10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2016.
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________.

Commission File No. 0-13375

LSI Industries Inc.

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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  YES    X     NO ____

Indicate by checkmark 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    X      NO ____

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 [    ]	Accelerated filer [ X ]
Non-accelerated filer [    ]	Smaller reporting company [    ]

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

As of January 27, 2017 there were 25,056,164 shares of the Registrant's common stock, no par value per share, outstanding.

LSI INDUSTRIES INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2016

INDEX

			Begins on Page
PART I.  Financial Information
	ITEM 1.	Financial Statements (Unaudited)
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Balance Sheets	4
		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	25
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	39
	ITEM 4.	Controls and Procedures	39
PART II.  Other Information
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
	ITEM 6.	Exhibits	40
Signatures			41

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

This Form 10-Q 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 over which the Company may have no control.  These risks and uncertainties include, but are not limited to, the impact of competitive products and services, product demand and market acceptance risks, potential costs associated with litigation and regulatory compliance, reliance on key customers, financial difficulties experienced by customers, the cyclical and seasonal nature of our business, the adequacy of reserves and allowances for doubtful accounts, fluctuations in operating results or costs whether as a result of uncertainties inherent in tax and accounting matters or otherwise, 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.  You are cautioned to not place undue reliance on these forward-looking statements.  In addition to the factors described in this paragraph, the risk factors identified in our Form 10-K and other filings the Company may make with the SEC constitute risks and uncertainties that may affect the financial performance of the Company and are incorporated herein by reference.  The Company does not undertake and hereby disclaims any duty to update any forward-looking statements to reflect subsequent events or circumstances.

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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)	2016			2015			2016			2015
Net sales	$	85,658		$	84,687		$	169,817		$	170,612
Cost of products and services sold		63,611			60,761			126,432			123,337
Restructuring costs		640			--			1,143			--
Gross profit		21,407			23,926			42,242			47,275
Restructuring costs		57			--			210			--
Selling and administrative expenses		18,532			18,546			38,148			36,132
Operating income		2,818			5,380			3,884			11,143
Interest (income)		(28	)		(17	)		(55	)		(25	)
Interest expense		8			9			21			17
Income before income taxes		2,838			5,388			3,918			11,151
Income tax expense		832			1,606			1,083			3,619
Net income	$	2,006		$	3,782		$	2,835		$	7,532
Earnings per common share (see Note 4)
Basic	$	0.08		$	0.15		$	0.11		$	0.30
Diluted	$	0.08		$	0.15		$	0.11		$	0.30
Weighted average common shares outstanding
Basic		25,314			24,911			25,294			24,838
Diluted		25,803			25,624			25,859			25,405

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

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LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except shares)	December 31,			June 30,
	2016			2016
ASSETS
Current Assets
Cash and cash equivalents	$	33,023		$	33,835
Accounts receivable, less allowance for doubtful accounts of $381 and $226, respectively		49,541			46,975
Inventories		42,404			44,141
Assets held for sale		3,176			--
Other current assets		2,996			2,792
Total current assets		131,140			127,743
Property, Plant and Equipment, at cost
Land		6,422			6,978
Buildings		34,654			39,317
Machinery and equipment		78,908			82,628
Construction in progress		1,697			838
		121,681			129,761
Less accumulated depreciation		(78,255	)		(82,299	)
Net property, plant and equipment		43,426			47,462
Goodwill		10,508			10,508
Other Intangible Assets, net		5,378			5,586
Other Long-Term Assets, net		5,384			4,261
Total assets	$	195,836		$	195,560

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

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LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31,		June 30,
(In thousands, except shares)	2016		2016
LIABILITIES & SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	13,917	$	13,892
Accrued expenses		22,980		25,341
Total current liabilities		36,897		39,233
Other Long-Term Liabilities		1,119		807
Commitments and Contingencies (Note 12)
Shareholders’ Equity
Preferred shares, without par value; Authorized 1,000,000 shares, none issued		—		—
Common shares, without par value; Authorized 40,000,000 shares; Outstanding 25,021,703 and 24,982,219 shares, respectively		115,631		113,653
Retained earnings		42,189		41,867
Total shareholders’ equity		157,820		155,520
Total liabilities & shareholders’ equity	$	195,836	$	195,560

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

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LSI INDUSTRIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)	Six Months Ended
	December 31
	2016			2015
Cash Flows from Operating Activities
Net income	$	2,835		$	7,532
Non-cash items included in net income
Depreciation and amortization		3,605			3,174
Deferred income taxes		(962	)		(448	)
Deferred compensation plan		237			310
Stock compensation expense		1,688			2,150
Issuance of common shares as compensation		228			113
Loss on disposition of fixed assets		53			1
Fixed asset impairment and accelerated depreciation		354			--
Allowance for doubtful accounts		205			131
Inventory obsolescence reserve		758			699
Changes in certain assets and liabilities:
Accounts receivable		(2,771	)		387
Inventories		979			(3,480	)
Refundable income taxes		--			(475	)
Accounts payable		(176	)		(5,962	)
Accrued expenses and other		(2,630	)		920
Customer prepayments		216			438
Net cash flows provided by operating activities		4,619			5,490
Cash Flows from Investing Activities
Purchases of property, plant and equipment		(2,744	)		(3,384	)
Proceeds from sale of fixed assets		1			4
Net cash flows (used in) investing activities		(2,743	)		(3,380	)
Cash Flows from Financing Activities
Cash dividends paid		(2,513	)		(1,721	)
Exercise of stock options		171			2,195
Purchase of treasury shares		(390	)		(277	)
Issuance of treasury shares		44			47
Net cash flows provided by (used in) financing activities		(2,688	)		244
Increase (decrease) in cash and cash equivalents		(812	)		2,354
Cash and cash equivalents at beginning of period		33,835			26,409
Cash and cash equivalents at end of period	$	33,023		$	28,763

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

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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, 2016, the results of its operations for the three and six month periods ended December 31, 2016 and 2015, and its cash flows for the six month periods ended December 31, 2016 and 2015. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2016 Annual Report on Form 10-K.  Financial information as of June 30, 2016 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 (collectively, the “Company”), all of which are wholly owned.  All intercompany transactions and balances have been eliminated in consolidation.

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 collectability is reasonably assured. 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 five 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 commissioning of lighting controls; revenue from the management of media content and digital hardware related to active digital signage; 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. In certain arrangements with customers, as is the case with the sale of some of our solid-state LED (light emitting diode) video screens, revenue is recognized upon customer acceptance of the video screen at the job site. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed.  The Company provides product warranties and certain post-shipment service, support and maintenance of certain solid state LED video screens.

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 at a customer site have been installed.

Revenue from the management of media content and digital hardware related to active digital signage is recognized evenly over the service period with the customer. Media content service periods with most customers range from one month to one year.

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

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In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separate unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company’s complete performance at the location, which may include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.

The Company also evaluates the appropriateness of revenue recognition in accordance with the accounting standards on software revenue recognition. Our solid-state LED video screens and active digital signage contain software elements which the Company has determined are incidental.

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, and then applying certain percentages against the various aging categories based on the due date 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.  Receivables deemed uncollectable are written-off against the allowance for doubtful accounts receivable after all reasonable collection efforts have been exhausted. The Company also establishes allowances, at the time revenue is recognized, for returns, discounts, pricing and other possible customer deductions.  These allowances are based upon historical trends.

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

(In thousands)	December 31,			June 30,
	2016			2016
Accounts receivable	$	49,922		$	47,201
Less: Allowance for doubtful accounts		(381	)		(226	)
Accounts receivable, net	$	49,541		$	46,975

Cash and Cash Equivalents:

The cash balance includes cash and cash equivalents which have original maturities of less than three months. Cash and cash equivalents consist primarily of bank deposits and a bank money market account that is stated at cost, which approximates fair value. The Company maintains balances at financial institutions in the United States.  In the United States, the FDIC limit for insurance coverage on non-interest bearing accounts is $250,000. As of December 31, 2016 and June 30, 2016, the Company had bank balances of $35,995,000 and $37,883,000, respectively, without insurance coverage.

Inventories and Inventory Reserves:

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.

The Company maintains an inventory reserve for obsolete and excess inventory. The Company first determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. Judgment is used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item.  

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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 (in years)	28	-	40
Machinery and equipment (in years)	3	-	10
Computer software (in years)	3	-	8

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.  Leasehold improvements are depreciated over the shorter of fifteen years or the remaining term of the lease.

The Company recorded $1,669,000 and $1,471,000 of depreciation expense in the second quarter of fiscal 2017 and 2016, respectively, and $3,397,000 and $2,921,000 of depreciation expense in the first half of fiscal 2017 and 2016, respectively.

The Company is in the process of selling the facilities and certain machinery and equipment in Kansas City, Kansas and in Woonsocket, Rhode Island. Both of the facilities are expected to be sold at a gain. The facilities and machinery and equipment have been separately disclosed on the balance sheet as assets held for sale as of December 31, 2016. Assets held for sale were $1,713,000 in the Lighting segment and $1,463,000 in the Graphics segment as of December 31, 2016. Refer to Note 14 for more information regarding the closure of these facilities.

