LSI INDUSTRIES INC - Quarter Report: 2020 March (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

_________________________

 

FORM 10-Q

 

X		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 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 April 27, 2020, there were 26,192,949 shares of the registrant's common stock, no par value per share, outstanding.  

  

 

 

 

 

		Three Months Ended								Nine Months Ended
		March 31								March 31
(In thousands, except per share data)		2020				2019				2020				2019
Net Sales		$	71,010			$	72,832			$	242,088			$	247,330
Cost of products and services sold			54,834				57,180				183,558				190,207
Restructuring costs			223				261				758				792
Severance costs			11				54				11				77
Gross profit			15,942				15,337				57,761				56,254
Selling and administrative expenses			17,032				17,515				55,045				54,990
Restructuring (gain) costs			(3,729	)			107				(8,576	)			132
Severance costs			8				(12	)			62				457
Impairment of goodwill			-				-				-				20,165
Transition and realignment costs			-				-				-				120
Operating income (loss)			2,631				(2,273	)			11,230				(19,610	)
Interest (income)			(1	)			(6	)			(3	)			(37	)
Interest expense			129				585				795				1,749
Other expense			642				183				633				183
Income (loss) before income taxes			1,861				(3,035	)			9,805				(21,505	)
Income tax expense (benefit)			-				133				1,726				(4,304	)
Net income (loss)		$	1,861			$	(3,168	)		$	8,079			$	(17,201	)
Earnings (loss) per common share (see Note 4)
Basic		$	0.07			$	(0.12	)		$	0.31			$	(0.66	)
Diluted		$	0.07			$	(0.12	)		$	0.31			$	(0.66	)
Weighted average common shares outstanding
Basic			26,301				26,132				26,250				26,083
Diluted			26,623				26,132				26,423				26,083

 

		Three Months Ended								Nine Months Ended
		March 31								March 31
(In thousands)		2020				2019				2020				2019
Net Income (Loss)		$	1,861			$	(3,168	)		$	8,079			$	(17,201	)
Foreign currency translation adjustment			(116	)			-				(110	)			-
Comprehensive Income (Loss)		$	1,745			$	(3,168	)		$	7,969			$	(17,201	)

 

		March 31,				June 30,
(In thousands, except shares)		2020				2019
ASSETS
Current assets
		$	820			$	966
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $267 and $879, respectively			45,957				54,728
Inventories			43,597				43,512
Refundable income tax			1,807				882
Asset held for sale			-				7,512
Other current assets			3,106				3,380
Total current assets			95,287				110,980
Property, Plant and Equipment, at cost
Land			3,933				4,576
Buildings			20,215				27,015
Machinery and equipment			70,733				73,185
Construction in progress			803				455
			95,684				105,231
Less accumulated depreciation			(70,981	)			(73,255	)
Net property, plant and equipment			24,703				31,976
Goodwill			10,373				10,373
Other Intangible Assets, net			30,631				32,647
Other Long-Term Assets, net			21,238				15,124
Total assets		$	182,232			$	201,100

		March 31,				June 30,
(In thousands, except shares)		2020				2019
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable		$	18,772			$	18,664
Accrued expenses			20,106				21,211
Total current liabilities			38,878				39,875
Long-Term Debt			7,919				39,541
Other Long-Term Liabilities			10,728				1,747
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 26,162,209 and 25,967,275 shares, respectively			126,918				125,729
Treasury shares, without par value			(1,057	)			(1,468	)
Deferred compensation plan			1,055				1,468
Retained (loss)			(2,115	)			(5,808	)
Accumulated other comprehensive (loss) income			(94	)			16
Total shareholders' equity			124,707				119,937
Total liabilities & shareholders' equity		$	182,232			$	201,100

 

