

September 30,

  

June 30,

 

(In thousands, except shares)

 

2020

  

2020

 
         

LIABILITIES & SHAREHOLDERS' EQUITY

        
         

Current liabilities

        

Accounts payable

 $20,292  $14,216 

Accrued expenses

  22,567   20,433 
         

Total current liabilities

  42,859   34,649 
         

Long-Term Debt

  -   - 
         

Finance Lease Liabilities

  1,694   1,755 
         

Operating Lease Liabilities

  8,640   9,021 
         

Other Long-Term Liabilities

  1,162   1,138 
         

Commitments and Contingencies (Note 12)

  -   - 
         

Shareholders' Equity

        

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

  -   - 

Common shares, without par value; Authorized 40,000,000 shares; Outstanding 26,340,512 and 26,286,009 shares, respectively

  128,758   127,713 

Treasury shares, without par value

  (1,504)  (1,121)

Deferred compensation plan

  1,504   1,121 

Retained (loss)

  (1,270)  (1,920)

Accumulated other comprehensive loss

  (48)  (93)
         

Total shareholders' equity

  127,440   125,700 
         

Total liabilities & shareholders' equity

 $181,795  $172,263 

 

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

   

Page 6

 

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

  

Common Shares

  

Treasury Shares

  

Key Executive

  

Accumulated Other

  

Retained

  

Total

 

(In thousands, except per share data)

 

Number Of

Shares

  

Amount

  

Number Of

Shares

  

Amount

  

Compensation

Amount

  

Comprehensive

Income (Loss)

  

Earnings

(Loss)

  

Shareholders'

Equity

 
                                 

Balance at June 30, 2019

  26,176  $125,729   (209) $(1,468) $1,468   16  $(5,808) $119,937 
                                 

Net Loss

  -   -   -   -   -   -   4,475   4,475 

Other comprehensive income

  -   -   -   -   -   (23)  -   (23)

Stock compensation awards

  21   75   -   -   -   -   -   75 

Restricted stock units issued

  18   -   -   -   -   -   -   - 

Shares issued for deferred compensation

  7   33   -   -   -   -   -   33 

Activity of treasury shares, net

  -   -   36   360   -   -   -   360 

Deferred stock compensation

  -   -   -   -   (350)  -   -   (350)

Stock compensation expense

  -   398   -   -   -   -   -   398 

Dividends — $0.20 per share

  -   -   -   -   -   -   (1,319)  (1,319)

Cumulative effect of adoption of accounting guidance

  -   -   -   -   -   -   (428)  (428)
                                 

Balance at September 30, 2019

  26,222  $126,235   (173) $(1,108) $1,118  $(7) $(3,080) $123,158 

 

 

  

Common Shares

  

Treasury Shares

  

Key Executive

  

Accumulated Other

      

Total

 
  

Number Of

Shares

  

Amount

  

Number Of

Shares

  

Amount

  

Compensation

Amount

  

Comprehensive

Income (Loss)

  

Retained

Earnings

  

Shareholders'

Equity

 
                                 

Balance at June 30, 2020

  26,466  $127,713   (180) $(1,121) $1,121   (93) $(1,920) $125,700 
                                 

Net Income

  -   -   -   -   -   -   1,990   1,990 

Other comprehensive income

  -   -   -   -   -   45   -   45 

Stock compensation awards

  12   75   -   -   -   -   -   75 

Restricted stock units issued

  28   -   -   -   -   -   -   - 

Shares issued for deferred compensation

  62   412   -   -   -   -   -   412 

Activity of treasury shares, net

  -   -   (59)  (383)  -   -   -   (383)

Deferred stock compensation

  -   -   -   -   383   -   -   383 

Stock compensation expense

  -   505   -   -   -   -   -   505 

Stock options exercised, net

  11   53   -   -   -   -   -   53 

Dividends — $0.20 per share

  -   -   -   -   -   -   (1,340)  (1,340)
                                 

Balance at September 30, 2020

  26,579  $128,758   (239) $(1,504) $1,504  $(48) $(1,270) $127,440 

 

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

 

Page 7

 

 

LSI INDUSTRIES INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Three Months Ended

 
   

September 30

 

(In thousands)

 

2020

   

2019

 
                 

Cash Flows from Operating Activities

               

