UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Act of 1934
Date of Report (Date of earliest event reported): February 21, 2017
LSI INDUSTRIES INC.
(Exact name of Registrant as specified in its Charter)
Ohio |
01-13375 |
31-0888951 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
10000 Alliance Road, Cincinnati, Ohio |
45242 |
(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s telephone number, including area code |
(513) 793-3200 |
(Former name or former address, if changed since last report.) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): | |
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth 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. ☐
Item 9.01 – Financial Statements and Exhibits.
On February 21, 2017, LSI Industries Inc., an Ohio corporation (“LSI” or the “Company”), filed a Current Report on Form 8-K (the “Original Filing”) to report the Company’s acquisition of Atlas (defined below) pursuant to the Stock Purchase Agreement (the “Purchase Agreement”) dated February 21, 2017 by and among LSI, Atlas Lighting Products, Inc., a North Carolina corporation (“Atlas”), James Hewes Bennett and Rector Samuel Hunt III. This Form 8-K/A is being filed to amend the Original Filing to provide the required financial statements and pro forma condensed combined financial information described below. Capitalized terms used in this Current Report but not defined herein shall have the respective meanings assigned thereto in the Original Filing.
(a) |
Financial Statements of Businesses Acquired |
The audited financial statements of Atlas Lighting Products, Inc. for the years ended December 25, 2016 and December 25, 2015, including the notes to such financial statements, are incorporated herein by reference to Exhibit 99.1.
(b) |
Pro Forma Condensed Combined Financial Information |
The pro forma condensed combined financial information of LSI and Atlas, including the pro forma condensed combined balance sheet as of December 31, 2016, the pro forma condensed combined statement of operations for the fiscal year ended June 30, 2016 and the six months ended December 31, 2016, including the introductory paragraph(s) and notes to such pro forma condensed combined financial information, are incorporated herein by reference to Exhibit 99.2.
(d) |
Exhibits |
23.1 |
Consent of Grant Thornton LLP |
99.1 |
Atlas Lighting Products, Inc. audited financial statements (balance sheet as of December 25, 2016 and December 25, 2015, statements of operations for the fiscal years ended December 25, 2016 and December 25, 2015, statements of stockholders’ equity for the fiscal years ended December 25, 2016 and December 25, 2015, and statements of cash flows for the fiscal years ended December 25, 2016 and December 25, 2015). |
99.2 |
LSI Industries Inc. pro forma condensed combined financial information (pro forma condensed combined balance sheet as of December 31, 2016, pro forma condensed combined statement of operations for the fiscal year ended June 30, 2016 and the six months ended December 31, 2016). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
LSI INDUSTRIES INC. | ||
BY:/s/ Ronald S. Stowell | ||
Ronald S. Stowell | ||
Vice President, Chief Financial Officer and Treasurer | ||
(Principal Financial and Accounting Officer) | ||
May 1, 2017 |
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 8, 2017 with respect to the financial statements of Atlas Lighting, Inc. incorporated by reference in the Current Report of LSI Industries Inc. on Form 8-K/A dated May 1, 2017. We consent to the incorporation by reference of said report in the Registration Statements of LSI Industries Inc. on Form S-3 (File No. 333-213527) and on Forms S-8 (File No. 333-209386, File No. 333-201890, File No. 333-201889, File No. 333-11503, File No. 333-110784, File No. 333-169264, File No. 333-183747, File No. 333-186446 and File No. 333-215878).
/s/ GRANT THORNTON LLP
Raleigh, NC
May 1, 2017
Exhibit 99.1
Financial Statements and Report of
Independent Certified Public Accountants
Atlas Lighting Products, Inc.
As of December 25, 2016 and December 25, 2015 and for the years then ended
Atlas Lighting Products, Inc.