Goodwill and 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 over periods ranging between seven and twenty years.  The Company evaluates definite-lived intangible assets for permanent impairment when triggering events are identified. Neither indefinite-lived intangible assets nor the excess of cost over fair value of assets acquired ("goodwill") are amortized, however they are subject to review for impairment.  See additional information about goodwill and intangibles in Note 7.

Fair Value:

The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, accounts receivable, accounts payable, and on occasion, 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.

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment analyses, long-lived asset impairment analyses, in the purchase price of acquired companies (if any), and in the valuation of the contingent earn-out. The accounting guidance on fair value measurement was used to measure the fair value of these nonfinancial assets and nonfinancial liabilities.

Product Warranties:

The Company offers a limited warranty that its products are free from defects in workmanship and materials.  The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within one to five years, with some exceptions where the terms extend to 10 years, from the date of shipment.  The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation.  The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues.  The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

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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:

	Six			Six			Fiscal
	Months Ended			Months Ended			Year Ended
(In thousands)	December 31,			December 31,			June 30,
	2016			2015			2016
Balance at beginning of the period	$	5,069		$	3,408		$	3,408
Additions charged to expense		2,243			2,259			5,069
Deductions for repairs and Replacements		(1,351	)		(1,357	)		(3,408	)
Balance at end of the period	$	5,961		$	4,310		$	5,069

Research and Development Costs:

Research and development costs are directly attributable to new product development, including the development of new technology for both existing and new products, and consist of salaries, payroll taxes, employee benefits, materials, outside legal costs and filing fees related to obtaining patents, supplies, depreciation and other administrative costs.   The Company expenses as research and development all costs associated with development of software used in solid-state LED products.  All costs are expensed as incurred and are included in selling and administrative expenses. Research and development costs related to both product and software development totaled $1,269,000 and $1,320,000 for the three months ended December 31, 2016 and 2015, respectively, and $2,670,000 and $2,631,000 for the six months ended December 31, 2016 and 2015, respectively.

Cost of Products and Services Sold:

Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of products, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity. Cost of services sold is primarily comprised of the internal and external labor costs required to support the Company’s service revenue along with the management of media content.

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 nonqualified 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, restricted stock units, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled 787,000 and 987,000 shares for the three month ended December 31, 2016 and 2015, respectively, and 852,000 shares and 836,000 shares for the six months ended December 31, 2016 and 2015, respectively. See further discussion of earnings per share in Note 4.

Income Taxes:

The Company accounts for income taxes in accordance with the accounting standards for income taxes.  Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes.  Deferred income tax assets are reported on the Company’s balance sheet.  Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets.

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New Accounting Pronouncements:

In June 2014, the Financial Accounting Standards Board issued ASU 2014-09, “Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improves disclosures about revenue. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.” In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” These three standards clarify or improve guidance from ASU 2014-09 and are effective for fiscal years and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal year 2019. The Company will adopt these standards no later than July 1, 2018. While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. These are largely unaffected by the new standard. However, certain product sales require installation and revenue is currently not recognized until the installation is complete. The Company does not expect this new guidance to have a material impact on the amount of overall sales recognized, however, the timing of sales on certain projects may be affected. The Company has not yet quantified this potential impact.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” which eliminates the current requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in the statement of financial position. This update requires that deferred tax liabilities and assets be classified as noncurrent. This update is effective for financial statements issued for fiscal years beginning April 1, 2017. This update may be applied either prospectively or retrospectively. However, early adoption is permitted and the Company has chosen to adopt the standard retrospectively as of June 30, 2016. As a result, prior periods have been adjusted to reflect this change. This update affected the presentation, but not the measurement of deferred tax liabilities and assets.

Comprehensive Income:

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

Subsequent Events:

The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements were filed.  No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements.

Reclassifications:

Certain prior year balance sheet amounts have been reclassified to conform to new accounting guidance on balance sheet classification of deferred taxes. These reclassifications have no impact on net income, earnings per share, or operating cash flows.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

NOTE 3 - SEGMENT REPORTING INFORMATION

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s three operating segments are Lighting, Graphics, and Technology, each of which has a president who is responsible for that business and reports to the CODM. Corporate and Eliminations, which captures the Company’s corporate administrative activities, will also be reported in the segment information.

The Lighting Segment includes outdoor and indoor lighting utilizing both traditional and LED light sources that have been fabricated and assembled for the commercial, industrial market, the petroleum / convenience store market, the automotive dealership market, the quick service restaurant market, along with other markets the Company serves.

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The Graphics Segment designs, manufactures and installs exterior and interior visual image elements such as traditional graphics, active digital signage along with the management of media content related to digital signage, LED video screens, and menu board systems that are either digital or traditional by design. These products are used in visual image programs in several markets, including the petroleum / convenience store market, multi-site retail operations, banking, and restaurants. The Graphics Segment implements, installs and provides program management services related to products sold by the Graphics Segment and by the Lighting Segment.

LED video screens that were previously reported in the Technology Segment in prior years’ results have been reclassified to the Graphics Segment. The movement of the LED video screen product line was the result of a change in management responsibility of this product line to the Graphics Segment president during the first quarter of fiscal 2017. This movement aligns the product line with other digital visual image elements sold to graphics customers and is consistent with how the Company’s CODM manages the business. The movement of the video screen product line resulted in a reclassification of $76,000 of operating loss from the Technology Segment to the Graphics Segment in the second quarter of fiscal 2016, and $3,000 of operating loss in the first half of fiscal 2016. The Company deemed that distribution channels and corresponding projected future cash flows that support a customer relationship intangible asset related to the LED video screen product line are adequate to support the asset. The net book value of the asset is $492,000 as of December 31, 2016 and future cash flows generated from this asset will continue to be monitored in future quarters.

The Technology Segment designs, engineers, and manufactures electronic circuit boards, assemblies and sub-assemblies, and various control system products used in other applications (primarily the control of solid-state LED lighting). This operating segment sells its products directly to customers (primarily in the transportation, original equipment manufacturers, sports, and medical markets) and also has significant inter-segment sales to the Lighting Segment.

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

There was no concentration of consolidated net sales in the three and six months ended December 31, 2016 or in the three months ended December 31, 2015. The Company’s Lighting Segment and Graphics Segment net sales to a petroleum / convenience store customer represented approximately $17,045,000 or 10% of consolidated net sales in the six months ended December 31, 2015. There was no concentration of accounts receivable at December 31, 2016 or June 30, 2016.

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Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of December 31, 2016 and December 31, 2015:

	Three Months Ended						Six Months Ended
(In thousands)	December 31						December 31
	2016			2015			2016			2015
Net Sales:
Lighting Segment	$	60,169		$	59,601		$	120,539		$	118,676
Graphics Segment		20,582			21,206			39,476			43,536
Technology Segment		4,907			3,880			9,802			8,400
	$	85,658		$	84,687		$	169,817		$	170,612
Operating Income (Loss):
Lighting Segment	$	2,738		$	5,182		$	5,529		$	10,864
Graphics Segment		1,174			1,959			2,191			4,193
Technology Segment		924			1,069			1,652			2,336
Corporate and Eliminations		(2,018	)		(2,830	)		(5,488	)		(6,250	)
	$	2,818		$	5,380		$	3,884		$	11,143
Capital Expenditures:
Lighting Segment	$	183		$	1,160		$	1,267		$	1,849
Graphics Segment		459			604			825			1,192
Technology Segment		22			108			34			141
Corporate and Eliminations		120			150			618			202
	$	784		$	2,022		$	2,744		$	3,384
Depreciation and Amortization:
Lighting Segment	$	791		$	717		$	1,638		$	1,422
Graphics Segment		376			237			736			471
Technology Segment		324			340			669			676
Corporate and Eliminations		279			304			562			605
	$	1,770		$	1,598		$	3,605		$	3,174

	December 31, 2016		June 30, 2016
Identifiable Assets:
Lighting Segment	$	91,010	$	95,168
Graphics Segment		36,888		33,490
Technology Segment		28,206		28,348
Corporate and Eliminations		39,732		38,554
	$	195,836	$	195,560

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

Page 13

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

	Three Months Ended				Six Months Ended
	December 31				December 31
(In thousands)	2016		2015		2016		2015
Lighting Segment inter-segment net sales	$	713	$	814	$	1,487	$	1,428
Graphics Segment inter-segment net sales	$	680	$	562	$	812	$	1,006
Technology inter-segment net sales	$	8,346	$	8,932	$	17,131	$	18,316

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

Page 14

NOTE 4 - EARNINGS PER COMMON SHARE

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

	Three Months Ended				Six Months Ended
	December 31				December 31
	2016		2015		2016		2015
BASIC EARNINGS PER SHARE
Net income	$	2,006	$	3,782	$	2,835	$	7,532
Weighted average shares outstanding during the period, net of treasury shares (a)		25,016		24,637		25,007		24,569
Weighted average vested restricted stock units outstanding		37		25		37		26
Weighted average shares outstanding in the Deferred Compensation Plan during the period		261		249		250		243
Weighted average shares outstanding		25,314		24,911		25,294		24,838
Basic earnings per share	$	0.08	$	0.15	$	0.11	$	0.30
DILUTED EARNINGS PER SHARE
Net income	$	2,006	$	3,782	$	2,835	$	7,532
Weighted average shares outstanding
Basic		25,314		24,911		25,294		24,838
Effect of dilutive securities (b):
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any		489		713		565		567
Weighted average shares outstanding (c)		25,803		25,624		25,859		25,405
Diluted earnings per share	$	0.08	$	0.15	$	0.11	$	0.30

(a) Includes shares accounted for like treasury stock included in the Company’s non-qualified deferred compensation plan. (See Note 10.)