Net income

  $ 1,990     $ 4,475  

Non-cash items included in net income

               

Depreciation and amortization

    2,033       2,399  

Deferred income taxes

    381       1,823  

Deferred compensation plan

    412       43  

Stock compensation expense

    505       398  

Issuance of common shares as compensation

    75       75  

Gain on disposition of fixed assets

    -       (4,752 )

Allowance for doubtful accounts

    (38 )     140  

Inventory obsolescence reserve

    496       298  
                 

Changes in certain assets and liabilities

               

Accounts receivable

    (6,136 )     (3,854 )

Inventories

    926       136  

Refundable income taxes

    (393 )     (3 )

Accounts payable

    5,912       4,611  

Accrued expenses and other

    (521 )     440  

Customer prepayments

    1,997       130  

Net cash flows provided by operating activities

    7,639       6,359  
                 

Cash Flows from Investing Activities

               

Purchases of property, plant and equipment

    (405 )     (355 )

Proceeds from the sale of fixed assets

    -       12,338  

Net cash flows (used in) provided by investing activities

    (405 )     11,983  
                 

Cash Flows from Financing Activities

               

Payments of long-term debt

    -       (51,612 )

Borrowings of long-term debt

    -       35,252  

Cash dividends paid

    (1,321 )     (1,319 )

Shares withheld for employees' taxes

    (5 )     (50 )

Payments on financing lease obligations

    (58 )     -  

Proceeds from stock option exercises

    53       -  

Net cash flows used in financing activities

    (1,331 )     (17,729 )
                 

Change related to foreign currency

    43       -  
                 

Increase in cash and cash equivalents

    5,946       613  
                 

Cash and cash equivalents at beginning of period

    3,517       966  
                 

Cash and cash equivalents at end of period

  $ 9,463     $ 1,579  

 

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

  

Page 8

 

LSI INDUSTRIES INC.

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of September 30, 2020, the results of its operations for the three month periods ended September 30, 2020 and 2019, and its cash flows for the three month periods ended September 30, 2020 and 2019. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2020 Annual Report on Form 10-K. Financial information as of June 30, 2020 has been derived from the Company’s audited consolidated financial statements.

 

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Consolidation:

 

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s fiscal 2020 Annual Report on Form 10-K. Significant changes to our accounting policies as a result of adopting Accounting Standards Update (“ASU”) 2016-02 (“ASU 2016-02”), “Leases (Topic 842)” (ASC 842) in the first quarter of fiscal 2020 are discussed below.

 

Revenue Recognition:

 

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

 

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

 

A number of the Company's 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 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:

 

 

Customer specific print graphics branding

 

Electrical components based on customer specifications

 

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.

 

Page 9

 

Disaggregation of Revenue

 

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

 

  

Three Months Ended

 

(In thousands)

 

September 30, 2020

 
  

Lighting

Segment

  

Graphics

Segment

 

Timing of revenue recognition

        

Products and services transferred at a point in time

 $40,040  $14,454 

Products and services transferred over time

  5,365   10,147 
  $45,405  $24,601 

 

 

  

Three Months Ended

 
  

September 30, 2020

 
  

Lighting

Segment

  

Graphics

Segment

 

Type of Product and Services

        

LED lighting, digital signage solutions, electronic circuit boards

 $37,869  $5,081 

Legacy products

  7,074   14,325 

Turnkey services and other

  462   5,195 
  $45,405  $24,601 

 

Legacy products include lighting fixtures utilizing light sources other than LED technology and printed two- and three-dimensional graphic products. Turnkey services and other includes project management and installation services along with shipping and handling charges.

 

Practical Expedients and Exemptions

 

 

The Company’s contracts with customers have an expected duration of one year or less, as such, the Company applies the practical expedient to expense sales commissions as incurred, and has omitted disclosures on the amount of remaining performance obligations.

 

Shipping costs that are not material in context of the delivery of products are expensed as incurred.

 

The Company’s accounts receivable balance represents the Company’s unconditional right to receive payment from its customers with contracts. Payments are generally due within 30 to 90 days of completion of the performance obligation and invoicing, therefore, payments do not contain significant financing components.

 

The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs are treated as fulfillment activities and included in cost of products and services sold on the Consolidated Statements of Operations.

 

New Accounting Pronouncements:

 

On July 1, 2019, the Company adopted ASU 2016-02 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.