Table of contents
Report of Independent Certified Public Accountants |
1-2 | |
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Financial statements: |
| |
|
| |
Balance sheets |
3-4 | |
|
| |
Statements of operations |
5 | |
|
| |
Statements of changes in stockholders’ equity |
6 | |
|
| |
Statements of cash flows |
7 | |
|
| |
Notes to financial statements |
8-14 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|
Grant Thornton LLP 1320 Main Street Suite 500 Columbia, SC 29201
T 803.231.3100 F 803.231.3026 www.GrantThornton.com |
Board of Directors
Atlas Lighting Products, Inc.:
We have audited the accompanying financial statements of Atlas Lighting Products, Inc. (a North Carolina corporation), which comprise the balance sheets as of December 25, 2016 and 2015, and the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
|
2 |
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atlas Lighting Products, Inc. as of December 25, 2016 and 2015, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Raleigh, North Carolina
February 8, 2017
Atlas Lighting Products, Inc. |
3 |
Balance sheets
December 25 |
2016 |
2015 |
||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash |
$ | 1,657,180 | $ | 310 | ||||
Accounts receivable, net of allowance for doubtful accounts of $10,000 at December 25, 2016 and 2015, respectively |
8,887,950 | 9,781,753 | ||||||
Inventories |
9,164,382 | 10,861,666 | ||||||
Prepaid expenses and other current assets |
185,899 | 185,537 | ||||||
Total current assets |
19,895,411 | 20,829,266 | ||||||
Property and Equipment |
||||||||
Leasehold improvements |
1,170,934 | 1,109,239 | ||||||
Computer software |
1,054,803 | 966,891 | ||||||
Assembly equipment |
3,117,980 | 2,878,381 | ||||||
Office equipment |
1,101,827 | 1,058,317 | ||||||
Transportation equipment |
152,200 | 266,209 | ||||||
6,597,744 | 6,279,037 | |||||||
Less accumulated depreciation |
(3,415,826 | ) | (2,556,390 | ) | ||||
Net property and equipment |
3,181,918 | 3,722,647 | ||||||
Other Long-Term Assets |
70,548 | 54,792 | ||||||
Total assets |
$ | 23,147,877 | $ | 24,606,705 |
The accompanying notes are an integral part of these financial statements.
Atlas Lighting Products, Inc. |
4 |
Balance sheets (cont’d)
2016 |
2015 |
|||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 3,809,181 | $ | 4,324,120 | ||||
Accrued expenses |
3,342,864 | 3,668,830 | ||||||
Current portion of notes payable |
89,445 | 287,893 | ||||||
Current portion of obligations under capital leases |
6,066 | 41,970 | ||||||
Total current liabilities |
7,247,556 | 8,322,813 | ||||||
Long-term Liabilities |
||||||||
Notes payable |
173,563 | 506,290 | ||||||
Obligations under capital leases |
- | 6,067 | ||||||
Deferred rent |
360,000 | 240,000 | ||||||
Total long-term liabilities |
533,563 | 752,357 | ||||||
Stockholders' Equity |
||||||||
Common stock issued, $1 par value; Authorized 100,000 shares; Outstanding 1,429 shares |
781,083 | 781,083 | ||||||
Retained earnings |
14,585,675 | 14,750,452 | ||||||
Total stockholders' equity |
15,366,758 | 15,531,535 | ||||||
Total liabilities and stockholders' equity |
$ | 23,147,877 | $ | 24,606,705 |
The accompanying notes are an integral part of these financial statements.
Atlas Lighting Products, Inc. |
5 |
Statements of operations
For the years ended December 25 |
2016 |
2015 |
||||||
Net sales |
$ | 56,525,524 | $ | 60,779,899 | ||||
Cost of products sold |
36,031,508 | 38,421,638 | ||||||
Gross profit |
20,494,016 | 22,358,261 | ||||||
Selling and administrative expenses |
15,336,906 | 14,933,103 | ||||||
Operating income |
5,157,110 | 7,425,158 | ||||||
Interest expense |
14,608 | 24,880 | ||||||
Other expense, net |
7,279 | 65,206 | ||||||
Net income |
$ | 5,135,223 | $ | 7,335,072 |
The accompanying notes are an integral part of these financial statements.
Atlas Lighting Products, Inc. |
6 |
Statements of changes in stockholders’ equity
Common Stock |
Retained Earnings |
Total Stockholders' Equity |
||||||||||
Balance at December 25, 2014 |
$ | 781,083 | $ | 12,865,380 | $ | 13,646,463 | ||||||
Net income |
- | 7,335,072 | 7,335,072 | |||||||||
Distributions |
- | (5,450,000 | ) | (5,450,000 | ) | |||||||
Balance at December 25, 2015 |
781,083 | 14,750,452 | 15,531,535 | |||||||||
Net income |
- | 5,135,223 | 5,135,223 | |||||||||
Distributions |
- | (5,300,000 | ) | (5,300,000 | ) | |||||||
Balance at December 25, 2016 |
$ | 781,083 | $ | 14,585,675 | $ | 15,366,758 |
The accompanying notes are an integral part of these financial statements.
