SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-13375

LSI Industries Inc.

State of Incorporation — Ohio IRS Employer I.D. No. 31-0888951

10000 Alliance Road

Cincinnati, Ohio 45242

(513) 793-3200

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, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes o No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of January 23, 2009 there were 21,570,299 shares of the Registrant’s common stock outstanding.

 

 

LSI INDUSTRIES INC.
FORM 10-Q/A
FOR THE QUARTER ENDED DECEMBER 31, 2008

INDEX

		Begins on
		Page
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Balance Sheets			5
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			38
ITEM 4. Controls and Procedures			38
PART II. Other Information
ITEM 1A. Risk Factors			39
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			40
ITEM 4. Submission of Matters to a Vote of Security Holders			41
ITEM 6. Exhibits			41
Signatures			41
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Explanatory Note

This Amendment No. 1 on Form 10-Q/A (“Amendment” or “Form 10-Q/A”), which amends and restates items identified below with respect to the Form 10-Q, filed by LSI Industries Inc. (“we” or the “Company”) with the Securities and Exchange Commission (the “Commission”) on January 30, 2009 (the “Original Filing”), is being filed to amend information in Part I. Item 1 (Financial Statements), Part I. Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Part I. Item 4 (Controls and Procedures) and Part II. Item 6 (Exhibits) to correct an immaterial overstatement of our goodwill and intangible asset impairment charge, to correct the composition of our reportable segments, and to correct other immaterial errors. See Note 13 to the Condensed Consolidated Financial Statements for additional information. Management also revised its conclusion related to the effectiveness of internal control over financial reporting. See Item 4, Controls and Procedures, for a description of the material weakness. The other Items as presented in the Original Filing are not being restated but are included without change in this Amendment for ease of reference. As a result of this Amendment, the Certification of Principal Executive Officer and Certification of Principal Financial Officer required by Rule 13a-14(a) and the 18 U.S.C. Section 1350 Certification of Principal Executive Officer and Principal Financial Officer, filed as exhibits to our Original Filing have been revised, re-executed and re-filed as of the date of this Amendment. Except for the foregoing amended and restated information, this Amendment continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that have occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events unless otherwise indicated in this report. Among other things, except as may be otherwise provided in this report, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that have occurred or facts that have become known to us after the date of the Original Filing, and such forward looking statements should be read in their historical context.

This Amendment should be read in conjunction with the Company’s filings made with the SEC subsequent to the Original Filing, including any amendments to those filings.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

This Form 10-Q/A contains certain forward-looking statements that are subject to numerous assumptions, risks or uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “may,” “will,” “should” or the negative versions of those words and similar expressions, and by the context in which they are used. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Actual results could differ materially from those contained in or implied by such forward-looking statements as a result of a variety of risks and uncertainties. These risks and uncertainties include, but are not limited to, the impact of competitive products and services, product demand and market acceptance risks, reliance on key customers, financial difficulties experienced by customers, the adequacy of reserves and allowances for doubtful accounts, fluctuations in operating results or costs, unexpected difficulties in integrating acquired businesses, the ability to retain key employees of acquired businesses, unfavorable economic and market conditions, the results of asset impairment assessments, and the other risk factors that are identified herein. In addition to the factors described in this paragraph, the risk factors identified in our Form 10-K/A constitute risks and uncertainties that may affect the financial performance of the Company and are incorporated herein by reference. The Company has no obligation to update any forward-looking statements to reflect subsequent events or circumstances.

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended								Six Months Ended
		December 31								December 31
(in thousands, except per share data)		2008				2007				2008				2007
Net sales			60,787				84,062				136,625				174,063
Cost of products and services sold			47,530				60,603				105,189				124,853
Gross profit			13,257				23,459				31,436				49,210
Selling and administrative expenses			14,014				15,750				27,977				30,775
Goodwill impairment			13,250				—				13,250				—
Operating income (loss)			(14,007	)			7,709				(9,791	)			18,435
Interest (income)			(45	)			(98	)			(83	)			(250	)
Interest expense			44				18				87				38
Income (loss) before income taxes			(14,006	)			7,789				(9,795	)			18,647
Income tax expense (benefit)			(629	)			2,966				895				6,871
Net income (loss)		$	(13,377	)		$	4,823			$	(10,690	)		$	11,776
Earnings (loss) per common share (see Note 5)
Basic		$	(0.61	)		$	0.22			$	(0.49	)		$	0.54
Diluted		$	(0.61	)		$	0.22			$	(0.49	)		$	0.53
Weighted average common shares outstanding
Basic			21,799				21,759				21,798				21,737
Diluted			21,799				22,063				21,798				22,036

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

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

		December 31,				June 30,
(In thousands, except share amounts)		2008				2008
ASSETS
Current Assets
Cash and cash equivalents		$	8,227			$	6,992
Accounts receivable, net			35,221				38,857
Inventories			43,918				50,509
Refundable income taxes			167				1,834
Other current assets			5,817				6,111
Total current assets			93,350				104,303
Property, Plant and Equipment, net			42,704				44,754
Goodwill, net			2,775				16,025
Other Intangible Assets, net			14,021				15,060
Other Assets, net			4,776				4,072
TOTAL ASSETS		$	157,626			$	184,214
LIABILITIES & SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	10,675			$	15,452
Accrued expenses			9,098				15,988
Total current liabilities			19,773				31,440
Long-Term Debt			—				—
Other Long-Term Liabilities			3,087				3,584
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 30,000,000 shares; Outstanding 21,569,894 and 21,585,390 shares, respectively			82,245				81,665
Retained earnings			52,521				67,525
Total shareholders’ equity			134,766				149,190
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY		$	157,626			$	184,214