 

The Company’s most significant leases are 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, 2019 for the Company’s real estate leases. The adoption of the standard resulted in no material impact to the consolidated statements of operations or consolidated statements of cash flow.

 

Page 10

 

On July 1, 2020, the Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASC 326 or "CECL"), which amended the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements and related disclosures.

 

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 3 - SEGMENT REPORTING INFORMATION 

 

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

 

The Lighting Segment includes outdoor and indoor lighting utilizing both traditional and LED light sources that have been fabricated and assembled for the Company’s markets, primarily petroleum / convenience stores, parking lot and garage markets, automotive dealerships, quick-service restaurants, grocery and pharmacy stores, and retail/national accounts. The Company serves these 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 print 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.

 

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

 

There was no concentration of consolidated net sales in the three months ended September 30, 2020 and 2019. There was no concentration of accounts receivable at September 30, 2020 or June 30, 2020. 

 

Page 11

 

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of September 30, 2020 and September 30, 2019:

 

  

Three Months Ended

 

(In thousands)

 

September 30

 
  

2020

  

2019

 

Net Sales:

        

Lighting Segment

 $45,405  $63,191 

Graphics Segment

  24,601   25,510 
  $70,006  $88,701 
         

Operating Income (Loss):

        

Lighting Segment

 $3,588  $9,159 

Graphics Segment

  1,823   1,017 

Corporate and Eliminations

  (3,209)  (3,337)
  $2,202  $6,839 
         

Capital Expenditures:

        

Lighting Segment

 $369  $330 

Graphics Segment

  27   - 

Corporate and Eliminations

  9   25 
  $405  $355 
         

Depreciation and Amortization:

        

Lighting Segment

 $1,619  $1,778 

Graphics Segment

  358   386 

Corporate and Eliminations

  56   235 
  $2,033  $2,399 

 

 

  

September 30,
2020

  

June 30,
2020

 

Identifiable Assets:

        

Lighting Segment

 $120,449  $118,819 

Graphics Segment

  35,882   35,021 

Corporate and Eliminations

  25,464   18,423 
  $181,795  $172,263 

 

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

 

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

 

  

Three Months Ended

 

(In thousands)

 

September 30

 
  

2020

  

2019

 

Lighting Segment inter-segment net sales

 $4,080  $811 
         

Graphics Segment inter-segment net sales

 $38  $24 

 

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

 

Page 12

 
 

NOTE 4 - EARNINGS PER COMMON SHARE

 

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

 

  

Three Months Ended

 
  

September 30

 
  

2020

  

2019

 
         

BASIC EARNINGS PER SHARE

        
         

Net income

 $1,990  $4,475 
         

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

  26,318   26,024 

Weighted average vested restricted stock units outstanding

  10   24 

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

  192   188 

Weighted average shares outstanding

  26,520   26,236 
         

Basic income per share

 $0.08  $0.17 
         
         

DILUTED EARNINGS PER SHARE

        
         

Net income

 $1,990  $4,475 
         

Weighted average shares outstanding:

        
         

Basic

  26,520   26,236 
         

Effect of dilutive securities (a):

        

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

  448   57 

Weighted average shares outstanding

  26,968   26,293 
         

Diluted income per share

 $0.07  $0.17 
         
         

Anti-dilutive securities (b)

  1,302   2,861 

 

 

(a)

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

 

 

(b)

Anti-dilutive securities were excluded from the computation of diluted net income per share for the three months ended September 30, 2020 and September 30, 2019 because the exercise price was greater than the average fair market price of the common shares or because the assumed proceeds from the award’s exercise or vesting was greater than the average fair market price of the common shares.