Atlas Lighting Products, Inc. |
7 |
Statements of cash flows
For the years ended December 25 |
2016 |
2015 |
||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 5,135,223 | $ | 7,335,072 | ||||
Non-cash items included in net income: |
||||||||
Depreciation |
991,587 | 891,593 | ||||||
Loss on disposition of property and equipment |
4,296 | 60,787 | ||||||
Changes in certain assets and liabilities: |
||||||||
Accounts receivables |
893,803 | (1,351,722 | ) | |||||
Inventories |
1,697,284 | (1,281,370 | ) | |||||
Prepaid expenses and other current assets |
(362 | ) | (42,968 | ) | ||||
Other long-term assets |
(15,756 | ) | - | |||||
Accounts payable |
(514,939 | ) | (2,346,985 | ) | ||||
Accrued expenses and other |
(205,966 | ) | (283,075 | ) | ||||
Net cash flows provided by operating activities |
7,985,170 | 2,981,332 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(566,315 | ) | (874,100 | ) | ||||
Proceeds from sales of property and equipment |
111,161 | 400 | ||||||
Net cash flows used in investing activities |
(455,154 | ) | (873,700 | ) | ||||
Cash flows from financing activities: |
||||||||
Borrowings from notes and leases payable |
3,820,671 | 16,951,720 | ||||||
Repayments on notes and leases payable |
(4,393,817 | ) | (16,717,612 | ) | ||||
Distributions to stockholders |
(5,300,000 | ) | (5,450,000 | ) | ||||
Net cash flows used in financing activities |
(5,873,146 | ) | (5,215,892 | ) | ||||
Net increase (decrease) in cash |
1,656,870 | (3,108,260 | ) | |||||
Cash at beginning of year |
310 | 3,108,570 | ||||||
Cash at end of year |
$ | 1,657,180 | $ | 310 | ||||
Supplemental schedule of cash flow information: | ||||||||
Cash paid during the year for interest | $ | 14,608 | $ | 24,880 |
The accompanying notes are an integral part of these financial statements.
Atlas Lighting Products, Inc. |
8 |
Notes to financial statements
NOTE 1 — NATURE OF BUSINESS
Atlas Lighting Products, Inc., a North Carolina corporation (the “Company”), manufactures and sells commercial and industrial lighting products to the electrical distributor market across the United States.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
Revenue is recognized when title to goods and risk of loss have passed to the customer and collectability is reasonably assured. Revenue is typically recognized upon passing of title and risk of loss at time of shipment. Sales are recorded net of estimated returns, rebates and discounts. Shipping and handling revenue coincides with the recognition of revenue from sale of the product.
Credit and Collections:
The Company maintains allowances for doubtful accounts receivable for probable estimated losses resulting from either customer disputes or the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against income. The Company determines its allowance for doubtful accounts by first considering all known collectability problems of customers’ accounts. The resulting allowance for doubtful accounts receivable is an estimate based upon the Company’s knowledge of its business and customer base, and historical trends. Receivables deemed uncollectable are written-off against the allowance for doubtful accounts receivable after all collection efforts have been exhausted. The Company also establishes allowances, at the time revenue is recognized, for returns, discounts, pricing and other possible customer deductions. These allowances are based upon historical trends.
Cash:
The cash balance consists of bank deposits and a bank money market account that is stated at cost, which approximates fair value. The Company maintains balances at financial institutions in the United States. In the United States, the FDIC limit for insurance coverage on non-interest bearing accounts is $250,000. As of December 25, 2016, the Company had bank balances of $1,406,870 without insurance coverage.
Inventories:
Inventories are stated at the lower of cost or market. Cost of inventories includes the cost of purchased raw materials and components, direct labor, as well as manufacturing overhead, which is generally applied to inventory based on direct labor and on material content. Cost is determined on the first-in, first-out basis.
Property and Equipment and Related Depreciation:
Property and equipment are stated at cost. Major additions and betterments are capitalized while maintenance and repairs are expensed.
Atlas Lighting Products, Inc. |
9 |
For financial reporting purposes, depreciation is computed using straight-line methods over the estimated useful lives of the assets as follows:
Life of lease (in years) |
||||||
Computer software |
3 | |||||
Assembly equipment |
5 | - | 10 | |||
Office equipment |
5 | - | 10 | |||
Transportation equipment |
5 |
The Company recorded $991,587 and $891,593 of depreciation expense in the years ended December 25, 2016 and 2015, respectively.
Fair Value:
The Company has financial instruments consisting primarily of cash and cash equivalents, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates. The Company has no financial instruments with off-balance sheet risk.