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

(c) Options to purchase 1,682,270 common shares and 1,115,250 common shares at December 31, 2016 and 2015, respectively, and options to purchase 1,626,770 common shares and 1,506,800 common shares at December 31, 2016 and 2015, respectively were not included in the computation of the three month and six month period for diluted earnings per share, respectively, because the exercise price was greater than the average fair market value of the common shares.

Page 15

NOTE 5 - INVENTORIES

The following information is provided as of the dates indicated:

	December 31,		June 30,
(In thousands)	2016		2016
Inventories:
Raw materials	$	27,638	$	28,979
Work-in-process		4,108		4,418
Finished goods		10,658		10,744
Total Inventories	$	42,404	$	44,141

NOTE 6 - ACCRUED EXPENSES

The following information is provided as of the dates indicated:

	December 31,		June 30,
(In thousands)	2016		2016
Accrued Expenses:
Compensation and benefits	$	7,494	$	11,983
Customer prepayments		1,269		1,053
Accrued sales commissions		2,695		2,792
Accrued warranty		5,961		5,069
Other accrued expenses		5,561		4,444
Total Accrued Expenses	$	22,980	$	25,341

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS

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

The Company identified its reporting units in conjunction with its annual goodwill impairment testing.  The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to operating results, forecasts, anticipated future cash flows and marketplace data.  There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

Page 16

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

Goodwill
(In thousands)	Lighting			Graphics			Technology
	Segment			Segment			Segment			Total
Balance as of June 30, 2016
Goodwill	$	34,913		$	28,690		$	11,621		$	75,224
Accumulated impairment losses		(34,778	)		(27,525	)		(2,413	)		(64,716	)
Goodwill, net as of June 30, 2016	$	135		$	1,165		$	9,208		$	10,508
Balance as of December 31, 2016
Goodwill	$	34,913			28,690			11,621			75,224
Accumulated impairment losses		(34,778	)		(27,525	)		(2,413	)		(64,716	)
Goodwill, net as of December 31, 2016	$	135		$	1,165		$	9,208		$	10,508

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

	December 31, 2016
Other Intangible Assets	Gross
(In thousands)	Carrying		Accumulated		Net
	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	9,316	$	7,727	$	1,589
Patents		338		172		166
LED technology firmware, software		11,228		11,027		201
Trade name		460		460		--
Non-compete agreements		710		710		--
Total Amortized Intangible Assets		22,052		20,096		1,956
Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		--		3,422
Total Indefinite-lived Intangible Assets		3,422		--		3,422
Total Other Intangible Assets	$	25,474	$	20,096	$	5,378

	June 30, 2016
Other Intangible Assets	Gross
	Carrying		Accumulated		Net
(In thousands)	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	9,316	$	7,581	$	1,735
Patents		338		154		184
LED technology firmware, software		11,228		10,989		239
Trade name		460		460		--
Non-compete agreements		710		704		6
Total Amortized Intangible Assets		22,052		19,888		2,164
Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		--		3,422
Total Indefinite-lived Intangible Assets		3,422		--		3,422
Total Other Intangible Assets	$	25,474	$	19,888	$	5,586

Page 17

(In thousands)	Amortization Expense of Other Intangible Assets
	December 31, 2016		December 31, 2015
Three Months Ended	$	101	$	127
Six Months Ended	$	208	$	253

The Company expects to record annual amortization expense as follows:

(In thousands)
2017	$	419
2018	$	401
2019	$	401
2020	$	327
2021	$	323
After 2021	$	293

NOTE 8  -  REVOLVING LINE OF CREDIT

In March 2016, the Company renewed its $30 million unsecured revolving credit line. The line of credit expires in the third quarter of fiscal 2019. Interest on the revolving line of credit is charged based upon an increment over the LIBOR rate as periodically determined, or at the bank’s base lending rate, at the Company’s option.  The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between 150 and 190 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the credit facility.  The fee on the unused balance of the $30 million committed line of credit is 12.5 basis points.  Under the terms of this credit facility, the Company has agreed to a negative pledge of assets and is required to comply with financial covenants that limit the amount of debt obligations, require a minimum amount of tangible net worth, and limit the ratio of indebtedness to EBITDA. There are no borrowings against the line of credit as of December 31, 2016.

The Company is in compliance with all of its loan covenants as of December 31, 2016.

NOTE 9 -  CASH DIVIDENDS

The Company paid cash dividends of $2,513,000 and $1,721,000 in the six months ended December 31, 2016 and 2015, respectively. Dividends on restricted stock units in the amount of $19,826 and $4,690 were accrued as of December 31, 2016 and 2015, respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In January 2017, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 14, 2017 to shareholders of record as of February 6, 2017. The indicated annual cash dividend rate is $0.20 per share.

NOTE 10 - EQUITY COMPENSATION

Stock Based Compensation 

The Company has an equity compensation plan that was approved by shareholders in November 2012 and that covers all of its full-time employees, outside directors and certain advisors.  This 2012 Stock Incentive Plan replaced all previous equity compensation plans. The Company’s shareholders approved an amendment to the 2012 Stock Incentive Plan that added 1,600,000 shares to the plan and implemented the use of a fungible share ratio that consumes 2.5 available shares for every 1 full value share awarded by the Company as stock compensation. The options granted or stock awards made pursuant to this plan are granted at fair market value at the date of grant or award.  Service-based options granted to non-employee directors become exercisable 25% each ninety days (cumulative) from the date of grant and options granted to employees generally become exercisable 25% per year (cumulative) beginning one year after the date of grant. Performance-based options granted to employees become exercisable 33.3% per year (cumulative) beginning one year after the date of grant. The maximum contractual term of the Company’s stock options is ten years.  If a stock option holder’s employment with the Company terminates by reason of death, disability or retirement, as defined in the Plan, the Plan generally provides for acceleration of vesting.  The number of shares reserved for issuance is 2,364,601 shares, all of which were available for future grant or award as of December 31, 2016.  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. Service based and performance based stock options were granted and restricted stock units (“RSU’s”) were awarded during the six months ended December 31, 2016. As of December 31, 2016, a total of 3,625,372 options for common shares were outstanding from this plan as well as one previous stock option plan (which has also been approved by shareholders), and of these, a total of 1,700,025 options for common shares were vested and exercisable.  As of December 31, 2016, the approximate unvested stock option expense that will be recorded as expense in future periods is $2,622,788.  The weighted average time over which this expense will be recorded is approximately 27 months. Additionally, as of December 31, 2016, a total of 118,575 RSU’s were outstanding. The approximate unvested stock compensation expense that will be recorded as expense in future periods for the RSU’s is $608,468. The weighted average time over which this expense will be recorded is approximately 33 months.

Page 18

Stock Options

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
	December 31						December 31
	2016			2015			2016			2015
Dividend yield		2.07	%		1.33	%		1.81	%		1.28	%
Expected volatility		41	%		43	%		43	%		44	%
Risk-free interest rate		2.06	%		1.38	%		1.00	%		1.67	%
Expected life (in years)		6.0			6.0			6.0			6.0

At December 31, 2016, the 834,320 options granted during the first six months of fiscal 2017 to employees had exercise prices ranging from $9.65 to $11.06 per share, fair values ranging from of $3.29 to $3.83 per share, and remaining contractual lives of between 9.5 and 10 years.

At December 31, 2015, the 1,016,800 options granted during the first six months of fiscal 2016 to employees had exercise prices ranging from $8.84 to $11.82 per share, fair values ranging from of $3.28 to $4.48 per share, and remaining contractual lives of between 9.5 and 9.9 years.

The Company calculates stock option expense using the Black-Scholes model.  Stock option expense is recorded on a straight line basis, or sooner if the grantee is retirement eligible as defined in the 2012 Stock Incentive Plan, with an estimated 3.51% forfeiture rate effective October 1, 2016. Previous estimated forfeiture rates were between 2.0% and 3.4% between the periods January 1, 2013 through September 30, 2016. 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 a reduction of expense of $142,434 in the three months ended December 31, 2016 and recorded $342,134 of expense in the three months ended December 31, 2015, related to stock options. The reduction of stock option expense in the three months ended December 31, 2016 was the result of expectations that the performance criteria related to incentive based options will not be met. The Company recorded $1,296,009 and $1,830,707 of expense related to stock options in the six months ended December 31, 2016 and 2015, respectively.  As of December 31, 2016, the Company had 3,159,692 stock options that were vested and that were expected to vest, with a weighted average exercise price of $8.92 per share, an aggregate intrinsic value of $4,620,655 and weighted average remaining contractual terms of 6.7 years.