 

Page 13

 
 

NOTE 5 - INVENTORIES

 

The following information is provided as of the dates indicated:

 

  

September 30,

  

June 30,

 

(In thousands)

 

2020

  

2020

 
         

Inventories:

        

Raw materials

 $26,335  $27,331 

Work-in-progress

  1,465   1,566 

Finished goods

  9,551   9,855 

Total Inventories

 $37,351  $38,752 

 

 

NOTE 6 - ACCRUED EXPENSES

 

The following information is provided as of the dates indicated:

 

  

September 30,

  

June 30,

 

(In thousands)

 

2020

  

2020

 
         

Accrued Expenses:

        

Accrued warranty

 $6,639  $6,956 

Compensation and benefits

  6,179   6,001 

Customer prepayments

  3,699   1,698 

Accrued sales commissions

  1,473   1,289 

Operating lease liabilities

  292   376 

Finance lease liabilities

  242   239 

Other accrued expenses

  4,043   3,874 

Total Accrued Expenses

 $22,567  $20,433 

 

 

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS

 

The carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company may first assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of the reporting unit using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of reporting unit requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate. The estimates of the fair value of reporting units are based on the best information available as of the date of the assessment. The fair value measurements of the reporting units are based on significant inputs not observable in the market and thus represent Level 3 measurements as defined by ASC 820 “Fair Value Measurements.” The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge. Company management uses its judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as adverse business conditions, economic factors and technological change or competitive activities may signal that an asset has become impaired.

 

The Company identified its reporting units in conjunction with its annual goodwill impairment testing. The Company has a total of 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 limited to, the Company’s stock price, operating results, forecasts, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

 

Page 14

 

The following table presents information about the Company's goodwill as of September 30, 2020 and June 30, 2020:

 

Goodwill

            

(In thousands)

 

Lighting

  

Graphics

     
  

Segment

  

Segment

  

Total

 
             

Goodwill

 $86,711  $28,690  $115,401 

Accumulated impairment losses

  (77,503)  (27,525)  (105,028)

Goodwill, net

 $9,208  $1,165  $10,373 

 

 

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

 

Other Intangible Assets

 

September 30, 2020

 

(In thousands)

 

Gross

         
  

Carrying

  

Accumulated

  

Net

 
  

Amount

  

Amortization

  

Amount

 

Amortized Intangible Assets

            

Customer relationships

 $35,563  $14,644  $20,919 

Patents

  338   285   53 

LED technology firmware, software

  16,066   12,973   3,093 

Trade name

  2,658   856   1,802 

Total Amortized Intangible Assets

  54,625   28,758   25,867 
             

Indefinite-lived Intangible Assets

            

Trademarks and trade names

  3,422   -   3,422 

Total indefinite-lived Intangible Assets

  3,422   -   3,422 
             

Total Other Intangible Assets

 $58,047  $28,758  $29,289 

 

 

Other Intangible Assets

 

June 30, 2020

 

(In thousands)

 

Gross

         
  

Carrying

  

Accumulated

  

Net

 
  

Amount

  

Amortization

  

Amount

 

Amortized Intangible Assets

            

Customer relationships

 $35,563  $14,129  $21,434 

Patents

  338   277   61 

LED technology firmware, software

  16,066   12,852   3,214 

Trade name

  2,658   829   1,829 

Total Amortized Intangible Assets

  54,625   28,087   26,538 
             

Indefinite-lived Intangible Assets

            

Trademarks and trade names

  3,422   -   3,422 

Total indefinite-lived Intangible Assets

  3,422   -   3,422 
             

Total Other Intangible Assets

 $58,047  $28,087  $29,960 

 

 

  

Three Months Ended

 
  

September 30

 

(In thousands)

 

2020

  

2019

 
         

Amortization Expense of Other Intangible Assets

 $671  $675 

 

Page 15

 

The Company expects to record annual amortization expense as follows:

 

(In thousands)

    
     

2021

 $2,682 

2022

 $2,461 

2023

 $2,412 

2024

 $2,412 

2025

 $2,412 

After 2025

 $14,159 

 

 

NOTE 8 - REVOLVING LINE OF CREDIT

 

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 determined, or at the bank’s base lending rate, at the Company’s option. The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between 125 and 250 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the line of credit agreement. The increment over LIBOR borrowing rate will be 125 basis points for the second quarter of fiscal 2021. The Company expects to seek additional provisions for alternative interest rates when certain interbank offered rates are no longer available. 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 September 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 September 30, 2020.

 

 

NOTE 9 - CASH DIVIDENDS

 

The Company paid cash dividends of $1.3 million in both the three months ended September 30, 2020 and September 30, 2019. Dividends on restricted stock units in the amount of $81,663 and $34,842 were accrued as of September 30, 2020 and 2019, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In October 2020, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable November 17, 2020 to shareholders of record as of November 9, 2020. The indicated annual cash dividend rate is $0.20 per share.