Product Warranties:
The Company offers a limited warranty that its products are free from defects in workmanship and materials. The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within three to five years from the date of shipment. The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation. The Company calculates its liability for warranty claims by applying estimates to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company’s warranty liabilities, which are included in accrued expenses in the accompanying balance sheets were as follows:
2016 |
2015 |
|||||||
Balance at the beginning of the year |
$ | 1,185,615 | $ | 1,517,011 | ||||
Additions charged to expense |
521,177 | 788,334 | ||||||
Deductions for repairs and replacements |
(774,081 | ) | (1,119,730 | ) | ||||
Balance at the end of the year |
$ | 932,711 | $ | 1,185,615 |
Research and Development Costs:
Research and development expenses are costs directly attributable to new product development, including the development of new technology for both existing and new products, and consist of salaries, payroll taxes, employee benefits, materials, outside legal costs and filing fees related to obtaining patents, supplies, depreciation and other administrative costs. All costs are expensed as incurred and are included in selling and administrative expenses. Research and development costs totaled $619,152 and $661,416 for the years ended December 25, 2016 and 2015, respectively.
Atlas Lighting Products, Inc. |
10 |
Cost of Products Sold:
Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of products, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity.
Shipping and Handling Costs:
Shipping costs of $1,687,415 and $2,013,004 in 2016 and 2015, respectively, are included in cost of products sold.
Customer Rebates:
The Company enters into contractual agreements for rebates with certain customers. These amounts are recorded as a reduction of gross sales and accrued for in the period in which the revenue is recognized. Accrued customer rebates, which are included in accrued expenses in the accompanying balance sheets, totaled $1,991,770 and $2,108,430 at December 25, 2016 and 2015, respectively.
Customer Returns and Allowances:
The Company may permit its customers to return or exchange products and may provide pricing allowances on products unsold by a customer. Revenue is recorded net of an allowance for estimated returns, price concessions and other discounts. Such allowance is reflected as a reduction to accounts receivable when the Company expects to grant credits for such items; otherwise, it is reflected as a liability. Provision for customer returns, which are included as a reduction to accounts receivable on the accompanying balance sheets, totaled $288,708 and $307,115 at December 25, 2016 and 2015, respectively.
Income Taxes:
The Company has elected, with the consent of its shareholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under the provisions, the Company does not pay corporate income taxes on its taxable income. Instead, the shareholders are liable for individual income taxes on their respective shares of the Company’s taxable income. Therefore, no provision or liability for federal income taxes has been included in the financial statements. The Company follows applicable authoritative guidance with respect to the accounting for uncertainty in income taxes recognized in the Company’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The Company records any interest and penalties associated as additional income tax expense in the statement of operations. Based on management’s analysis, the Company does not believe any unrecognized tax benefits existed as of December 25, 2016 or 2015.
Subsequent Events:
The Company has evaluated subsequent events for potential recognition and disclosure through February 8, 2017. Other than the following, no other items were identified during this evaluation that required adjustment to or disclosure in the accompanying financial statements.
On February 1, 2017, the Company transferred an operating lease for transportation equipment to a stockholder. Note 7 has been updated to reflect the effects of this transfer.
Use of Estimates:
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Atlas Lighting Products, Inc. |
11 |
Reclassification:
Certain amounts in the December 25, 2015 financial statements have been reclassified for comparative purposes to conform to the presentation in the December 25, 2016 financial statements. The reclassified amount of $314,198 represents a rebate received from a supplier during the year ended December 25, 2016, which was earned as of December 25, 2015. The amount was reclassified in the balance sheet from prepaid expenses and other current assets to accounts payable as of December 25, 2015.