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

LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Six Months Ended
		December 31
(In thousands)		2008				2007
Cash Flows from Operating Activities
Net income (loss)		$	(10,690	)		$	11,776
Non-cash items included in net income (loss)
Depreciation and amortization			3,976				4,471
Goodwill impairment			13,250				—
Deferred income taxes			(527	)			49
Deferred compensation plan			76				97
Stock option expense			645				599
Issuance of common shares as compensation			20				20
Loss on disposition of fixed assets			1				—
Allowance for doubtful accounts			234				92
Inventory obsolescence reserve			220				176
Changes in
Accounts receivable, gross			3,402				12,863
Inventories, gross			6,371				(1,190	)
Accounts payable and other			(9,443	)			(10,209	)
Customer prepayments			(937	)			(11,430	)
Net cash flows from operating activities			6,598				7,314
Cash Flows from Investing Activities
Purchases of property, plant and equipment			(888	)			(2,543	)
Proceeds from sale of fixed assets			—				1
Proceeds from sale of short-term investments			—				8,000
Net cash flows from (used in) investing activities			(888	)			5,458
Cash Flows from Financing Activities
Payment of long-term debt			(1,282	)			(958	)
Proceeds from issuance of long-term debt			1,282				958
Cash dividends paid			(4,314	)			(7,107	)
Exercise of stock options			—				848
Purchase of treasury shares			(161	)			(215	)
Issuance of treasury shares			—				28
Net cash flows (used in) financing activities			(4,475	)			(6,446	)
Increase in cash and cash equivalents			1,235				6,326
Cash and cash equivalents at beginning of year			6,992				2,731
Cash and cash equivalents at end of period		$	8,227			$	9,057
Supplemental Cash Flow Information
Interest paid		$	56			$	39
Income taxes paid		$	346			$	9,087
Issuance of common shares as compensation		$	20			$	20

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

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 December 31, 2008, and the results of its operations for the periods ended December 31, 2008 and 2007, and its cash flows for the periods ended December 31, 2008 and 2007. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2008 annual report. Financial information as of June 30, 2008 has been derived from the Company’s audited consolidated financial statements.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation:

The consolidated financial statements include the accounts of LSI Industries Inc. (an Ohio corporation) and its subsidiaries, all of which are wholly owned. All intercompany transactions and balances have been eliminated.

Revenue Recognition:

The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition.” Revenue is recognized when title to goods and risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services have been rendered, and collectibility is reasonably assured. Revenue is typically recognized at time of shipment. Sales are recorded net of estimated returns, rebates and discounts. Amounts received from customers prior to the recognition of revenue are accounted for as customer pre-payments and are included in accrued expenses.

The Company has four sources of revenue: revenue from product sales; revenue from installation of products; service revenue generated from providing integrated design, project and construction management, site engineering and site permitting; and revenue from shipping and handling.

Product revenue is recognized on product-only orders upon passing of title and risk of loss, generally at time of shipment. However, product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed. Other than normal product warranties or the possibility of installation or post-shipment service, support and maintenance of certain solid state LED video screens, billboards, or active digital signage, the Company has no post-shipment responsibilities.

Installation revenue is recognized when the products have been fully installed. The Company is not always responsible for installation of products it sells and has no post-installation responsibilities, other than normal warranties.

Service revenue from integrated design, project and construction management, and site permitting is recognized when all products have been installed at each individual retail site of the customer on a proportional performance basis.

Shipping and handling revenue coincides with the recognition of revenue from sale of the product.

The Company evaluates the appropriateness of revenue recognition in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables,” and AICPA Statement of Position (SOP) 97-2, “Software Revenue Recognition.” Our solid-state LED video screens, billboards and active digital signage contain software elements which the Company has determined are incidental and excluded from the scope of SOP 97-2.

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 collectibility problems of customers’ accounts, and then applying certain percentages against the various aging categories of the remaining receivables. 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. The Company also establishes allowances, at the time revenue is recognized, for returns and allowances, discounts, pricing and other possible customer deductions. These allowances are based upon historical trends.

The following table presents the Company’s net accounts receivable at the dates indicated.

		December 31,				June 30,
(In thousands)		2008				2008
Accounts receivable		$	36,040			$	39,442
less Allowance for doubtful accounts			(819	)			(585	)
Accounts receivable, net		$	35,221			$	38,857

Facilities Expansion Tax Incentive and Credits:

The Company periodically receives either tax incentives or credits for state income taxes when it expands a facility and/or its level of employment in certain states within which it operates. A tax incentive is amortized to income over the time period that the state could be entitled to return of the tax incentive if the expansion or job growth were not maintained, and is recorded as a reduction of either manufacturing overhead or administrative expenses. A credit is amortized to income over the time period that the state could be entitled to return of the credit if the expansion were not maintained, is recorded as a reduction of state income tax expense, and is subject to a valuation allowance review if the credit cannot immediately be utilized.

Short-Term Investments:

Short-term investments consist of tax free (federal) investments in high grade government agency backed bonds for which the interest rate resets weekly and the Company has a seven day put option. These investments are classified as available-for-sale securities and are stated at fair market value, which represents the most recent reset amount at period end. The Company invested in these types of short-term investments during the first half of fiscal 2008. There were no such investments in the first half of fiscal 2009.

Cash and Cash Equivalents:

The cash balance includes cash and cash equivalents which have original maturities of less than three months. At December 31, 2008 and June 30, 2008, the bank balances included $0 and $3,376,000, respectively, in excess of FDIC insurance limits.

Inventories:

Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis.