Page 19

Information related to all stock options for the six months ended December 31, 2016 and 2015 is shown in the following tables:

	Six Months Ended December 31, 2016
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic
	Shares			Price		(in years)		Value
Outstanding at 6/30/16		2,976,490		$	8.97		6.6	$	8,338,974
Granted		834,320		$	11.05
Forfeitures		(147,375	)	$	16.03
Exercised		(38,063	)	$	7.75
Outstanding at 12/31/16		3,625,372		$	9.18		7.1	$	4,648,729
Exercisable at 12/31/16		1,700,025		$	8.73		5.1	$	3,216,899

	Six Months Ended December 31, 2015
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic
	Shares			Price		(in years)		Value
Outstanding at 6/30/15		2,677,436		$	8.85		6.1	$	4,914,601
Granted		1,016,800		$	9.38
Forfeitures		(55,050	)	$	11.65
Exercised		(298,724	)	$	7.20
Outstanding at 12/31/15		3,340,462		$	9.11		6.8	$	12,661,470
Exercisable at 12/31/15		1,628,976		$	9.95		4.5	$	6,032,985

The following table presents information related to unvested stock options:

				Weighted-Average
				Grant Date
	Shares			Fair Value
Unvested at June 30, 2016		1,663,505		$	3.39
Granted		834,320		$	3.83
Vested		(546,978	)	$	3.25
Forfeited		(25,500	)	$	3.50
Unvested at December 31, 2016		1,925,347		$	3.62

The weighted average grant date fair value of options granted during the six month periods ended December 31, 2016 and 2015 was $3.83 and $3.63, respectively. The aggregate intrinsic value of options exercised during the six months ended December 31, 2016 and 2015 was $99,883 and $852,596, respectively. The aggregate grant date fair value of options that vested during the six months ended December 31, 2016 and 2015 was $1,779,490 and $1,035,041, respectively. The Company received $295,030 and $2,149,606 of cash from employees who exercised options in the six month periods ended December 31, 2016 and 2015, respectively. In the first six months of fiscal 2017 the Company recorded $95,443 as a reduction of federal income taxes payable, $124,056 as a decrease in common stock, $22,073 as a reduction of income tax expense, and $197,427 as a reduction of the deferred tax asset related to the issuance of RSU’s and 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. In the first six months of fiscal 2016 the Company recorded $300,868 as a reduction of federal income taxes payable, $46,066 as an increase in common stock, $84,781 as a reduction of income tax expense, and $170,021 as a reduction of the deferred tax asset 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.

Page 20

Restricted Stock Units

A total of 71,700 restricted stock units with a fair value of $11.06 per share were awarded to employees during the six months ended December 31, 2016. A total of 72,000 RSU’s with a fair value of $9.39 per share were awarded to employees during the six months ended December 31, 2015. The Company determined the fair value of the awards based on the closing price of the Company stock on the date the RSU’s were awarded. The RSU’s have a four year ratable vesting period. The RSU’s are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on RSU’s in the amount of $19,826 and $4,690 were accrued as of December 31, 2016 and 2015, respectively. Accrued dividends are paid to the holder upon vesting of the RSU’s and issuance of shares.

The following table presents information related to RSU’s:

				Weighted-Average
				Grant Date
	Shares			Fair Value
Unvested at June 30, 2016		62,500		$	9.39
Awarded		71,700		$	11.06
Shares Issued		(15,625	)	$	9.39
Unvested at December 31, 2016		118,575		$	10.40

As of December 31, 2016, the 118,575 RSU’s had a remaining contractual life of between 2.5 and 3.5 years. Of the 118,575 RSU’s outstanding as of December 31, 2016, 114,531 are vested or expected to vest in the future. An estimated forfeiture rate of 3.4% was used in the calculation of expense related to the RSU’s. The Company recorded $89,896 and $392,197 of expense related to RSU’s in the three and six month periods ended December 31, 2016, respectively.

As of December 31, 2015, the 67,000 outstanding RSU's had a remaining contractual life of 3.5 years. Of the 67,000 RSU’s outstanding as of December 31, 2015, 64,434 were expected to vest. An estimated forfeiture rate of 3.3% was used in the calculation of expense related to the RSU’s. The Company recorded $33,276 and $319,533 of expense related to RSU’s in the three and six month periods ended December 31, 2015, respectively.

Director and Employee Stock Compensation Awards

The Company awarded a total of 21,199 and 12,590 common shares in the six months ended December 31, 2016 and 2015, respectively, as stock compensation awards. These common shares were valued at their approximate $228,000 and $113,400 fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, respectively, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock and for employees who received a nominal recognition award in the form of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company.

Deferred Compensation Plan 

The Company has a non-qualified deferred compensation plan providing for both Company contributions and participant deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. As of December 31, 2016, there were 30 participants, all with fully vested account balances. A total of 263,506 common shares with a cost of $2,514,106, and 228,103 common shares with a cost of $2,167,717 were held in the plan as of December 31, 2016 and June 30, 2016, 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 used approximately $390,288 and $276,800 to purchase 39,487 and 29,021 common shares of the Company in the open stock market during the six months ended December 31, 2016 and 2015, respectively, for either employee salary deferrals or Company contributions into the non-qualified deferred compensation plan. For fiscal year 2017, the Company estimates the Rabbi Trust for the Nonqualified Deferred Compensation Plan will make net repurchases in the range of 45,000 to 50,000 common shares of the Company. The Company does not currently repurchase its own common shares for any other purpose.

Page 21

NOTE 11 -  SUPPLEMENTAL CASH FLOW INFORMATION

(In thousands)	Six Months Ended December 31
	2016		2015
Cash payments:
Interest	$	21	$	23
Income taxes	$	2,381	$	4,650
Issuance of common shares as compensation	$	228	$	113

NOTE 12 - COMMITMENTS AND CONTINGENCIES

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

The Company may occasionally issue a standby letter of credit in favor of third parties. As of December 31, 2016, there were no standby letter of credit agreements.

NOTE 13 – SEVERANCE COSTS

The Company recorded severance expense of $173,000 and $223,000 in the six months ended December 31, 2016 and 2015, respectively. This severance expense was related to reductions in staffing not related to plant restructuring. See further discussion of restructuring expenses in Note 14.

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

	Six			Six			Fiscal
	Months Ended			Months Ended			Year Ended
(In thousands)	December 31,			December 31,			June 30,
	2016			2015			2016
Balance at beginning of the period	$	39		$	379		$	379
Accrual of expense		173			223			469
Payments		(205	)		(314	)		(742	)
Adjustments		--			(58	)		(67	)
Balance at end of the period	$	7		$	230		$	39

NOTE 14 – RESTRUCTURING COSTS

On September 22, 2016, the Company announced plans to close its lighting facility in Kansas City, Kansas. The decision was based upon the market shift away from fluorescent and other technologies and the rapid movement to LED lighting which is produced at other LSI facilities. The Company expects to continue to meet the demand for products containing fluorescent light sources as long as these products are commercially viable. All operations at the Kansas City facility ceased prior to December 31, 2016. Total restructuring costs related to the closure of the Kansas City facility are expected to be approximately $900,000. These costs primarily include employee-related costs (primarily severance), the impairment of manufacturing equipment, plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs. In addition, there was also an inventory write-down of $400,000 recorded in the first quarter of fiscal 2017. The write-down was related to inventory that was previously realizable until the decision in the first quarter of fiscal 2017 to shut down the Kanas City plant due to the planned curtailment of the manufacturing of fluorescent light fixtures. The Company owns the facility in Kansas City and expects to realize a gain when the facility is sold. The facility is presented on the balance sheet as an asset held for sale.

Page 22

The Company also announced the consolidation of the Beaverton, Oregon facility into other LSI facilities. The light assembly of products in the Beaverton facility was moved to the Company’s Columbus, Ohio facility, and administration and engineering functions were moved to the Company’s Cincinnati, Ohio facility. This consolidation was completed September 30, 2016. As a result of this consolidation, restructuring charges of $362,000 were recorded in the first half of fiscal 2017, with the majority of this representing the costs related to the remaining period of the facility’s lease and severance costs for employees who formerly worked in the Beaverton facility.

In November 2016, the Company announced the consolidation of the Woonsocket, Rhode Island manufacturing operation into its North Canton, Ohio operation. The manufacturing operations in Woonsocket ceased prior to December 31, 2016. The Company owns the facility in Woonsocket and expects to realize a gain when the facility is sold. The facility is presented on the balance sheet as an asset held for sale. Total restructuring costs related to the consolidation of the Woonsocket facility are expected to be approximately $300,000. These costs primarily include employee-related costs (severance), plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs.