NOTE 3 — INVENTORIES
The following information is provided as of December 25:
2016 |
2015 |
|||||||
Inventories: |
||||||||
Raw materials |
$ | 6,948,540 | $ | 9,020,678 | ||||
Finished goods |
2,215,842 | 1,840,948 | ||||||
$ | 9,164,382 | $ | 10,861,666 |
NOTE 4 — ACCRUED EXPENSES
The following information is provided as of December 25:
2016 |
2015 |
|||||||
Accrued expenses: |
||||||||
Compensation and benefits |
$ | 418,383 | $ | 374,785 | ||||
Accrued customer rebates |
1,991,770 | 2,108,430 | ||||||
Provision for warranty expenses |
932,711 | 1,185,615 | ||||||
$ | 3,342,864 | $ | 3,668,830 |
Atlas Lighting Products, Inc. |
12 |
NOTE 5 — REVOLVING LINES OF CREDIT AND LONG-TERM DEBT
The following information is provided as of December 25:
2016 |
2015 |
|||||||
Revolving line of credit due to a financial institution for the lesser of $4,000,000 or the sum of 80% of eligible accounts receivable and 60% of eligible inventory, as defined. Borrowings under the line of credit bear interest at prime less 0.45% (3.30% at December 25, 2016) annually and are secured by accounts receivable and inventory. The line of credit is subject to certain financial covenants and restrictions. As of December 25, 2016, the Company was not in compliance with certain covenants; however, the Company obtained a waiver. The line of credit has a maturity date of March 2018. |
$ | - | $ | 243,492 | ||||
Promissory note due to a financial institution, which bears interest at 2.65% annually and has a maturity date of March 2017. Payments of principal and interest totaling $19,525 are due monthly and the note is unsecured. |
30,072 | 260,188 | ||||||
Promissory note due to a financial institution which bears interest at 3.09% annually and has a maturity date of August 2020. Payments of principal and interest totaling $5,489 are due monthly and the note is secured by office equipment. |
232,936 | 290,530 | ||||||
263,008 | 794,183 | |||||||
Less current portion |
89,445 | 287,893 | ||||||
Long-term obligations under notes payable |
$ | 173,563 | $ | 506,290 |
Atlas Lighting Products, Inc. |
13 |
The future maturities of notes payable are as follows:
Year Ending | ||||||||
December 25, |
Amount |
|||||||
2017 |
$ | 89,445 | ||||||
2018 |
61,378 | |||||||
2019 |
63,301 | |||||||
2020 |
48,884 | |||||||
$ | 263,008 |
NOTE 6 — OBLIGATIONS UNDER CAPITAL LEASES
The Company is the lessee of certain equipment under agreements classified as capital leases. The cost of equipment under capitalized leases totaled $26,450 and $150,659 at December 25, 2016 and 2015, respectively, with accumulated amortization of $8,512 and $52,539 at December 25, 2016 and 2015, respectively. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of December 25, 2016 are as follows:
Year Ending |
||||||||
December 25, |
Amount |
|||||||
Minimum lease payments |
2017 |
6,134 | ||||||
Less amount representing interest |
68 | |||||||
Present value of minimum lease payments |
6,066 | |||||||
Less current portion |
6,066 | |||||||
Long-term obligations under capital leases |
$ | - |
NOTE 7 — OPERATING LEASES
The Company leases its operating facility from an entity owned by related parties. The lease provides for monthly payments of $70,000 through December 2018, $80,000 from January 2019 through December 2023, and $90,000 from January 2024 through December 2028. The lease contains a renewal option for an additional five years.
The Company leases certain equipment under long-term agreements classified as operating leases, which expire on various dated through 2019 and contain renewal options.
Atlas Lighting Products, Inc. |
14 |
Rent expense incurred under these operating leases was $1,175,915 and $1,182,924 for 2016 and 2015, respectively. The future minimum rental payments required under the operating lease are as follows:
Year Ending | ||||||||
December 25, | Amount | |||||||
2017 |
$ | 858,144 | ||||||
2018 |
840,000 | |||||||
2019 |
960,000 | |||||||
2020 |
960,000 | |||||||
2021 |
960,000 | |||||||
Thereafter |
7,320,000 | |||||||
$ | 11,898,144 |
NOTE 8 — COMMITMENTS AND CONTINGENCIES
The Company is party to various negotiations 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.
NOTE 9 — CONCENTRATIONS
The Company’s largest customer accounted for 13.0% and 12.1% of sales in 2016 and 2015, respectively. At December 25, 2016 and 2015, respectively, two customers accounted for 37.3% and 38.4% of total accounts receivable.
The Company’s largest supplier accounted for 12.4% and 13.2% of purchases in 2016 and 2015, respectively. At December 25, 2016 and 2015, respectively, two suppliers accounted for 35.8% and 44.5% of total accounts payable.
NOTE 10 — RELATED-PARTY TRANSACTIONS
The Company had related-party accounts receivable in the amount of $238,026 and $194,528 at December 25, 2016 and 2015, respectively, which represents amounts due from a company related through common ownership. The Company had accounts payable in the amount of $612 and $3,727 due to the same related party at December 25, 2016 and 2015, respectively. The Company had sales of $1,915,841 and $1,790,640 to this related party in 2016 and 2015, respectively. The Company also purchased $75,200 and $52,484 in goods from this related party in 2016 and 2015, respectively.