Property, Plant and Equipment and Related Depreciation:

Property, plant and equipment are stated at cost. Major additions and betterments are capitalized while maintenance and repairs are expensed. For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets as follows:

Buildings		31 – 40 years
Machinery and equipment		3 – 10 years
Computer software		3 – 8 years

Costs related to the purchase, internal development, and implementation of the Company’s fully integrated enterprise resource planning/business operating software system are either capitalized or expensed in accordance with the American Institute of Certified Public Accountants’ Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The current business operating software was first implemented in January 2000. All costs capitalized for the business operating software are being depreciated over an eight year life from the date placed in service. Other purchased computer software is being depreciated over periods ranging from three to five years. Leasehold improvements are depreciated over the shorter of fifteen years or the remaining term of the lease.

The following table presents the Company’s property, plant and equipment at the dates indicated.

		December 31,				June 30,
(In thousands)		2008				2008
Property, plant and equipment, at cost		$	102,778			$	102,132
less Accumulated depreciation			(60,074	)			(57,378	)
Property, plant and equipment, net		$	42,704			$	44,754

The Company recorded $1,466,000 and $1,666,000 of depreciation expense in the second quarter of fiscal 2009 and 2008, respectively, and $2,937,000 and $3,307,000 of depreciation expense in the first half of fiscal 2009 and 2008, respectively.

Intangible Assets:

Intangible assets consisting of customer relationships, trade names and trademarks, patents, technology and software, and non-compete agreements are recorded on the Company’s balance sheet. The definite-lived intangible assets are being amortized to expense on a straight line basis over periods ranging between two and twenty years. The excess of cost over fair value of assets acquired (“goodwill”) is not amortized but is subject to review for impairment. See additional information about goodwill and intangibles in Note 7. The Company periodically evaluates intangible assets for permanent impairment.

Fair Value of Financial Instruments:

The Company has financial instruments consisting primarily of cash and cash equivalents, short-term investments, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates. The Company has no financial instruments with off-balance sheet risk.

Product Warranties:

The Company offers a limited warranty that its products are free of defects in workmanship and materials. The specific terms and conditions vary somewhat by product line, but generally cover defects returned within one to five years from 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 consolidated balance sheets, during the periods indicated below were as follows:

		December 31,				June 30,
(In thousands)		2008				2008
Balance at beginning of the period		$	257			$	314
Additions charged to expense			321				1,141
Deductions for repairs and replacements			(352	)			(1,198	)
Balance at end of the period		$	226			$	257

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. 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 (see Note 12).

Research and Development Costs:

Research and development expenses are costs directly attributable to new product development and consist of salaries, payroll taxes, employee benefits, materials, supplies, depreciation and other administrative costs. All costs are expensed as incurred and are classified as operating expenses. Research and development costs incurred total $1,035,000 and $875,000 for the three month periods ended December 31, 2008 and 2007, respectively, and $2,066,000 and $1,719,000 for the six month periods ended December 31, 2008 and 2007, respectively.

Earnings Per Common Share:

The computation of basic earnings per common share is based on the weighted average common shares outstanding for the period net of treasury shares held in the Company’s non-qualified deferred compensation plan. The computation of diluted earnings per share is based on the weighted average common shares outstanding for the period and includes common share equivalents. Common share equivalents include the dilutive effect of stock options, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled zero shares and 304,000 shares for the three months ended December 31, 2008 and 2007, respectively, and zero shares and 299,000 shares for the six months ended December 31, 2008 and 2007, respectively. See also Note 5.

Stock Options:

There were no disqualifying dispositions of shares from stock option exercises in the first six months of fiscal 2009. The Company recorded $212,300 in the first six months of fiscal 2008 as a reduction of federal income taxes payable, $205,900 as an increase in additional paid in capital, and $6,400 as a reduction of income tax expense to reflect the tax credits it will receive as a result of disqualifying dispositions of shares from stock option exercises. This had the effect of reducing cash flow from operating activities and increasing cash flow from financing activities by $205,900. See further discussion in Note 11.

New Accounting Pronouncements:

In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.” FIN 48 provides guidance for the recognition, measurement, classification and disclosure of the financial statement effects of a position taken or expected to be taken in a tax return (“tax position”). The financial statement effects of a tax position must be recognized when there is a likelihood of more than 50 percent that based on the technical merits, the position will be sustained upon examination and resolution of the related appeals or litigation processes, if any. A tax position that meets the recognition threshold must be measured initially and subsequently as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority. In addition, FIN 48 specifies certain annual disclosures that are required to be made once the interpretation has taken effect. The interpretation was effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of FIN 48 on July 1, 2007. As a result of adoption, the Company recognized a $2,582,000 increase to reserves for uncertain tax positions and recorded a charge of $2,582,000 to the July 1, 2007 retained earnings balance. For additional information, see Note 9 to the Condensed Consolidated Financial Statements.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” This Statement provides a new definition of fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, or the Company’s fiscal year 2009. Two FASB Staff Positions (FSP) were subsequently issued. In February 2007, FSP No. 157-2 delayed the effective date of this SFAS No. 157 for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008, or the Company’s fiscal year 2010. FSP No. 157-1, also issued in February 2007, excluded FASB No. 13 “Accounting for Leases” and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under FASB No. 13. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under FASB Statement No. 141, “Business Combinations” or FASB No. 141R, “Business Combinations.” This FSP is effective upon initial adoption of SFAS No. 157. The Company adopted SFAS No. 157 on July 1, 2008, and the adoption did not have any significant impact on its consolidated results of operations, cash flows or financial position. The Company determined that it does not have any financial assets or liabilities subject to the disclosure requirements of SFAS No. 157, and is evaluating the impact on its non-financial assets and liabilities.