		Common Shares								Treasury Shares								Key Executive				Accumulated Other				Retained				Total
		Number Of								Number Of								Compensation				Comprehensive				Earnings				Shareholders'
(In thousands, except per share data)		Shares				Amount				Shares				Amount				Amount				Income (Loss)				(Loss)				Equity
Balance at June 30, 2018			25,884			$	124,104				(242	)		$	(2,110	)		$	2,133				-			$	15,124			$	139,251
Net Loss			-				-				-				-				-				-				(17,201	)			(17,201	)
Other comprehensive income			-				-				-				-				-				-				-				-
Stock compensation awards			70				265				-				-				-				-				-				265
Restricted stock units issued			98				-				-				-				-				-				-				-
Shares issued for deferred compensation			65				257				-				-				-				-				-				257
Activity of treasury shares, net			-				-				19				481				-				-				-				481
Deferred stock compensation			-				-				-				-				(474	)			-				-				(474	)
Stock-based compensation expense			-				951				-				-				-				-				-				951
Dividends — $0.20 per share			-				-				-				-				-				-				(3,882	)			(3,882	)
Cumulative effect of adoption of accounting guidance			-				-				-				-				-				-				591				591
Balance at March 31, 2019			26,117			$	125,577				(223	)		$	(1,629	)		$	1,659			$	-			$	(5,368	)		$	120,239

		Common Shares								Treasury Shares								Key Executive				Accumulated Other								Total
		Number Of								Number Of								Compensation				Comprehensive				Retained				Shareholders'
		Shares				Amount				Shares				Amount				Amount				Income (Loss)				Earnings				Equity
Balance at June 30, 2019			26,176			$	125,729				(209	)		$	(1,468	)		$	1,468				16			$	(5,808	)		$	119,937
Net Income			-				-				-				-				-				-				8,079				8,079
Other comprehensive income			-				-				-				-				-				(110	)			-				(110	)
Stock compensation awards			48				225				-				-				-				-				-				225
Restricted stock units issued			21				-				-				-				-				-				-				-
Shares issued for deferred compensation			54				296				-				-				-				-				-				296
Activity of treasury shares, net			-				-				42				411				-				-				-				411
Deferred stock compensation			-				-				-				-				(413	)			-				-				(413	)
Stock-based compensation expense			-				494				-				-				-				-				-				494
Stock options exercised, net			29				174				-				-				-				-				-				174
Dividends — $0.20 per share			-				-				-				-				-				-				(3,958	)			(3,958	)
Cumulative effect of adoption of accounting guidance			-				-				-				-				-				-				(428	)			(428	)
Balance at March 31, 2020			26,328			$	126,918				(167	)		$	(1,057	)		$	1,055			$	(94	)		$	(2,115	)		$	124,707

 

		Nine Months Ended
		March 31,
(In thousands)		2020				2019
Cash Flows from Operating Activities
Net income (loss)		$	8,079			$	(17,201	)
Non-cash items included in net income (loss)
Depreciation and amortization			6,631				7,787
Deferred income taxes			2,637				(4,077	)
Impairment of goodwill			-				20,165
Deferred compensation plan			296				264
Stock compensation expense			494				951
Issuance of common shares as compensation			225				265
Gain on disposition of fixed assets			(8,510	)			(22	)
Allowance for doubtful accounts			(105	)			505
Inventory obsolescence reserve			1,720				2,574
Changes in certain assets and liabilities
Accounts receivable			8,322				2,902
Inventories			(1,981	)			(7,368	)
Refundable income taxes			(1,170	)			323
Accounts payable			1,015				2,705
Accrued expenses and other			(258	)			(4,373	)
Customer prepayments			(298	)			985
Net cash flows provided by operating activities			17,097				6,385
Cash Flows from Investing Activities
Proceeds from the sale of assets			20,040				-
Purchases of property, plant and equipment			(1,538	)			(2,348	)
Net cash flows provided by (used in) investing activities			18,502				(2,348	)
Cash Flows from Financing Activities
Payments of long-term debt			(169,671	)			(89,489	)
Borrowings of long-term debt			138,049				87,941
Cash dividends paid			(3,958	)			(3,882	)
Shares withheld for employees' taxes			(124	)			(99	)
Proceeds from stock option exercises			174				-
Net cash flows used in financing activities			(35,530	)			(5,529	)
Change related to foreign currency			(215	)			-
Decrease in cash and cash equivalents			(146	)			(1,492	)
Cash and cash equivalents at beginning of period			966				3,178
Cash and cash equivalents at end of period		$	820			$	1,686