NOTE 11 — DEFINED CONTRIBUTION PLAN
The Company maintains a 401(k) plan that qualifies as tax-exempt under Section 401(k) of the Internal Revenue Code which covers substantially all employees who have completed annually at least 1,000 hours of continuous service. The Company did not make any employer matching contributions to the 401(k) plan for the years ended December 25, 2016 and 2015, respectively.
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
On February 21, 2017, LSI Industries Inc. (LSI or Company) completed the acquisition of all the capital stock of Atlas Lighting Products, Inc. (Atlas) a Burlington, North Carolina manufacturer of high-quality LED lighting products for $97.5 million, which consisted of a cash payment of $96.9 million and an aggregate value of $0.6 million related to 200,000 five-year stock warrants with a fair value of $2.87 per warrant. The following unaudited pro forma condensed combined financial information has been prepared to give effect to the acquisition by LSI using the acquisition method of accounting with the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2016 and the year end June 30, 2016 combine the historical statements of operations of LSI and Atlas, adjusted to reflect the pro forma effect as if the acquisition of Atlas occurred on July 1, 2015 (the first day of the Company’s 2016 fiscal year). The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of LSI and Atlas as of December 31, 2016 and reflects the pro forma effect as if the acquisition of Atlas occurred on that date. LSI’s historical consolidated financial statements referred to above were included in its Quarterly Report on Form 10-Q for the six months ended December 31, 2016 and Annual Report on Form 10-K for the year ended June 30, 2016. Atlas’s historical financial statements are reported for the comparable periods and are included in this Current Report on Form 8K/A. The accompanying unaudited pro forma condensed combined financial information and the historical consolidated financial information presented therein should be read in conjunction with the historical consolidated financial statements and notes thereto for LSI described above. The historical statements of Atlas have been adjusted to conform to the Company’s financial statement presentation.
The unaudited pro forma condensed combined balance sheet and statements of operations include pro forma adjustments which reflect transactions and events that are directly attributed to the acquisition and are factually supportable and with respect to the statements of operations, and are expected to have a continuing impact on the combined results. The pro forma adjustments are described in the accompanying notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2016 and the year end June 30, 2016 are presented for illustrative purposes only and are not necessarily indicative of the results of operations that would have actually been reported had the acquisition occurred on July 1, 2015, nor are they necessarily indicative of the future results of the operations. The unaudited pro forma condensed combined statements of operations and pro forma condensed combined balance sheet include adjustments to reflect the allocation of the purchase price to the acquired assets and assumed liabilities of Atlas.
LSI Industries Inc. |
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Unaudited Pro Forma Condensed Combined Balance Sheet |
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December 31, 2016 |
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(amounts in thousands) |
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Historical |
Historical Atlas |
Pro Forma |
Pro Forma |
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LSI |
Lighting |
Adjustments |
Total |
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Assets: |
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Current Assets |
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Cash |
$ | 33,023 | $ | 1,657 | $ | (30,893) | A | $ | 3,787 | |||||||
Accounts Receivable |
49,541 | 8,888 | - | 58,429 | ||||||||||||
Inventories |
42,404 | 9,164 | 228 | B | 51,796 | |||||||||||
Asset Held for Sale |
3,176 | - | - | 3,176 | ||||||||||||
Prepaids and Other Current Assets |
2,996 | 186 | - | 3,182 | ||||||||||||
Total Current Assets |
131,140 | 19,895 | (30,665) | 120,370 | ||||||||||||
Property, Plant and Equipment |
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Land |
6,422 | - | - | 6,422 | ||||||||||||
Leasehold Improvements |
- | 1,171 | - | 1,171 | ||||||||||||