In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, SFAS No. 159 specifies that all subsequent changes in fair value for that instrument shall be reported in earnings. The objective of the pronouncement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, or in the Company’s case, July 1, 2008. The Company has not made any fair value elections under SFAS No. 159 and, as a result, this Statement did not have any impact on its consolidated results of operations, cash flows or financial position.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations,” which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition related costs as incurred. SFAS No. 141R is effective beginning July 1, 2009 and will apply prospectively to business combinations completed on or after that date.

Comprehensive Income:

The Company does not have any comprehensive income items other than net income.

Reclassifications:

Immaterial reclassifications may have been made to prior year amounts in order to be consistent with the presentation for the current year, including elimination of the separate breakout of Net Sales — Installation and Services on the face of the Condensed Consolidated Statements of Operations because the amount is less than 10% of total net sales.

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.

NOTE 3: MAJOR CUSTOMER CONCENTRATIONS

The Company sells both lighting and graphics products into its most significant market, the petroleum / convenience store market, with approximately 22% and 34% of total net sales concentrated in this market for the three months ended December 31, 2008 and 2007, respectively and approximately 21% and 32% of total net sales concentrated in this market for the six month periods ended December 31, 2008 and 2007, respectively.

The Company’s net sales to a major customer in the Graphics Segment, 7-Eleven, Inc., represented approximately $17,490,000, or 10% of consolidated net sales in the six months ended December 31, 2007.

NOTE 4: BUSINESS SEGMENT INFORMATION

Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim 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 President and Chief Executive Officer) in making decisions on how to allocate resources and assess performance. While the Company has twelve operating segments, it has only three reportable operating business segments (Lighting, Graphics, and Technology) and an All Other Category.

The Lighting Segment includes outdoor, indoor, and landscape lighting that has been fabricated and assembled for the commercial, industrial and multi-site retail lighting markets, including the petroleum/convenience store market. The Lighting Segment includes the operations of LSI Ohio Operations, LSI Metal Fabrication, LSI MidWest Lighting, LSI Lightron and LSI Greenlee Lighting. These operations have been integrated, have similar economic characteristics and meet the other requirements for aggregation in segment reporting.

The Graphics Segment designs, manufactures and installs exterior and interior visual image elements related to image programs, solid-state LED digital advertising and sports video screens. These products are used in visual image programs in several markets, including the petroleum/convenience store market, multi-site retail operations, sports and advertising. The Graphics Segment includes the operations of Grady McCauley, LSI Retail Graphics and LSI Integrated Graphic Systems, which have been aggregated as such facilities manufacture two-dimensional graphics with the use of screen and digital printing, fabricate three-dimensional structural graphics sold in the multi-site retail and petroleum/convenience store markets, and exhibit each of the similar economic characteristics and meet the other requirements for aggregation in segment reporting.

The Technology Segment designs and produces high-performance light engines, large format video screens using solid-state LED (light emitting diode) technology, and certain specialty LED lighting. The primary markets served with LED video screens are the entertainment market, outdoor advertising billboard and sports markets not served by our Graphics Segment. The Technology Segment includes the operations of LSI Saco Technologies.

The All Other Category includes the Company’s operating segments that do not meet the aggregation criteria, nor the criteria to be a separate reportable segment. Operations of LSI Marcole (electrical wire harnesses), LSI Images (menu board systems), and LSI Adapt (surveying, permitting and installation management services related to products of the Graphics Segment) are combined in the All Other Category. Additionally, the Company’s Corporate Administration expense is included in the All Other Category.

The Company recorded an impairment of goodwill in the second quarter of fiscal 2009 in the amount of $13,250,000. This non-cash charge is included in the Lighting Segment in the amount of $11,185,000, in the Graphics Segment in the amount of $716,000, and in the All Other Category in the amount of $1,349,000. See further discussion in Note 7.

Summarized financial information for the Company’s reportable business segments for the three and six months ended December 31, 2008 and 2007, and as of December 31, 2008 and June 30, 2008 is as follows:

		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2008				2007				2008				2007
Net sales:
Lighting Segment		$	43,291			$	46,814			$	92,927			$	92,085
Graphics Segment			13,891				28,858				35,027				57,509
Technology Segment			1,172				2,075				3,990				4,575
All Other Category			2,433				6,315				4,681				19,894
		$	60,787			$	84,062			$	136,625			$	174,063
Operating income (loss):
Lighting Segment		$	(9,945	)		$	4,956			$	(5,482	)		$	9,396
Graphics Segment			507				4,689				1,670				9,390
Technology Segment			(253	)			(431	)			372				(586	)
All Other Category			(4,316	)			(1,505	)			(6,351	)			235
		$	(14,007	)		$	7,709			$	(9,791	)		$	18,435
Capital expenditures:
Lighting Segment		$	381			$	1,029			$	733			$	1,574
Graphics Segment			15				309				96				410
Technology Segment			2				47				18				79
All Other Category			15				475				41				480
		$	413			$	1,860			$	888			$	2,543
Depreciation and amortization:
Lighting Segment		$	880			$	1,045			$	1,762			$	2,053
Graphics Segment			329				315				667				642
Technology Segment			111				147				221				292
All Other Category			666				742				1,326				1,484
		$	1,986			$	2,249			$	3,976			$	4,471

		December 31,				June 30,
		2008				2008
Identifiable assets:
Lighting Segment		$	77,995			$	97,169
Graphics Segment			32,783				34,517
Technology Segment			12,363				13,806
All Other Category			34,485				38,722
		$	157,626			$	184,214

Segment net sales represent sales to external customers. Intersegment revenues were eliminated in consolidation as follows:

		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2008				2007				2008				2007
Lighting Segment intersegment net sales		$	610			$	1,206			$	4,039			$	2,196
Graphics Segment intersegment net sales		$	392			$	215			$	748			$	936
Technology Segment intersegment net sales		$	310			$	331			$	3,716			$	353
All Other Category intersegment net sales		$	1,077			$	4,472			$	2,952			$	10,109

Segment operating income, which is used in management’s evaluation of segment performance, represents net sales less all operating expenses including impairment of goodwill and intangible assets, but excluding interest expense and interest income.