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

	Three		Six Months		Total Expected		Total
	Months Ended		Ended		to be Recognized		Fiscal 2017
(In thousands)	December 31,		December 31,		in Remainder of		Restructuring
	2016		2016		Fiscal 2017		Expenses
Severance and other termination benefits	$	526	$	691	$	77	$	768
Lease obligation		--		213		--		213
Impairment of fixed assets and accelerated depreciation		80		353		--		353
Other		91		96		132		228
Total	$	697	$	1,353	$	209	$	1,562

Impairment and accelerated depreciation expense of $353,000 was recorded in the first half of fiscal 2017 related to machinery and equipment at the Kansas City and Beaverton facilities. There was no impairment expense related to the closure of the Woonsocket facility. Of the $353,000 of impairment and accelerated depreciation expense, $322,000 was recorded in the Lighting Segment and $31,000 was recorded in the Technology Segment. The fair value of the equipment evaluated for impairment was determined by comparing the future undiscounted cash flows to the carrying value of the assets. The future cash flows are from the remaining use of the assets as well as the cash flows expected to result from the future sale of the assets.

The following table presents restructuring costs incurred by line item in the consolidated statement of operations in which the costs are included:

	Three Months Ended		Six Months Ended
(In thousands)	December 31		December 31
	2016		2016
Cost of Goods Sold	$	640	$	1,143
Operating Expenses		57		210
Total	$	697	$	1,353

Page 23

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

	Three			Six Months		Total Expected		Total
	Months Ended			Ended		to be Recognized		Fiscal 2017
(In thousands)	December 31,			December 31,		In Remainder of		Restructuring
	2016			2016		Fiscal 2017		Expenses
Lighting Segment	$	479		$	770	$	130	$	900
Graphics Segment		221			221		79		300
Technology Segment		(3	)		251		--		251
Corporate and Eliminations		--			111		--		111
Total	$	697		$	1,353	$	209	$	1,562

The above tables exclude the expected gain on the sale of the Kansas City and Woonsocket facilities. Additionally, the above tables do not include expense of $400,000 recorded during the first quarter of fiscal 2017 related to the write-down of inventory included as cost of sales as part of the Kansas City facility closure.

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

(In thousands)
	Balance as of June 30, 2016		Restructuring Expense		Payments			Adjustments			Balance as of December 31, 2016
Severance and termination benefits	$	--	$	691	$	(306	)	$	(3	)	$	382
Lease obligation		--		213		(43	)		--			170
Other		--		96		(90	)		--			6
Total	$	--	$	1,000	$	(439	)	$	(3	)	$	558

The above table does not include fixed asset impairment and accelerated depreciation expense of $353,000 recorded in the first six months of fiscal 2017.

Refer to Note 13 for information regarding additional severance expenses that are not included in the restructuring costs identified in this footnote.

NOTE 15 – INCOME TAXES

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

Page 24

	Three Months Ended						Six Months Ended
	December 31						December 31
	2016			2015			2016			2015
Reconciliation to effective tax rate:
Provision for income taxes at the anticipated annual tax rate		30.4	%		33.3	%		30.8	%		34.5	%
Enactment of tax law changes		--			(2.0	)		--			(1.0	)
Uncertain tax positions		(0.6	)		(0.3	)		(0.8	)		(0.3	)
Deferred tax asset adjustment		--			--			(1.8	)		--
Other		(0.5	)		(1.2	)		(0.6	)		(0.7	)
Effective tax rate		29.3	%		29.8	%		27.6	%		32.5	%

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

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

Net Sales by Business Segment
(In thousands)	Three Months Ended				Six Months Ended
	December 31				December 31
	2016		2015		2016		2015
Lighting Segment	$	60,169	$	59,601	$	120,539	$	118,676
Graphics Segment		20,582		21,206		39,476		43,536
Technology Segment		4,907		3,880		9,802		8,400
	$	85,658	$	84,687	$	169,817	$	170,612

Operating Income (Loss) by Business Segment
(In thousands)	Three Months Ended						Six Months Ended
	December 31						December 31
	2016			2015			2016			2015
Lighting Segment	$	2,738		$	5,182		$	5,529		$	10,864
Graphics Segment		1,174			1,959			2,191			4,193
Technology Segment		924			1,069			1,652			2,336
Corporate and Eliminations		(2,018	)		(2,830	)		(5,488	)		(6,250	)
	$	2,818		$	5,380		$	3,884		$	11,143

Summary Comments

Fiscal 2017 second quarter net sales of $85,658,000 increased slightly as compared to second quarter fiscal 2016 net sales of $84,687,000. Net sales were favorably influenced by increased net sales of the Lighting Segment (up $0.6 million or 1.0%) and increased net sales of the Technology Segment (up $1.0 million or 26.5%). Net sales were unfavorably influenced by decreased net sales of the Graphics Segment (down $0.6 million or 2.9%).

Page 25

Fiscal 2017 first half net sales of $169,817,000 decreased $0.8 million or 0.5% as compared to the same period of fiscal 2016. Net sales were favorably influenced by increased net sales of the Lighting Segment (up $1.9 million or 1.6%) and increased net sales of the Technology Segment (up $1.4 million or 16.7%). Net sales were unfavorably influenced by decreased net sales of the Graphics Segment (down $4.1 million or 9.3%).

Fiscal 2017 second quarter operating income of $2,818,000 decreased $2.6 million or 48% from operating income of $5,380,000 in the same period of fiscal 2016. The $2.6 million decrease in operating income was the net result of a decrease in gross profit on slightly higher sales year-over-year, similar selling and administrative expenses, and restructuring and plant closure costs of $697,000 in the second quarter of fiscal 2017 with no comparable costs in fiscal 2016. Fiscal 2017 second quarter operating income was favorably impacted by significant adjustments to the Company’s incentive compensation and stock compensation accruals. The adjustments affected fluctuations in employee compensation and benefits expense described below in the discussion of each segment’s results.   

Fiscal 2017 first half operating income of $3,884,000 decreased $7.3 million or 65% from operating income of $11,143,000 in the same period of fiscal 2016. The $7.3 million decrease in operating income was the net result of decreased net sales, decreased gross profit, an increase in selling and administrative expenses, and restructuring, plant closure costs, and related inventory write-downs of $1,753,000 with no comparable costs in fiscal 2016. Fiscal 2017 first half operating income was favorably impacted by significant adjustments to the Company’s incentive compensation and stock compensation accruals. The adjustments affected fluctuations in employee compensation and benefits expense described below in the discussion of each segment’s results.   

Non-GAAP Financial Measures

The Company believes it is appropriate to evaluate its performance after making adjustments to the as-reported U.S. GAAP operating income, net income, and earnings per share. Adjusted operating income, net income and earnings per share, which exclude the impact of restructuring and plant closure costs, along with severance costs, are non-GAAP financial measures. We believe that these adjusted supplemental measures are useful in assessing the operating performance of our business. These supplemental measures are used by our management, including our chief operating decision maker, to evaluate business results. We exclude these items because they are not representative of the ongoing results of operations of our business. Below is a reconciliation of these non-GAAP measures to operating income, net income, and earnings per share for the periods indicated.

(in thousands, unaudited)	Second Quarter
	FY 2017		FY 2016
Reconciliation of operating income to adjusted operating income:
Operating Income as reported	$	2,818	$	5,380
Adjustment for restructuring and plant closure costs		697		--
Adjustment for other severance costs		28		223
Adjusted Operating Income	$	3,543	$	5,603

Page 26

(in thousands, except per share data; unaudited)	Second Quarter
				Diluted					Diluted
	FY 2017			EPS		FY 2016			EPS
Reconciliation of net income to adjusted net income:
Net income and earnings per share as reported	$	2,006		$	0.08	$	3,782		$	0.15
Adjustment for restructuring and plant closure costs, inclusive of the income tax effect		448	(1)		0.02		--			--
Adjustment for severance costs, inclusive of the income tax effect		23	(2)		--		146	(3)		0.01
Adjusted net income and earnings per share	$	2,477		$	0.10	$	3,928		$	0.15

The income tax effects of the adjustments in the tables above were calculated using the estimated U.S. effective income tax rates re-computed after considering non-GAAP adjustments for the periods indicated. The income tax effects were as follows (in thousands):

⁽¹⁾ 249

⁽²⁾ 5

⁽³⁾ 77

(in thousands, unaudited)	First Half
	FY 2017		FY 2016
Reconciliation of operating income to adjusted operating income:
Operating Income as reported	$	3,884	$	11,143
Adjustment for restructuring, plant closure costs, and related inventory write-downs		1,753		--
Adjustment for other severance costs		173		223
Adjusted Operating Income	$	5,810	$	11,366

Page 27

(in thousands, except per share data; unaudited)	First Half
				Diluted					Diluted
	FY 2017			EPS		FY 2016			EPS
Reconciliation of net income to adjusted net income:
Net income and earnings per share as reported	$	2,835		$	0.11	$	7,532		$	0.30
Adjustment for restructuring, plant closure costs, and related inventory write-downs inclusive of the income tax effect		1,143	(1)		0.04		--			--
Adjustment for other severance costs, Inclusive of the income tax effect		120	(2)		--		146	(3)		0.01
Adjusted net income and earnings per share	$	4,098		$	0.16	$	7,678		$	0.30