 

 

NOTE 10 – EQUITY COMPENSATION

 

In November 2019, the Company’s shareholders approved the 2019 Omnibus Award Plan (“2019 Omnibus Plan”). The purpose of the 2019 Omnibus Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means by which directors, officers, and employees can acquire and maintain an equity interest in the Company. The number of shares that remain reserved for issuance under the 2019 Omnibus Plan is 2,922,194 as of September 30, 2020. The 2019 Omnibus Plan implements the use of a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation. The 2019 Omnibus Plan allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance stock units (“PSUs”) and other stock-based awards.

 

In the first quarter of fiscal 2021, the Company granted 318,406 non-qualified serviced-based and inducement stock options with an exercise price of $6.80 to $7.06, and 134,017 PSUs and 131,126 RSUs at a fair value of $6.80. Stock compensation expense was $0.5 million and $0.4 million for the three months ended September 30, 2020 and 2019, respectively.

 

Page 16

 
 

NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION

 

  

Three Months Ended

 

(In thousands)

 

September 30

 
  

2020

  

2019

 

Cash Payments:

        

Interest

 $24  $464 

Income taxes

 $223  $- 
         

Non-cash investing and financing activities

        

Issuance of common shares as compensation

 $75  $75 

Issuance of common shares to fund deferred compensation plan

 $412  $33 

 

 

NOTE 12 - COMMITMENTS AND CONTINGENCIES

 

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

 

The Company may occasionally issue a standby letter of credit in favor of third parties. As of September 30, 2020, there were no such standby letters of credit issued. In August 2020, the Company experienced a cybersecurity incident. There was minimal business interruption and immaterial net financial impact resulting from the incident. For details regarding this incident, see the risk factor on page 7 of the Company’s fiscal 2020 Annual Report on Form 10-K.

 

 

NOTE 13 – SEVERANCE COSTS

 

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

 

  

Three Months

  

Three Months

  

Fiscal Year

 
  

Ended

  

Ended

  

Ended

 
  

September 30,

  

September 30,

  

June 30,

 

(In thousands)

 

2020

  

2019

  

2020

 
             

Balance at beginning of period

 $639  $1,134  $1,134 

Accrual of expense

  -   18   344 

Payments

  (225)  (162)  (839)

Balance at end of period

 $414  $990  $639 

 

The $0.4 million severance reserve reported as of September 30, 2020 has been classified as a current liability and will be paid out over the next twelve months.

 

 

NOTE 14 – RESTRUCTURING COSTS

 

In the first quarter of fiscal 2020, the Company sold its New Windsor, New York facility. The net proceeds from the sale were $12.3 million resulting in a gain of $4.8 million. The Company also incurred additional restructuring costs totaling $0.2 million in the first quarter of fiscal 2020 related to the closure of the New Windsor facility, which impacted both the Lighting and Graphics segment.

 

Page 17

 

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

 

  

Three Months Ended

 
  

September 30

 

(In thousands)

 

2020

  

2019

 
         

Exit costs

 $3  $184 

Impairment of fixed assets and accelerated depreciation

  -   49 

Gain on sale of facility

  -   (4,821)

Total

 $3  $(4,588)

 

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

 

  

Balance as of

              

Balance as of

 
  

June 30,

  

Restructuring

          

September 30,

 

(In thousands)

 

2020

  

Expense

  

Payments

  

Adjustments

  

2020

 
                     

Severance and termination benefits

 $27  $-  $-  $-  $27 

Other restructuring costs

  -   3   (3)  -  $- 

Total

 $27  $3  $(3) $-  $27 

 

 

NOTE 15 - LEASES

 

The Company leases certain manufacturing facilities along with a small office space, a company vehicle, several forklifts, several small tooling items, and various items of office equipment. All but one of the Company’s leases are operating leases. Leases 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. For the three months ended September 30, 2020 and 2019, the rent expense for these leases is immaterial.

 

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

 

Lease expense is recognized on a straight-line basis over the lease term. The Company used its incremental borrowing rate when determining the present value of lease payments. The adoption of the new lease standard resulted in the recognition of right-of-use assets (ROU assets) of $10.4 million and lease liabilities of $10.8 million which includes the impact of existing deferred rents and tenant improvement allowances on the consolidated balance sheets as of July 1, 2019 for the Company’s real estate leases. The adoption of the new standard resulted in no material impact to the consolidated statements of operations or consolidated statements of cash flow.