Buildings |
34,654 | - | - | 34,654 | ||||||||||||
Machinery and Equipment |
78,908 | 5,427 | 526 | C | 84,861 | |||||||||||
Construction in Progress |
1,697 | - | - | 1,697 | ||||||||||||
Less; Accumulated Depreciation |
(78,255 | ) | (3,416 | ) | - | (81,671 | ) | |||||||||
Net Property, Plant, and Equipment |
43,426 | 3,182 | 526 | 47,134 | ||||||||||||
Goodwill |
10,508 | - | 47,097 | D | 57,605 | |||||||||||
Intangible Assets |
5,378 | - | 34,319 | E | 39,697 | |||||||||||
Other Long-Term Assets |
5,384 | 71 | - | 5,455 | ||||||||||||
Total Assets |
$ | 195,836 | $ | 23,148 | $ | 51,277 | $ | 270,261 | ||||||||
Liabilities and Shareholders' Equity |
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Current Liabilities |
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Current portion of long-term debt and lease obligations |
$ | - | $ | 96 | $ | - | $ | 96 | ||||||||
Accounts Payable |
13,917 | 3,809 | - | 17,726 | ||||||||||||
Accrued Expenses |
22,980 | 3,343 | 1,480 | I | 27,803 | |||||||||||
Total Current Liabilities |
36,897 | 7,248 | 1,480 | 45,625 | ||||||||||||
Long-Term Debt |
- | 173 | 66,000 | A | 66,173 | |||||||||||
Other Long-Term Liabilities |
1,119 | 360 | 69 | F | 1,548 | |||||||||||
Shareholders' Equity |
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Common Stock |
115,631 | 781 | (206) | G, H | 116,206 | |||||||||||
Retained Earnings |
42,189 | 14,586 | (16,066) | G, I | 40,707 | |||||||||||
Total Shareholders' Equity |
157,820 | 15,367 | (16,272) | 156,915 | ||||||||||||
Total Liabilities and Shareholders' Equity |
$ | 195,836 | $ | 23,148 | $ | 51,277 | $ | 270,261 |
LSI Industries Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Six months ended December 31, 2016
(amounts in thousands, except per share data)
Historical | ||||||||||||||||
Historical |
Atlas |
Pro Forma | Pro Forma | |||||||||||||
LSI |
Lighting |
Adjustments |
Total |
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Net Sales |
$ | 169,817 | $ | 28,281 | $ | - | $ | 198,098 | ||||||||
Cost of Products and Services Sold |
126,432 | 18,020 | (120) | J | 144,332 | |||||||||||
Restructuring Costs |
1,143 | - | - | 1,143 | ||||||||||||
42,242 | 10,261 | 120 | 52,623 | |||||||||||||
Gross Profit |
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Restructuring Costs |
210 | - | - | 210 | ||||||||||||
Selling and Administrative Expenses |
38,148 | 8,614 | 772 | K,L,M | 47,534 | |||||||||||
Operating Income |
3,884 | 1,647 | (652) | 4,879 | ||||||||||||
Interest (Income) |
(55) | - | 66 | N | 11 | |||||||||||
Interest Expense |
21 | 6 | 735 | N | 762 | |||||||||||
Income before Income Taxes |
3,918 | 1,641 | (1,453) | 4,106 | ||||||||||||
Income Tax Expense |
1,083 | - | 270 | O | 1,353 | |||||||||||
Net Income |
$ | 2,835 | $ | 1,641 | $ | (1,723) | $ | 2,753 | ||||||||
Earnings Per Share |
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Basic |
$ | 0.11 | $ | 0.11 | ||||||||||||
Diluted |
$ | 0.11 | $ | 0.11 | ||||||||||||
Weighted Average Common Shares Outstanding |
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Basic |
25,294 | 25,294 | ||||||||||||||
Diluted |
25,859 | 25,859 |
LSI Industries Inc.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Twelve months ended June 30, 2016
(amounts in thousands, except per share data)
Historical | ||||||||||||||||
Historical |
Atlas |
Pro Forma | Pro Forma | |||||||||||||
LSI |
Lighting |
Adjustments |
Total |
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Net Sales |
$ | 322,196 | $ | 59,454 | $ | - | $ | 381,650 | ||||||||
Cost of Products and Services Sold |
238,525 | 37,773 | (241) | J | 276,057 | |||||||||||
Gross Profit |
83,671 | 21,681 | 241 | 105,593 | ||||||||||||
Selling and Administrative Expenses |
69,715 | 15,466 | 2,149 | K,L,M | 87,330 | |||||||||||
Operating Income |
13,956 | 6,215 | (1,908) | 18,263 | ||||||||||||
Interest (Income) |
(84 | ) | - | 132 | N | 48 | ||||||||||
Interest Expense |
36 | 23 | 1,470 | N | 1,529 | |||||||||||
Income before Income Taxes |
14,004 | 6,192 | (3,510) | 16,686 | ||||||||||||
Income Tax Expense |
4,522 | - | 985 | O | 5,507 | |||||||||||
Net Income |
$ | 9,482 | $ | 6,192 | $ | (4,495) | $ | 11,179 | ||||||||
Earnings Per Share |
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Basic |
$ | 0.38 | $ | 0.45 | ||||||||||||
Diluted |
$ | 0.37 | $ | 0.44 | ||||||||||||
Weighted Average Common Shares Outstanding |
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Basic |
24,988 | 24,988 | ||||||||||||||
Diluted |
25,592 | 25,592 |
LSI INDUSTRIES INC.