The income tax effects of the adjustments in the tables above were calculated using the estimated U.S. effective income tax rates re-computed after considering non-GAAP adjustments for the periods indicated. The income tax effects were as follows (in thousands):

⁽¹⁾ 610

⁽²⁾ 53

⁽³⁾ 77

Results of Operations

THREE MONTHS ENDED DECEMBER 31, 2016 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2015

Lighting Segment

(In thousands)	Three Months Ended
	December 31
Net Sales	$	60,169	$	59,601
Gross Profit	$	14,570	$	15,669
Operating Income	$	2,738	$	5,182

Lighting Segment net sales of $60,169,000 in the second quarter of fiscal 2017 increased 1.0% from fiscal 2016 same period net sales of $59,601,000. The Lighting Segment’s net sales of light fixtures having solid-state LED technology totaled $46.1 million in the second quarter of fiscal 2017, representing a $4.5 million or 10.9% increase from fiscal 2016 second quarter net sales of solid-state LED light fixtures of $41.6 million. Net sales of light fixtures having solid-state LED technology accounted for 76.7% of total Lighting Segment net sales in the second quarter of fiscal 2017 compared to 69.8% of total Lighting Segment net sales in the second quarter of fiscal 2016. There was a reduction in the Company’s traditional lighting sales (metal halide and fluorescent light sources) from second quarter fiscal 2016 to second quarter fiscal 2017 as customers converted from traditional lighting to light fixtures having solid-state LED technology.

Page 28

Lighting Segment total net sales of solid-state LED technology in light fixtures have been recorded as indicated in the table below.

		LED Net Sales
(In thousands)		FY 2017		FY 2016		% Change
	First Quarter	$	43,146	$	37,393		15.4	%
	Second Quarter		46,137		41,612		10.9	%
	First Half	$	89,283		79,005		13.0	%
	Third Quarter				33,670
	Nine Months				112,675
	Fourth Quarter				42,810
	Full Year			$	155,485

Gross profit of $14,570,000 in the second quarter of fiscal 2017 decreased $1.1 million or 7.0% from the same period of fiscal 2016, and decreased from 25.9% to 23.9% as a percentage of Lighting Segment net sales (customer plus inter-segment net sales). The Company incurred restructuring and plant closure costs that were recorded in cost of sales related to the closure of the Kansas City, Kansas manufacturing facility of $432,000 in the second quarter of fiscal 2017 with no comparable costs in the second quarter of fiscal 2016. The remaining $0.7 million decrease in the amount of gross profit is due to the net effect of increased product sales, improved manufacturing efficiencies as a result of the Company’s lean initiatives, competitive pricing pressures, product mix, and inflationary pressures including the rising cost of steel, aluminum, copper, and other commodities. Also contributing to the change in gross profit is decreased employee compensation and benefits expense ($0.4 million), decreased warranty expense ($0.2 million), increased rent expense ($0.1 million increase), increased depreciation expense ($0.1 million increase), and increased customer relations expense ($0.1 million).

Selling and administrative expenses of $11,832,000 in the second quarter of fiscal 2017 increased $1.3 million or 12.8% from the same period of fiscal 2016. The increase is primarily the net result of increased sales commission expense ($1.3 million increase), decreased research and development expense ($0.1 million), increased bad debt expense ($0.1 million), a loss on the sale of fixed assets ($0.1 million), small net decreases in expense in other categories, and restructuring expenses of $47,000 in the second quarter of fiscal 2017 with no comparable expenses in fiscal 2016.

The Lighting Segment second quarter fiscal 2017 operating income of $2,738,000 decreased $2.4 million or 47% from operating income of $5,182,000 in the same period of fiscal 2016. This decrease of $2.4 million was primarily the net result of increased net sales, a reduction in gross profit, increased selling and administrative expenses, and restructuring and plant closure costs of $479,000 with no comparable costs in fiscal 2016.

On September 22, 2016, the Company announced plans to close its lighting facility in Kansas City, Kansas. The decision was based upon the market shift away from fluorescent and other technologies and the rapid movement to LED lighting which is produced at other LSI facilities. All operations at the Kansas City facility ceased prior to December 31, 2016. The Company expects closure of this facility to result in annual net operating profit improvement and cost savings of approximately $1.4 million before consideration of the restructuring, inventory write-down costs, and expected gain on the sale of the facility. Realization of such savings is expected to start in the third quarter of fiscal 2017.

Graphics Segment

(In thousands)		Three Months Ended
		December 31
		2016		2015
	Net Sales	$	20,582	$	21,206
	Gross Profit	$	4,918	$	6,298
	Operating Income	$	1,174	$	1,959

Graphics Segment net sales of $20,582,000 in the second quarter of fiscal 2017 decreased $0.6 million or 2.9% from fiscal 2016 same period net sales of $21,206,000. The $0.6 million decrease in Graphics Segment net sales is the net result of sales to the petroleum / convenience store market ($0.3 million net decrease), sales to the retail grocery market ($0.5 million net decrease), sales to the national retail drug store market ($0.5 million decrease), sales to the quick serve restaurant market ($0.3 million net increase), and changes in volume or completion of several other graphics programs ($0.4 million net increase).

Page 29

Gross profit of $4,918,000 in the second quarter of fiscal 2017 decreased $1.4 million or 21.9% from the same period of fiscal 2016. Gross profit as a percentage of Graphics Segment net sales (customer plus inter-segment net sales) decreased from 28.9% in the second quarter of fiscal 2016 to 23.1% in the second quarter of fiscal 2017. The Company incurred restructuring and plant closure costs of $211,000 in the second quarter of fiscal 2017 with no comparable costs in the prior year. The remaining change in the amount of gross profit is due to the net effect of decreased net product sales (customer plus inter-segment net product sales were down $0.9 million or 5.5%), a slight increase in installation sales (customer plus inter-segment installation sales were up $0.1 million or 2.1%) and a slight increase in the gross profit margin on installation sales, increased shipping and handling costs as a percentage of shipping and handling sales, decreased employee and compensation expense ($0.4 million), increased depreciation expense ($0.1 million), and increased supplies expense ($0.1 million).

Selling and administrative expenses of $3,744,000 in the second quarter of fiscal 2017 decreased $0.6 million or 13.7% from the same period of fiscal 2016 primarily as the net result of decreased employee compensation and benefits expense ($0.8 million), increased convention and shows expense ($0.1 million), and small increases in expense in other categories.

The Graphics Segment second quarter fiscal 2017 operating profit of $1,174,000 decreased $0.8 million or 40% from the same period of fiscal 2016. The $0.8 million decrease from fiscal 2016 was the net result of decreased net sales, decreased gross profit and decreased gross margin as a percentage of sales, decreased selling and administrative expenses, and restructuring and plant closure costs of $221,000 with no comparable costs in fiscal 2016.

In November 2016, the Company announced the consolidation of the Woonsocket, Rhode Island manufacturing operation into its North Canton, Ohio operation. The manufacturing operations in Woonsocket ceased prior to December 31, 2016. The Company expects closure of this facility to result in annual net operating profit improvement and cost savings of approximately $680,000, before consideration of the restructuring costs.

Technology Segment

(In thousands)		Three Months Ended
		December 31
		2016		2015
	Net Sales	$	4,907	$	3,880
	Gross Profit	$	1,824	$	1,997
	Operating Income	$	924	$	1,069

Technology Segment net sales of $4,907,000 in the second quarter of fiscal 2017 increased $1.0 million or 26.5% from fiscal 2016 same period net sales of $3,880,000. The $1.0 million increase in Technology Segment net sales is primarily the net result of a $0.9 million increase in sales to the transportation market, a $0.1 million increase in sales to the medical market, a $0.1 million decrease in sales to the original equipment manufacturing market, and a $0.1 million increase in sales to various other markets. Technology Segment inter-segment sales decreased $0.6 million or 6.6%. While the Technology Segment’s intercompany sales decreased, the support of electronic circuit boards and lighting control systems to the Lighting Segment continues to be core to the strategic growth of the Company.

Gross profit of $1,824,000 in the second quarter of fiscal 2017 decreased $0.2 million or 8.7% from the same period in fiscal 2016, and decreased from 15.6% to 13.8% as a percentage of net sales (customer plus inter-segment net sales). The $0.2 million decrease in gross profit is due to the net effect of increased customer net sales partially offset by decreased inter-segment sales, increased supplies expense ($0.1 million), increased warranty expense ($0.2 million), and decreased outside services expense ($0.1 million).

Selling and administrative expenses of $900,000 in the second quarter of fiscal 2017 decreased 3.0% from fiscal 2016 selling and administrative expenses of $928,000. A decrease in research and development expense of $0.1 million was offset by an increase in outside services expense of $0.1 million.