 

  

Three months ended

  

Three months ended

 

(In thousands)

 

September 30, 2020

  

September 30, 2019

 
         

Operating lease cost

 $573  $587 

Financing lease cost:

        

Amortization of right of use assets

  73   - 

Interest on lease liabilities

  24   - 

Variable lease cost

  1   - 

Total lease cost

 $671  $587 

 

Page 18

 

Supplemental Cash Flow Information:

        
  

Three months ended

  

Three months ended

 

(In thousands)

 

September 30, 2020

  

September 30, 2019

 
         

Cash flows from operating leases

        

Fixed payments - operating cash flows

 $570  $573 

Liability reduction - operating cash flows

 $461  $443 
         

Cash flows from finance leases

        

Interest - operating cash flows

 $24  $- 

Repayments of principal portion - financing cash flows

 $58  $- 

 

Operating Leases:

 

At September 30, 2020

  

At June 30, 2020

 
         

Total operating right-of-use assets

 $8,195  $8,663 
         

Accrued expenses (Current liabilities)

 $292  $376 

Long-term operating lease liability

  8,640   9,021 

Total operating lease liabilities

 $8,932  $9,397 
         

Weighted Average remaining Lease Term (in years)

  4.36   4.59 
         

Weighted Average Discount Rate

  4.85%  4.85%

 

Finance Leases:

 

At September 30, 2020

  

At June 30, 2020

 
         

Buildings under finance leases

 $2,033  $2,033 

Accumulated depreciation

  (121)  (48)

Total finance lease assets, net

 $1,912  $1,985 
         

Accrued expenses (Current liabilities)

 $242  $239 

Long-term finance lease liability

  1,694   1,755 

Total finance lease liabilities

 $1,936  $1,994 
         

Weighted Average remaining Lease Term (in years)

  6.58   6.83 
         

Weighted Average Discount Rate

  4.86%  4.86%

 

Maturities of Lease Liability:

 Operating Lease  Finance Lease 
  Liabilities  

Liabilities

 

2021

 $1,864  $270 

2022

  2,293   329 

2023

  2,241   329 

2024

  1,924   335 

2025

  1,345   362 

Thereafter

  360   664 

Total lease payments

  10,027   2,289 

Less: Interest

  (1,095)  (353)

Present Value of Lease Liabilities

 $8,932  $1,936 

 

Page 19

 
 

NOTE 16 – INCOME TAXES

 

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

 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020. The CARES Act allows the Company to carry back 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. During the first quarter of fiscal 2021, the IRS issued Treasury Regulations resulting in an increase to the expected net operating loss that can be carried back and the Company recognized an additional tax benefit of $0.4 million.

 

In the first quarter of fiscal 2020, the Company sold its New Windsor facility resulting in a book gain of $4.8 million. The Company was able to utilize a deferred tax asset of $0.9 million related to the sale of the facility.

 

  

Three Months Ended

 
  

September 30

 
  

2020

  

2019

 

Reconciliation of effective tax rate:

        
         

Provision for income taxes at the anticipated annual tax rate

  23.9

%

  24.1

%

Uncertain tax positions

  1.0   0.5 

Tax rate changes

  (15.7)  - 

Shared-based compensation

  2.4   4.3 

Other

  -   0.4 

Effective tax rate

  11.6

%

  29.3

%

 

Page 20

 
 

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

 

 

Note About Forward-Looking Statements

 

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

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of LSI Industries Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended June 30, 2020, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).

 

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

 

COVID-19 Pandemic

 

The COVID-19 pandemic will likely continue to impact business activity across industries in the U.S. and worldwide. We remain committed to taking actions to address the health, safety and welfare of our employees, customers, agents and suppliers. The potential for additional outbreaks of COVID-19 in the U.S. and globally and the actions taken by governmental authorities in response to future resurgence are highly uncertain and unpredictable. Future developments such as these will determine the extent to which COVID-19 continues to impact our results of operations and financial conditions. See the risk factor captioned “Our financial condition and results of operations for fiscal 2021 and future periods may be adversely affected by the recent novel coronavirus disease (“COVID-19”) outbreak or other outbreaks of infectious disease or similar public health threats and the resulting economic impact” in Item 1A, Risk Factors, included in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for an additional discussion of risks related to COVID-19.