 

NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The interim condensed consolidated financial statements are unaudited and are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, and rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company’s financial position as of March 31, 2020, the results of its operations for the three and nine month periods ended March 31, 2020 and 2019, and its cash flows for the nine month periods ended March 31, 2020 and 2019. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2019 Annual Report on Form 10-K.  Financial information as of June 30, 2019 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 2019 Annual Report on Form 10-K. Significant changes to our accounting policies as a result of adopting ASU-2014-09 “Revenue from Contracts with Customers” (Topic 606) in the first quarter of fiscal 2019 and adopting ASU 2016-02, “Leases” 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.

 

 

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.

 

 

 

 

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 have 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, 2018, the Company adopted ASU 2014-09. “Revenue from Contracts with Customers,” (Topic 606) 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 are not adjusted and continue to be 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 February 2016, the Financial Accounting Standards Board issued ASU 2016-02, “Leases.” The amended guidance requires an entity to recognize assets and liabilities that arise from leases. The amended guidance is effective for financial statements issued for fiscal and interim periods within those years, beginning after December 15, 2018, or the Company’s fiscal 2020, with early adoption permitted. The Company adopted this guidance effective July 1, 2019 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 to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. In addition, the Company elected the practical expedient to not separate lease and non-lease component and the accounting policy election to not present leases with an initial term of twelve months or less on the balance sheet.

 

The Company’s most significant leases are those relating to certain manufacturing facilities along with a small office space. Besides these real estate leases, most other leases are insignificant and consist of leases related to a vehicle, forklifts, small tooling, and various office equipment. All of the Company’s leases are operating leases and are included in other long-term assets with the corresponding liability in other long-term liabilities. 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 standard resulted in no material impact to consolidated statements of operations or consolidated statements of cash flow. (Refer to Note 15)

 

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 other than noted below.

 

In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.

 

As of the date of this filing, the Company’s locations and primary suppliers continue to be operating. However, the broader implications of COVID-19 on the Company’s results of operations and overall financial performance remain uncertain. The Company may experience constrained supply or slowed customer demand that could materially impact its business, results of operations and overall financial performance in future periods. See Risk Factors in Part II, Item 1A of this Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on the Company’s business.

  

 

NOTE 3 - SEGMENT REPORTING INFORMATION 

 

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, automotive dealerships, quick-service restaurants, grocery and pharmacy store, and retail/national accounts. The Company also addresses 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 used to manufacture certain LED light fixtures and sold directly to customers.

 

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

 

 

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

 

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

 

 

 

 

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:

 

 

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.

 

 

 

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):

 

 

(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 and nine months ended March 31, 2020 because the exercise price was greater than the average fair market price of the common shares or because the assumed proceeds from the award’s exercise or vesting was greater than the average fair market price of the common shares. For the three and nine months ended March 31, 2019, the effect of dilutive securities was not included in the calculation of diluted loss per share because there was a net loss for the period.

 

 

 

NOTE 5 - INVENTORIES

 

The following information is provided as of the dates indicated:

 

 

 

 

NOTE 6 - ACCRUED EXPENSES

 

The following information is provided as of the dates indicated:

 

 

 

 

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.

 

 

As of March 1, 2020, the Company performed its annual goodwill impairment test on the two reporting units that contain goodwill. The preliminary goodwill impairment test of the reporting unit in the Lighting Segment passed with a business enterprise value of $31.6 million or 33% above the carrying value of this reporting unit including goodwill. The preliminary goodwill impairment test of the reporting unit with goodwill in the Graphics Segment passed with an estimated business enterprise value of $4.7 million or 619% above the carrying value of the reporting unit including goodwill. The definitive impairment test is expected to be completed in the fourth quarter of fiscal 2020. It is anticipated that the results of the test will not change when the test is complete.