The Technology Segment second quarter fiscal 2017 operating income of $924,000 decreased $0.1 million or 13.6% from operating income of $1,069,000 in the same period of fiscal 2016. The $0.1 million decrease in operating income was primarily the net result of increased customer net sales more than offset by decreased inter-segment sales, and decreased gross profit.

In September 2016, the Company announced the consolidation of the Beaverton, Oregon facility into other LSI facilities. The light assembly of products in the Beaverton facility was moved to the Company’s Columbus, Ohio facility, and administration and engineering functions were moved to the Company’s Cincinnati, Ohio facility. This consolidation was completed September 30, 2016. The consolidation of this facility and net reduction of employment is expected to result in annual cost savings of approximately $450,000. Realization of such savings started in the second quarter of fiscal 2017.

Page 30

Corporate and Eliminations

(In thousands)		Three Months Ended
		December 31
		2016			2015
	Gross Profit (Loss)	$	95		$	(38	)
	Operating (Loss)	$	(2,018	)	$	(2,830	)

The gross profit (loss) relates to the change in the intercompany profit in inventory elimination.

Administrative expenses of $2,113,000 in the second quarter of fiscal 2017 decreased $0.7 million or 24.3% from the same period of the prior year. The $0.7 million decrease in expense is primarily the result of decreased employee compensation and benefit expense ($1.2 million), an increase in legal fee expense ($0.1 million), increased outside service expense ($0.2 million), and an increase in research and development costs ($0.2 million).

Consolidated Results

The Company reported net interest income of $20,000 in the second quarter of fiscal 2017 as compared to net interest income of $8,000 in the same period of fiscal 2016. Commitment fees related to the unused portions of the Company’s lines of credit and interest income on invested cash are included in both fiscal years. The increase in net interest income is directly related to the increase in invested cash and an increase in the interest rate earned on invested cash.

The $832,000 income tax expense in the second quarter of fiscal 2017 represents a consolidated effective tax rate of 29.3%. This is the net result of an income tax rate of 30.8% influenced by certain permanent book-tax differences and by a benefit related to uncertain income tax positions. The $1,606,000 income tax expense in the second quarter of fiscal 2016 represents a consolidated effective tax rate of 29.8%. This is the net result of an income tax rate of 34.5% influenced by certain permanent book-tax differences, an $111,000 tax benefit related to the retroactive reinstatement of the R&D tax credit, and a benefit related to uncertain income tax positions.

The Company reported net income of $2,006,000 in the second quarter of fiscal 2017 as compared to net income of $3,782,000 in the same period of the prior year. The change in net income is primarily the net result of decreased gross profit on slightly higher sales, similar selling and administrative expenses, and a slightly lower effective tax rate in fiscal 2017 compared to fiscal 2016. Also contributing to the lower net income are pre-tax restructuring costs of $697,000 recorded in the second quarter of fiscal 2017 with no comparable costs in fiscal 2016. Diluted earnings per share of $0.08 were reported in the second quarter of fiscal 2017 as compared to diluted earnings per share of $0.15 in the same period of fiscal 2016. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the second quarter of fiscal 2017 were 25,803,000 shares as compared to 25,624,000 shares in the same period last year.

SIX MONTHS ENDED DECEMBER 31, 2016 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2015

Lighting Segment
	(In thousands)	Six Months Ended
		December 31
		2016		2015
	Net Sales	$	120,539	$	118,676
	Gross Profit	$	29,161	$	31,341
	Operating Income	$	5,529	$	10,864

Lighting Segment net sales of $120,539,000 in the first half of fiscal 2017 increased 1.6% from fiscal 2016 same period net sales of $118,676,000. The Lighting Segment’s net sales of light fixtures having solid-state LED technology totaled $89.3 million in the first half of fiscal 2017, representing a 13.0% increase from first half fiscal 2016 net sales of solid-state LED light fixtures of $79.0 million. Net sales of light fixtures having solid-state LED technology accounted for 74.1% of total Lighting Segment net sales. (See the LED net sales table on page 28.) There was a reduction in the Company’s traditional lighting sales (metal halide and fluorescent light sources) from fiscal 2016 to fiscal 2017 as customers converted from traditional lighting to light fixtures having solid-state LED technology.

Page 31

Gross profit of $29,161,000 in the first half of fiscal 2017 decreased $2.2 million or 7.0% from the same period of fiscal 2016, and decreased from 26.1% to 23.9% as a percentage of Lighting Segment net sales (customer plus inter-segment net sales).   The Company incurred restructuring and plant closure costs, including the write-down of inventory, that were recorded in cost of sales related to the closure of the Kansas City, Kansas manufacturing facility of $1,114,000 in fiscal 2017 with no comparable costs in fiscal 2016. The remaining $1.1 million decrease in gross profit is due to the net effect of increased net product sales, improved manufacturing efficiencies as a result of the Company’s lean initiatives, competitive pricing pressures, product mix, inflationary pressures including the rising cost of steel, aluminum, copper, and other commodities, and slightly lower freight costs as a percentage of net sales primarily due to initiatives to lower freight tariffs. Also contributing to the net change in gross profit is decreased employee compensation and benefits expense ($0.7 million), decreased warranty costs ($0.1 million), increased customer relations expense ($0.3 million), increased repairs and maintenance expense ($0.1 million), increased depreciation expense ($0.2 million), increased rent expense ($0.2 million), and increased outside service expense ($0.2 million).

Selling and administrative expenses of $23,632,000 in the first half of fiscal 2017 increased $3.2 million or 15.4% from the same period of fiscal 2016. The $3.2 million increase is primarily the result of increased employee compensation and benefit expense ($0.5 million), increased samples expense ($0.1 million), increased outside service expense ($0.1 million), increased sales commission expense ($1.9 million), increased bad debt expense ($0.1 million), decreased literature expense ($0.1 million), a loss on the sale of fixed assets ($0.1 million), use tax recorded on current and prior year purchases as a result of a use tax audit conducted at the Company’s Blue Ash, Ohio facility ($0.2 million), and small net increases in several other categories. Also contributing to the increase in selling and administrative expenses are restructuring and plant closure costs of $56,000 related to the closure of the Kansas City, Kansas manufacturing facility that were recorded in fiscal 2017 with no comparable costs in fiscal 2016.

Lighting Segment first half fiscal 2017 operating income of $5,529,000 decreased $5.3 million or 49.1% from operating income of $10,864,000 in the same period of fiscal 2016.  This decrease of $5.3 million was the net result of increased net sales, a decrease in gross profit, increased selling and administrative expenses, and restructuring, plant closure costs, and related inventory write-downs of $1.2 million with no comparable costs in fiscal 2016.

On September 22, 2016, the Company announced plans to close its lighting facility in Kansas City, Kansas. The decision was based upon the market shift away from fluorescent and other technologies and the rapid movement to LED lighting which is produced at other LSI facilities. All operations at the Kansas City facility ceased prior to December 31, 2016. The Company expects closure of this facility to result in annual net operating profit improvement and cost savings of approximately $1.4 million before consideration of the restructuring, inventory write-down costs, and expected gain on the sale of the facility. Realization of such savings is expected to start in the third quarter of fiscal 2017.

Graphics Segment
	(In thousands)	Six Months Ended
		December 31
		2016		2015
	Net Sales	$	39,476	$	43,536
	Gross Profit	$	9,358	$	11,853
	Operating Income	$	2,191	$	4,193

Graphics Segment net sales of $39,476,000 in the first half of fiscal 2017 decreased 9.3% from fiscal 2016 same period net sales of $43,536,000.  The $4.1 million decrease in Graphics Segment net sales is primarily the net result of sales to the petroleum / convenience store market ($2.2 million net decrease), sales to the retail grocery market ($0.9 million net decrease), sales to the national retailer drug store market ($1.9 million decrease), sales to the quick-service restaurant market ($0.6 million net increase), sales to the retail market ($0.4 million increase), and changes in volume or completion of several other graphics programs ($0.1 million net decrease).

Gross profit of $9,358,000 in the first half of fiscal 2017 decreased $2.5 million or 21.0% from the same period in fiscal 2016, and decreased from 26.6% to 23.2% as a percentage of Graphics Segment net sales (customer plus inter-segment net sales). The Company incurred restructuring and plant closure costs that were recorded in cost of sales related to the closure of the Woonsocket, Rhode Island manufacturing facility of $211,000. The remaining $2.3 million decrease in the amount of gross profit is due to the net effect of decreased net product sales (customer plus inter-segment net product sales were down $3.0 million or 8.7%), a drop in installation sales (customer plus inter-segment installation sales were down $1.7 million or 24.6%) partially offset by higher margins on installation sales, decreased freight expense as a percentage of shipping and handling revenue, increased depreciation expense ($0.3 million), increased real estate taxes ($0.1 million), and decreased compensation and benefit expense ($0.4 million).  

Page 32

Selling and administrative expenses of $7,167,000 in the first half of fiscal 2017 decreased $0.5 million or 6.4% from the same period of fiscal 2016 primarily as a result of decreased compensation and benefit expense ($1.0 million), increased outside services expense ($0.2 million), increased convention and shows expense ($0.1 million), increased travel expense ($0.1 million), and increased supplies expense ($0.1 million).