 

Net Sales by Business Segment

               
   

Three Months Ended

 
   

September 30

 

(In thousands)

 

2020

   

2019

 
                 

Lighting Segment

  $ 45,405     $ 63,191  

Graphics Segment

    24,601       25,510  
    $ 70,006     $ 88,701  

 

Page 21

 

Operating Income (Loss) by Business Segment

               
   

Three Months Ended

 
   

September 30

 

(In thousands)

 

2020

   

2019

 
                 

Lighting Segment

  $ 3,588     $ 9,159  

Graphics Segment

    1,823       1,017  

Corporate and Eliminations

    (3,209 )     (3,337 )
    $ 2,202     $ 6,839  

 

Summary of Consolidated Results

 

Net sales of $70.0 million for the three months ended September 30, 2020 decreased $18.7 million or 21% as compared to net sales of $88.7 million for the three months ended September 30, 2019. Net sales were unfavorably influenced by decreased net sales of the Lighting Segment (a decrease of $17.8 million or 28%) and decreased net sales of the Graphics Segment (a decrease of $0.9 million or 4%).

 

Operating income of $2.2 million for the three months ended September 30, 2020 represents a $4.6 million decrease from operating income of $6.8 million in the three months ended September 30, 2019. The $4.6 million decrease from fiscal 2020 was impacted by the sale of the New Windsor, New York facility in the first quarter of fiscal 2020 which favorably resulted in a pre-tax gain of $4.8 million. When the impact of the sale of the New Windsor facility, other restructuring and plant closure costs and stock compensation expense are removed from the operating results, adjusted operating income, a Non-GAAP measure, was $2.7 million in the three months ended September 30, 2020 compared to $2.6 million in the three months ended September 30, 2019. Refer to “Non-GAAP Financial Measures” below.

 

We continue to maintain a strong balance sheet with a cash balance of $9.5 million and no long-term debt as of September 30, 2020. We believe that our liquidity position is adequate to meet our projected needs in the reasonably foreseeable future.

 

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 costs (gains) and stock compensation expense 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. Although the impacts of some of these items have been recognized in prior periods and could recur in future periods, we exclude these items because they provide greater comparability and enhanced visibility into our results of operations. 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 to adjusted operating income:

               
   

Three Months Ended

 
   

September 30

 

(In thousands)

 

2020

   

2019

 
                 

Operating Income as reported

  $ 2,202     $ 6,839  
                 

Restructuring and plant closure costs (gains)

    3       (4,588 )
                 

Stock compensation expense

    505       398  
                 

Adjusted Operating Income

  $ 2,710     $ 2,649  

 

Page 22

 

Reconciliation of net income to adjusted net income

                                   
   

Three Months Ended

 
   

September 30

 

(In thousands, except per share data)

 

2020

   

2019

 
             

Diluted EPS

             

Diluted EPS

 
                                     

Net Income as reported

  $ 1,990       $ 0.07     $ 4,475       $ 0.17  
                                     

Restructuring and plant closure costs (gains)

    2   (1)     -       (3,446 ) (3)     (0.13 )
                                     

Stock compensation expense

    380   (2)     0.01       299   (4)     0.01  
                                     

Tax impact due to the change in the estimated annual tax rate used for GAAP reporting purposes

    (297 )       (0.01 )     275         0.01  
                                     

Net Income adjusted

  $ 2,075       $ 0.08     $ 1,603       $ 0.06  

 

 

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 (in thousands):

 

(1) $1

(2) $125

(3) ($1,142)

(4) $99

 

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

 

Reconciliation of operating income to EBITDA and Adjusted EBITDA

               
   

Three Months Ended

 
   

September 30

 

(In thousands)

 

2020

   

2019

 
                 

Operating Income as reported

  $ 2,202     $ 6,839  
                 

Depreciation and Amortization

    2,033       2,399  
                 

EBITDA

  $ 4,235     $ 9,238  
                 

Restructuring and plant closure costs (gains)

    3       (4,588 )
                 

Stock compensation expense

    505       398  
                 

Adjusted EBITDA

  $ 4,743     $ 5,048  

 

 

Reconciliation of cash flow from operations to free cash flow

               
   

Three Months Ended