Identifiable assets are those assets used by each segment in its operations. Corporate assets, which consist primarily of cash and cash equivalents, refundable income taxes and certain intangible assets, are included in the All Other Category.

The Company considers its geographic areas to be: 1) the United States, and 2) Canada. The majority of the Company’s operations are in the United States; one operation is in Canada. The geographic distribution of the Company’s net sales and long-lived assets are as follows:

		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2008				2007				2008				2007
Net sales (a):
United States		$	59,615			$	82,559			$	132,635			$	169,488
Canada			1,172				1,503				3,990				4,575
		$	60,787			$	84,062			$	136,625			$	174,063

		December 31,				June 30,
		2008				2008
Long-lived assets (b):
United States		$	46,749			$	47,928
Canada			731				898
		$	47,480			$	48,826

NOTE 5: EARNINGS PER COMMON SHARE

The following table presents the amounts used to compute earnings or (loss) per common share and the effect of dilutive potential common shares on net income and weighted average shares outstanding (in thousands, except per share data):

		Three Months Ended								Six Months Ended
		December 31								December 31
		2008				2007				2008				2007
BASIC EARNINGS (LOSS) PER SHARE
Net income (loss)		$	(13,377	)		$	4,823			$	(10,690	)		$	11,776
Weighted average shares outstanding during the period, net of treasury shares (a)			21,571				21,548				21,575				21,528
Weighted average shares outstanding in the Deferred Compensation Plan during the period			228				211				223				209
Weighted average shares outstanding			21,799				21,759				21,798				21,737
Basic earnings (loss) per share		$	(0.61	)		$	0.22			$	(0.49	)		$	0.54
DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss)		$	(13,377	)		$	4,823			$	(10,690	)		$	11,776
Weighted average shares outstanding — Basic			21,799				21,759				21,798				21,737
Effect of dilutive securities (b):
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any			—				304				—				299
Weighted average shares outstanding (c)			21,799				22,063				21,798				22,036
Diluted earnings (loss) per share		$	(0.61	)		$	0.22			$	(0.49	)		$	0.53

NOTE 6: BALANCE SHEET DATA

The following information is provided as of the dates indicated (in thousands):

		December 31, 2008				June 30, 2008
Inventories
Raw materials		$	23,467			$	25,150
Work-in-process			5,800				7,955
Finished goods			14,651				17,404
		$	43,918			$	50,509
Accrued Expenses
Compensation and benefits		$	4,695			$	7,060
Customer prepayments			883				1,820
Accrued Commissions			1,041				1,552
Legal settlement			—				2,800
Other accrued expenses			2,479				2,756
		$	9,098			$	15,988
Other Long-Term Liabilities
Reserve for uncertain tax positions		$	2,761			$	3,225
Other long-term liabilities			326				359
		$	3,087			$	3,584

NOTE 7: GOODWILL AND OTHER INTANGIBLE ASSETS

The Company performed its annual goodwill impairment test as of July 1, 2008. However, because the conditions of impairment were present at June 30, 2008, the resulting impairment was recorded in the fourth quarter of fiscal year 2008. The Company did not record any impairment charges in the first quarter of fiscal year 2009. A similar analysis was performed in fiscal 2008 as of July 1, 2007 and there was no impairment of goodwill.

Due to current economic conditions, the effects of the recession on the Company’s markets and the decline in the Company’s stock price, management believed that an additional goodwill impairment test was required as of December 31, 2008. Based upon the Company’s analysis, it was determined that the goodwill associated with three of the five remaining reporting units that contain goodwill was either fully or partially impaired. The total amount of the goodwill impairment was $13,250,000, of which $11,185,000 was impaired in the Lighting Segment, $716,000 was impaired in the Graphics Segment and $1,349,000 was impaired in the All Other Category. The impairment charge was due to a combination of a decline in the market capitalization of the Company at December 31, 2008 and a decline in the estimated forecasted discounted cash flows since the annual goodwill impairment test was performed. The impairment charge was recorded in the second quarter.

The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing. These include operating results, forecasts, anticipated future cash flows and market place data, to name a few. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

The following tables present information about the Company’s goodwill and other intangible assets on the dates or for the periods indicated.

		As of December 31, 2008												As of June 30, 2008
		Carrying				Accumulated								Carrying				Accumulated
(in thousands)		Amount				Amortization				Net				Amount				Amortization				Net
Goodwill		$	3,060			$	285			$	2,775			$	16,549			$	524			$	16,025
Other Intangible Assets		$	22,219			$	8,198			$	14,021			$	22,219			$	7,159			$	15,060

		Amortization Expense of Other Intangible Assets
		December 31, 2008				December 31, 2007
Three Months Ended		$	520			$	583
Six Months Ended		$	1,039			$	1,164

The Company expects to record amortization expense over the next five years as follows: 2009 through 2012 — $2,079,000 per year; 2013 — $1,818,000.