NOTES TO THE UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements are based upon the historical consolidated financial statements of LSI Industries Inc. (LSI or Company) which were included in its Quarterly Report on Form 10-Q for the six months ended December 31, 2016 and Annual Report on Form 10-K for the year ended June 30, 2016 and the historical financial statements of Atlas Lighting Products, Inc. (Atlas) are reported for the comparable periods and are included in this Current Report on Form 8K/A. The unaudited pro forma condensed combined statements of operations for the six months ended December 31, 2016 and the year end June 30, 2016 combine the historical statements of operations of LSI and Atlas, adjusted to reflect the pro forma effect as if the acquisition of Atlas occurred on July 1, 2015 (the first day of the Company’s 2016 fiscal year). The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of LSI and Atlas as of December 31, 2016 and reflects the pro forma effect as if the acquisition of Atlas occurred on that date.
In accordance with generally accepted accounting principle, the acquisition of Atlas by LSI is being accounted for using the acquisition method of accounting. As a result, the unaudited condensed combined balance sheet has been adjusted to reflect the allocation of the purchase price to the identified assets and assumed liabilities based upon the Company’s fair value assessment and the excess purchase price to goodwill. The purchase price allocation in these unaudited pro forma condensed combined financial statements is based upon the purchase price of $97.5 million which consists of $96.9 million cash and 200,000 warrants with a fair market value of $2.87 per warrant.
Pro Forma Adjustments
A. |
Cash paid for the acquisition of Atlas from the Company’s available cash with the difference of the cash consideration coming from the Company’s Line of Credit. | |
B. |
Fair value adjustment of Atlas’s finished good inventory. | |
C. |
Fair value adjustment of Atlas’s fixed assets. | |
D. | The value of goodwill as of December 31, 2016. | |
E. |
Fair value adjustment of Atlas’s intangible assets. | |
F. |
Includes an estimated liability for uncertain tax positions of Atlas of $406,000 and an accrued liability for paid time off of $23,000 partially offset by the elimination of a deferred rent liability of $360,000. |
|
G. |
Elimination of the Atlas’s common stock and retained earnings. |
H. |
Stock warrants issued as part of the purchase consideration. 200,000 warrants were issued at a fair market value of $2.87 per warrant with an aggregate fair value of $0.6 million. The fair value of the warrants was determined as of the date of acquisition. | |
|
I. |
Acquisition deal costs of $1.48 million. |
J. |
The decrease in depreciation expense is a result of the fair value adjustments and re-evaluation of useful lines of Atlas’s fixed assets. The decrease in depreciation expense over a six month period will approximate $120,000 and the decrease in depreciation expense over a twelve month period will approximate $241,000. | |
|
K. |
The elimination of certain private company expenses. Private company expenses removed from the combined results approximate $785,000 for the six month period and $964,000 for the twelve month period. Certain executive salary amounts which approximate $1.3 million in the six month and $2.5 million in the twelve month period are included in the unaudited proforma condensed combined statements of operations. These salary amounts are not anticipated to continue. |
|
L. |
Amortization expense of Atlas’s intangible assets. Amortization expense for the six month period is $1.207 million and $2.413 million for the twelve month period. |
|
M. |
The increase in expenses that Atlas will incur as a result of its integration into LSI. Costs include audit fees, compensation and benefit expense, a representation and warranty insurance policy related to the acquisition of Atlas, offset with known property and casualty insurance cost savings. Additional costs approximate $350,000 for six months and $700,000 for twelve months. |
|
N. |
The increase in interest expense is the result of the interest expense incurred on the funds borrowed to purchase Atlas. Assumed an average loan balance of $58 million over the period reported at a borrowing rate of 2.534% approximates $1.5 million of interest expense over a twelve month period and $0.7 million over a six month period. Also, interest income generated on invested cash was reduced to purchase Atlas. Assumed the reduction of $33 million of invested funds at an interest rate of 0.4% which approximates $132,000 for the twelve month period and $66,000 for the six month period. |
|
O. |
Adjust income tax to reflect an effective tax rate of 33% |
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