 

A significant decline in the Company’s stock price during March 2020 related to the COVID-19 pandemic led management to conclude that a triggering event occurred. As a result, an interim goodwill impairment test subsequent to the March 1 testing date was required for both reporting units as of March 31, 2020. The result of the impairment test on both reporting units indicated that goodwill was not impaired.

 

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

 

 

The Company performed its annual review of indefinite-lived intangible assets as of March 1, 2020 and determined there was no impairment. The preliminary indefinite-lived intangible impairment test passed with a fair market value of $16.8 million or 392% above its carrying value. The definitive indefinite-lived impairment test is expected to be completed in the fourth quarter of fiscal 2020. It is anticipated that the results of the test will not change when the test is complete.

 

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

 

 

 

 

 

 

 

The Company expects to record annual amortization expense as follows:

 

 

 

 

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 fourth quarter of fiscal 2020. The fee on the unused balance of the $75 million committed line of credit is 20 basis points. Under the terms of this line of credit, the Company has agreed to a negative pledge of real estate assets and is required to comply with financial covenants that limit the ratio of indebtedness to EBITDA and require a minimum fixed charge coverage ratio. As of March 31, 2020, there was $7.9 million borrowed against the line of credit, and $67.1 million was available as of that date. Based on the terms of the line of credit and the maturity date, the debt has been classified as long term.

 

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

 

 

NOTE 9 - CASH DIVIDENDS

 

The Company paid cash dividends of $3,958,000 and $3,882,000 in the nine months ended March 31, 2020 and 2019, respectively. Dividends on restricted stock units in the amount of $59,077 and $40,798 were accrued as of March 31, 2020 and 2019, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In April 2020, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable May 12, 2020 to shareholders of record as of May 4, 2020. The indicated annual cash dividend rate is $0.20 per share.

 

 

 

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 2019 Omnibus Plan replaced the 2012 Stock Incentive Plan (“2012 Stock Plan”). 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 3,812,997, all of which are available for future grant or award as of March 31, 2020. The 2019 Omnibus Plan implements the use of a fungible share ratio that consumes 2.5 available shares for every full value share awarded by the Company as stock compensation. The 2019 Omnibus Plan allows for the grant of non-qualified stock options, stock appreciation rights, restricted stock awards, performance stock units, and other stock-based awards.

 

In the third quarter of fiscal 2020, the Company granted 150,000 inducement stock options with an exercise price of $6.51. In the first quarter of fiscal 2020, the Company granted 455,429 non-qualified serviced-based stock options with an exercise price of $3.83 and 199,310 Performance Stock Units and 81,917 Restricted Stock Units at a fair value of $3.83. Stock compensation expense was $(103,000) and $224,000 for the three months ended March 31, 2020 and 2019, respectively and $494,000 and $951,000 for the nine months ended March 31, 2020 and 2019, respectively.

 

 

 

NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

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

 

 

 

NOTE 13 – SEVERANCE COSTS

 

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

 

 

Of the total $726,000 severance reserve reported as of March 31, 2020, $612,000 has been classified as a current liability and will be paid out over the next twelve months. The remaining $114,000 has been classified as a long-term liability.

 

 

 

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

 

Restructuring costs incurred in the second quarter of fiscal 2020 related to the realignment of the Company’s manufacturing footprint at its Houston, Texas facility, which impacted the Graphics segment. The realignment occurred as the result of the movement of equipment related to the closure of the New Windsor facility along with preparations to receive additional equipment resulting from the relocation of the North Canton, Ohio facility.

 

In the third quarter of fiscal 2020, the Company sold its North Canton, Ohio facility. The net proceeds from the sale were $7.7 million resulting in a net gain of $3.7 million. Restructuring charges incurred in the third quarter of fiscal 2020 related to the relocation of the North Canton facility, which impacted the Graphics Segment. The Company will relocate the production at the North Canton facility to a smaller, leased facility in Akron, Ohio during the fourth quarter of fiscal 2020. The Company also incurred $451,000 of expense to write-down inventory which is not included in the tables below.

 

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

 

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

 

 

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