The carrying amounts of goodwill are as follows:

		June 30,								December 31,
(in thousands)		2008				Impairment				2008
Lighting Segment		$	11,320			$	11,185			$	135
Graphics Segment			974				716				258
All Other Category			3,731				1,349				2,382
Total		$	16,025			$	13,250			$	2,775

The gross carrying amount and accumulated amortization by major other intangible asset class is as follows:

		December 31, 2008								June 30, 2008
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
(in thousands)		Amount				Amortization				Amount				Amortization
Intangible Assets
Amortized Intangible Assets
Customer relationships		$	7,472			$	3,897			$	7,472			$	3,620
Patents			110				56				110				52
LED Technology firmware, software			10,448				3,731				10,448				2,985
Non-compete agreements			630				514				630				502
			18,660				8,198				18,660				7,159
Indefinite-lived Intangible Assets
Trademarks and trade names			3,559				—				3,559				—
			3,559				—				3,559				—
Total Intangible Assets		$	22,219			$	8,198			$	22,219			$	7,159

NOTE 8: REVOLVING LINES OF CREDIT AND LONG-TERM DEBT

The Company has an unsecured $50 million revolving line of credit with its bank group in the U.S., all of which was available as of December 31, 2008. While there have been some borrowings on this line of credit during the first half of fiscal 2009, there are no borrowings against this line of credit as of December 31, 2008. A portion of this credit facility is a $20 million line of credit that expires in the third quarter of fiscal 2009. The remainder of the credit facility is a $30 million three year committed line of credit that expires in fiscal 2011. Annually in the third quarter, the credit facility is renewable with respect to adding an additional year of commitment to replace the year just ended. Interest on the revolving lines of credit is charged based upon an increment over the LIBOR rate as periodically determined, an increment over the Federal Funds 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 50 and 75 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (EBITDA). The increment over the Federal Funds borrowing rate, as periodically determined, fluctuates between 150 and 200 basis points, and the commitment fee on the unused balance of the $30 million committed portion of the line of credit fluctuates between 15 and 25 basis points based upon the same leverage ratio. Under terms of these agreements, the Company has agreed to a negative pledge of assets, to maintain minimum levels of profitability and net worth, and is subject to certain maximum levels of leverage.

The Company also established a $7 million line of credit for its Canadian subsidiary. The line of credit expires in the third quarter of fiscal 2009. Interest on the Canadian subsidiary’s line of credit is charged based upon an increment over the LIBOR rate or based upon an increment over the United States base rates if funds borrowed are denominated in U.S. dollars or an increment over the Canadian prime rate if funds borrowed are denominated in Canadian dollars. While there has been activity in this line of credit during the first six months of fiscal 2009, there are no borrowings against this line of credit as of December 31, 2008.

The Company is in compliance with all of its loan covenants as of December 31, 2008.

NOTE 9: RESERVE FOR UNCERTAIN TAX LIABILITIES

The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” on July 1, 2007. As a result of adoption, the Company recognized $2,582,000 in reserves for uncertain tax positions and recorded a charge of $2,582,000 to the July 1, 2007 retained earnings balance. At June 30, 2008, tax and interest, net of potential federal tax benefits, were $2,098,000 and $534,000, respectively, of the total reserves of $3,225,000. Additionally, penalties were $593,000 of the reserve at June 30, 2008. Of the $3,225,000 reserve for uncertain tax positions, $2,632,000 would have an unfavorable impact on the effective tax rate if recognized.

For the six months ended December 31, 2008, the Company recognized an additional $31,000 tax expense related to the increase in reserves for uncertain tax positions, paid net liabilities totaling $162,000, and reduced the reserve by $333,000 through the income tax provision as a result of a voluntary disclosure agreement and filing making this portion of the liability no longer required. As of December 31, 2008, the reserve for uncertain income tax liabilities is $2,761,000, net of potential federal tax benefits. The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Condensed Consolidated Statements of Operation. The reserve for uncertain tax positions is not expected to change significantly in the next 12 months.

The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several state and local jurisdictions. With limited exceptions, the Company is no longer subject to U.S. Federal, state and local tax examinations by tax authorities for fiscal years ending prior to June 30, 2006. The Internal Revenue Service has completed its audit of the Company’s fiscal year 2006 Federal Income Tax Return and has not required any changes to the return as filed.

NOTE 10: CASH DIVIDENDS

The Company paid cash dividends of $4,314,000 and $7,107,000 in the six month periods ended December 31, 2008 and 2007, respectively. In January, 2009, the Company’s Board of Directors declared a $0.05 per share regular quarterly cash dividend (approximately $1,079,000) payable on February 10, 2009 to shareholders of record as of February 3, 2009.

NOTE 11: EQUITY COMPENSATION

Stock Options

The Company has an equity compensation plan that was approved by shareholders which covers all of its full-time employees, outside directors and advisors. The options granted or stock awards made pursuant to this plan are granted at fair market value at date of grant or award. Options granted to non-employee directors become exercisable 25% each ninety days (cumulative) from date of grant and options granted to employees generally become exercisable 25% per year (cumulative) beginning one year after the date of grant. Prior to fiscal 2007, options granted to non-employee directors were immediately exercisable. The number of shares reserved for issuance is 2,250,000, of which 926,363 shares were available for future grant or award as of December 31, 2008. This plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, performance stock awards, and other stock awards. As of December 31, 2008, a total of 1,517,700 options for common shares were outstanding from this plan as well as two previous stock option plans (both of which had also been approved by shareholders), and of these, a total of 814,700 options for common shares were vested and exercisable. The approximate unvested stock option expense as of December 31, 2008 that will be recorded as expense in future periods is $2,566,900. The weighted average time over which this expense will be recorded is approximately 21 months.

The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model. The below listed weighted average assumptions were used for grants in the periods indicated.

		Three Months Ended								Six Months Ended
		12/31/08				12/31/07				12/31/08				12/31/07
Dividend yield			5.16	%			3.27	%			5.16	%			3.27	%
Expected volatility			41	%			32	%			41	%			36	%
Risk-free interest rate			2.16	%			3.8	%			3.1	%			4.3	%
Expected life		4.3 yrs.				4.3 yrs.				4.3 yrs.				4.3 yrs.

At December 31, 2008, the 339,300 options granted in the first six months of fiscal 2009 to both employees and non-employee directors had exercise prices ranging from $4.60 to $8.98, fair values ranging from $1.12 to $2.21, and remaining contractual lives of between four years and eleven months and nine years and eleven months.

At December 31, 2007, the 327,900 options granted in the first six months of fiscal 2008 to employees and non-employee directors had exercise prices ranging from $17.80 to $19.76, fair values ranging from $4.19 to $5.70 per option, and remaining contractual lives of between four years and eight months and nine years and eight months.

The Company records stock option expense using a straight line Black-Scholes method with an estimated 4.2% forfeiture rate (revised in the second quarter of fiscal 2008 from the 10% forfeiture rate previously used). The expected volatility of the Company’s stock was calculated based upon the historic monthly fluctuation in stock price for a period approximating the expected life of option grants. The risk-free interest rate is the rate of a five year Treasury security at constant, fixed maturity on the approximate date of the stock option grant. The expected life of outstanding options is determined to be less than the contractual term for a period equal to the aggregate group of option holders’ estimated weighted average time within which options will be exercised. It is the Company’s policy that when stock options are exercised, new common shares shall be issued. The Company recorded $295,700 and $327,300 of expense related to stock options in the three months ended December 31, 2008 and 2007, respectively, and $645,100 and $599,400 in the six month periods ended December 31, 2008 and 2007, respectively. As of December 31, 2008, the Company expects that approximately 668,800 outstanding stock options having a weighted average exercise price of $14.12, no aggregate intrinsic value, and weighted average remaining contractual terms of 8.7 years will vest in the future.

Information related to all stock options for the periods ended December 31, 2008 and 2007 is shown in the table below:

		Six Months Ended
		December 31, 2008
						Weighted				Weighted
						Average				Average				Aggregate
						Exercise				Remaining				Intrinsic
		Shares				Price				Contractual Term				Value
Outstanding at 6/30/08			1,197,482			$	14.44							$	—
Granted			339,300			$	8.89
Forfeitures			(19,082	)		$	13.12
Exercised			—				n/a
Outstanding at 12/31/08			1,517,700			$	13.21			6.8 years				$	14,380
Exercisable at 12/31/08			814,700			$	12.52			5.2 years				$	—

		Six Months Ended
		December 31, 2007
						Weighted				Weighted
						Average				Average				Aggregate
						Exercise				Remaining				Intrinsic
		Shares				Price				Contractual Term				Value
Outstanding at 6/30/07			983,788			$	12.16							$	5,642,400
Granted			327,900			$	19.75
Forfeitures			(5,125	)		$	16.60
Exercised			(79,006	)		$	9.45
Outstanding at 12/31/07			1,227,557			$	14.35			7.1 years				$	5,235,800
Exercisable at 12/31/07			618,782			$	11.16			5.2 years				$	4,357,100

The aggregate intrinsic value of options exercised during the six months ended December 31, 2007 was $836,300. No options were exercised in the six months ended December 31, 2008.

The Company received $642,000 of cash and 5,093 common shares of the Company’s stock from employees who exercised 79,006 options during the six months ended December 31, 2007. Additionally, in this six month period, the Company recorded $212,300 as a reduction of federal income taxes payable, $205,900 as an increase in common stock, and $6,400 as a reduction of income tax expense related to the exercises of stock options in which the employees sold the common shares prior to the passage of twelve months from the date of exercise.

Information related to unvested stock options for the six months ended December 31, 2008 is shown in the table below:

						Weighted				Weighted
						Average				Average				Aggregate
						Exercise				Remaining				Intrinsic
		Shares				Price				Contractual Term				Value
Outstanding unvested stock options at 6/30/08			582,000			$	17.62			8.2 years				$	—
Vested			(212,750	)		$	15.62
Forfeitures			(5,550	)		$	16.55
Granted			339,300			$	8.89
Outstanding unvested stock options at 12/31/08			703,000			$	14.02			8.7 years				$	14,380

Stock Compensation Awards

The Company awarded a total of 2,552 common shares in the six months ended December 31, 2008, valued at their approximate $20,000 fair market value on the date of issuance pursuant to the compensation programs for non-employee Directors who receive a portion of their compensation as an award of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company.

Deferred Compensation Plan

The Company has a non-qualified deferred compensation plan providing for both Company contributions and participant deferrals of compensation. The Plan is fully funded in a Rabbi Trust. All Plan investments are in common shares of the Company. As of December 31, 2008 there were 35 participants and all but one had fully vested account balances. A total of 229,199 common shares with a cost of $2,580,500, and 211,151 common shares with a cost of $2,426,800 were held in the Plan as of December 31, 2008 and June 30, 2008, respectively, and, accordingly, have been recorded as treasury shares. The change in the number of shares held by this Plan is the net result of share purchases and sales on the open stock market for compensation deferred into the Plan and for distributions to terminated employees. The Company does not issue new common shares for purposes of the non-qualified deferred compensation plan. The Company accounts for assets held in the non-qualified deferred compensation plan in accordance with Emerging Issues Task Force 97-14, “Accounting for Deferred Compensation Arrangements where amounts earned are held in a Rabbi Trust and invested.” For fiscal year 2009, the Company estimates the Rabbi Trust for the Nonqualified Deferred Compensation Plan will make net repurchases in the range of 21,000 to 25,000 common shares of the Company. During the six months ended December 31, 2008 and 2007, the Company used approximately $160,700 and $214,500, respectively, to purchase common shares of the Company in the open stock market for either employee salary deferrals or Company contributions into the non-qualified deferred compensation plan. The Company does not currently repurchase its own common shares for any other purpose.

NOTE 12: LOSS CONTINGENCY RESERVE

The Company is party to various negotiations and legal proceedings arising in the normal course of business, most of which are dismissed or resolved with minimal expense to the Company, exclusive of legal fees. Since October 2000, the Company has been the defendant in a complex lawsuit alleging patent infringement with respect to some of the Company’s menu board systems sold over the past approximately eleven years. Pursuant to settlement discussions initiated by the plaintiffs, the Company made a $2,800,000 offer to settle this matter and, accordingly, recorded a loss contingency reserve in the fourth quarter of fiscal 2008. Following additional discussions in the second quarter of fiscal 2009, the Company reached a full and complete settlement of all matters related to this menu board patent infringement lawsuit. Accordingly, an additional $200,000 expense was recorded in the second quarter of fiscal 2009 and a payment of $3,000,000 was made to the plaintiffs.

NOTE 13: RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the issuance of the Company’s December 31, 2008 condensed consolidated financial statements, the Company’s management determined that there were errors in its determination of reportable segments and the amount of goodwill impairment expense.

The Company has restated its reportable business segments by expanding from two segments to three segments, and has added an All Other Category. All segment data has therefore been conformed to the new business segment structure as more fully discussed in Note 4.

The Company also incorrectly reported the amount of goodwill impairment expense. This error was the result of aggregating certain of its operating segments or individual companies together and performing the impairment test at that aggregated level rather than at the level of the individual operating segment or individual company.

In addition, the Company incorrectly included a non-cash use of $2,582,000 related to the change in the Reserve for uncertain tax positions charged against retained earnings in the cash flows from operating activities in the Condensed Consolidated Statement of Cash Flows for the six months ended December 31, 2007, with an offsetting amount included in the change in accounts payable and other.

The Company has restated its condensed consolidated financial statements as of June 30, 2008 and as of and for the three and six months ended December 31, 2008 to correct the errors noted above as follows:

		As Previously				Restatement				As
($ in thousands)		Reported				Adjustments				Restated
Condensed Consolidated Balance Sheet — June 30, 2008
Goodwill, net		$	15,051			$	974			$	16,025
Other assets, net			4,372				(300	)			4,072
Total assets			183,540				674				184,214
Retained earnings			66,851				674				67,525
Total shareholders’ equity			148,516				674				149,190
Total liabilities & shareholders’ equity			183,540				674				184,214
Condensed Consolidated Balance Sheet — December 31, 2008
Goodwill, net		$	2,382			$	393			$	2,775
Other assets, net			4,810				(34	)			4,776
Total assets			157,267				359				157,626
Retained earnings			52,162				359				52,521
Total shareholders’ equity			134,407				359				134,766
Total liabilities & shareholders’ equity			157,267				359				157,626
Condensed Consolidated Statement of Operations — Three months ended December 31, 2008
Goodwill and intangible asset impairment		$	12,669			$	581			$	13,250
Operating income (loss)			(13,426	)			(581	)			(14,007	)
Income (loss) before income taxes			(13,425	)			(581	)			(14,006	)
Income tax expense			(363	)			(266	)			(629	)
Net income (loss)			(13,062	)			(315	)			(13,377	)
Condensed Consolidated Statement of Operations — Six months ended December 31, 2008
Goodwill and intangible asset impairment		$	12,669			$	581			$	13,250
Operating income (loss)			(9,210	)			(581	)			(9,791	)
Income (loss) before income taxes			(9,214	)			(581	)			(9,795	)
Income tax expense			1,161				(266	)			895
Net income (loss)			(10,375	)			(315	)			(10,690	)
Condensed Consolidated Statement of Cash Flows — Six Months ended December 31, 2008
Net income (loss)		$	(10,375	)		$	(315	)		$	(10,690	)
Non-cash items included in net income (loss):
Goodwill and intangible asset impairment			12,669				581				13,250
Deferred income taxes			(261	)			(266	)			(527	)
Condensed Consolidated Statement of Cash Flows — Six Months ended December 31, 2007
Accounts payable and other			(7,627	)			(2,582	)			(10,209	)
Reserve for uncertain tax positions charged against retained earnings			(2,582	)			2,582				—

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

Restatement of Financial Statements

We have restated our previously issued condensed consolidated financial statements as of December 31, 2008 and as discussed in the Explanatory Note to this Form 10-Q/A and in Note 13 to our condensed consolidated financial statements. This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) has not been updated except as required to reflect the results of the restatement. This MD&A continues to speak as of the date of the original filing and has not been updated to reflect other events occurring after the date of the original filing or to modify or update those disclosures affected by subsequent events.

		Three Months Ended								Six Months Ended
		December 31								December 31
(In thousands)		2008				2007				2008				2007
Lighting Segment		$	43,291			$	46,814			$	92,927			$	92,085
Graphics Segment			13,891				28,858				35,027				57,509
Technology Segment			1,172				2,075				3,990				4,575
All Other Category			2,433				6,315				4,681				19,894
		$	60,787			$	84,062			$	136,625			$	174,063