Graphics Segment first half fiscal 2017 operating income of $2,191,000 decreased $2.0 million or 48% from the same period of fiscal 2016 and is the net result of decreased net sales, decreased gross profit and decreased gross profit as a percentage of net sales, decreased selling and administrative expenses, and restructuring and plant closure costs of $221,000 with no comparable costs in fiscal 2016.

In November 2016, the Company announced the consolidation of the Woonsocket, Rhode Island manufacturing operation into its North Canton, Ohio operation. The manufacturing operations in Woonsocket ceased prior to December 31, 2016. The Company expects closure of this facility to result in annual net operating profit improvement and cost savings of approximately $680,000, before consideration of the restructuring costs.

Technology Segment
	(In thousands)	Six Months Ended
		December 31
		2016		2015
	Net Sales	$	9,802	$	8,400
	Gross Profit	$	3,551	$	4,177
	Operating Income	$	1,652	$	2,336

Technology Segment net sales of $9,802,000 in the first half of fiscal 2017 increased $1.4 million or 16.7% from fiscal 2016 same period net sales of $8,400,000.  The $1.4 million increase in Technology Segment net sales is primarily the net result of a $0.1 million increase in sales to the medical market, a $1.6 million increase in sales to the transportation market, a $0.1 million decrease in sales to original equipment manufacturers, a $0.1 million decrease in sales to the telecommunication market, and a $0.1 million decrease in sales to various other markets. Technology Segment inter-segment sales decreased $1.2 million or 6.5%. While the Technology Segment’s intercompany sales decreased, the support of electronic circuit boards and lighting control systems to the Lighting Segment continues to be core to the strategic growth of the Company.

Gross profit of $3,551,000 in the first half of fiscal 2017 decreased $0.6 million or 15.0% from the same period of fiscal 2016, and decreased from 15.6% to 13.2% as a percentage of Technology Segment net sales (customer plus inter-segment net sales). The Company incurred restructuring charges of $0.2 million related to the consolidation of its Beaverton, Oregon facility into other LSI facilities, with no comparable costs in fiscal 2016. The remaining $0.4 million decrease in amount of gross profit is due to the net effect of increased customer net sales, partially offset by decreased inter-segment sales, increased employee compensation and benefits expense ($0.3 million), increased supplies expense ($0.3 million), increased warranty expense ($0.1 million), and decreased outside services expense ($0.2 million).

Selling and administrative expenses of $1,899,000 in the first half of fiscal 2017 increased $58,000 or 3.2% from the same period of fiscal 2016. The increase in selling and administrative expenses is the net result of an increase in employee compensation and benefit expense ($0.1 million), an increase in outside services expense ($0.1 million), and a decrease in research and development expense ($0.2 million). Also contributing to the increase in selling and administrative expenses are $33,000 in restructuring costs recorded in the first half of fiscal 2017 related to the consolidation of its Beaverton, Oregon facility into other LSI facilities with no comparable costs in fiscal 2016.

Technology Segment first half fiscal 2017 operating income of $1,652,000 decreased $0.7 million or 29% from operating income of $2,336,000 in the same period of fiscal 2016. The decrease of $0.7 million was the net result of increased net customer sales, decreased inter-segment sales, restructuring costs in fiscal 2017 with no comparable costs in fiscal 2016, and decreased gross profit.

In September 2016, the Company announced the consolidation of the Beaverton, Oregon facility into other LSI facilities. The light assembly of products in the Beaverton facility was moved to the Company’s Columbus, Ohio facility, and administration and engineering functions were moved to the Company’s Cincinnati, Ohio facility. This consolidation was completed September 30, 2016. The consolidation of this facility and net reduction of employment is expected to result in annual cost savings of approximately $450,000. Realization of such savings started in the second quarter of fiscal 2017.

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Corporate and Eliminations
	(In thousands)	Six Months Ended
		December 31
		2016			2015
	Gross Profit (Loss)	$	172		$	(96	)
	Operating (Loss)	$	(5,488	)	$	(6,250	)

The gross profit (loss) relates to the change in the intercompany profit in inventory elimination.

Administrative expenses of $5,660,000 in the first half of fiscal 2017 decreased $0.5 million or 8.0% from the same period of the prior year. The $0.5 million change in administrative expenses is primarily the net result of decreased employee compensation and benefit expense ($1.3 million), an increase in legal expense ($0.2 million), decreased depreciation expense ($0.1 million), increased research and development expense ($0.3 million), increased telephone expense ($0.1 million), and several small net increases in various other expenses ($0.2 million). Also contributing to the increased administrative expenses are restructuring costs of $0.1 million recorded in fiscal 2017 related to the consolidation of its Beaverton, Oregon facility into other LSI facilities, with no comparable costs in fiscal 2016. These restructuring expenses were primarily for severance costs for employees located in the Beaverton, Oregon facility that were previously included in corporate research and development expenses.

Consolidated Results

The Company reported net interest income of $34,000 in the first half of fiscal 2017 as compared to net interest income of $8,000 in the same period of fiscal 2016. Commitment fees related to the unused portions of the Company’s lines of credit and interest income on invested cash are included in both fiscal years. The increase in net interest income is directly related to the increase in invested cash and an increase in the interest rate earned on invested cash.

The $1,083,000 income tax expense in the first half of fiscal 2017 represents a consolidated effective tax rate of 27.6%. This is the net result of an income tax rate of 30.8% influenced by certain permanent book-tax differences, by a benefit related to uncertain income tax positions, and by a favorable adjustment to a deferred tax asset. The $3,619,000 income tax expense in the first half of fiscal 2016 represents a consolidated effective tax rate of 32.5%. This is the net result of an income tax rate of 34.5% influenced by certain permanent book-tax differences, an $111,000 tax benefit related to the retroactive reinstatement of the R&D tax credit, and by a benefit related to uncertain income tax positions.

The Company reported net income of $2,835,000 in the first half of fiscal 2017 compared to net income of $7,532,000 in the same period of the prior year.  The $4.7 million decrease in net income is primarily the net result of decreased net sales, decreased gross profit, increased operating expenses, restructuring and plant closure costs in fiscal 2017 with no comparable costs in fiscal 2016, and lower income tax expense in fiscal 2017 compared to fiscal 2016.  Diluted earnings per share of $0.11 was reported in the first half of fiscal 2017 as compared to diluted earnings per share of $0.30 in the same period of fiscal 2016. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the first half of fiscal 2017 was 25,859,000 shares as compared to 25,405,000 shares in the same period last year.

Liquidity and Capital Resources 

The Company considers its level of cash on hand, borrowing capacity, current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and its historical levels of net cash flows from operating activities to be the most important measures.

At December 31, 2016, the Company had working capital of $94.2 million, compared to $88.5 million at June 30, 2016. The ratio of current assets to current liabilities was 3.55 to 1 as compared to a ratio of 3.26 to 1 at June 30, 2016. The $5.7 million increase in working capital from June 30, 2016 to December 31, 2016 was primarily related to the net effect of decreased cash and cash equivalents ($0.8 million), increased net accounts receivable ($2.6 million), decreased net inventory ($1.7 million), a decrease in accrued expenses ($2.4 million), an increase in other current assets ($0.2 million), and assets held for sale of $3.2 million at December 31, 2016. The Company has a strategy of aggressively managing working capital, including reduction of the accounts receivable days sales outstanding (DSO) and reduction of inventory levels, without reducing service to its customers.

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The Company generated $4.6 million of cash from operating activities in the first half of fiscal 2017 as compared to $5.5 million in the same period of the prior year. This $0.9 million decrease in net cash flows from operating activities is primarily the net result of an increase rather than a decrease in net accounts receivable (unfavorable change of $3.1 million), a smaller decrease in accounts payable (favorable change of $5.8 million), a smaller increase in customer prepayments (unfavorable change of $0.2 million), a decrease rather than an increase in inventory (favorable change of $4.5 million), a decrease rather than an increase in accrued expenses and other (unfavorable change of $3.6 million), an increase in refundable income taxes in fiscal 2016 (favorable change of $0.5 million), a greater increase in net deferred tax assets (unfavorable change of $0.5 million), a decrease in stock compensation expense (unfavorable change of $0.3 million), a decrease in the deferred compensation liability (unfavorable change of $0.1 million), an increase in depreciation and amortization expense (favorable change of $0.4 million), fixed asset impairment and accelerated depreciation with no comparable events in the prior year (favorable change of $0.4 million), an increase in the loss on the sale of fixed assets ($0.1 million), and a decrease in net income (unfavorable change of $4.7 million).

Net accounts receivable were $49.5 million and $47.0 million at December 31, 2016 and June 30, 2016, respectively. DSO increased to 53 days at December 31, 2016 compared to 47 days at June 30, 2016. The Company believes that its receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.

Net inventories of $42.4 million at December 31, 2016 decreased $1.7 million from $44.1 million at June 30, 2016. The decrease of $1.7 million is the result of a decrease in gross inventory of $1.7 million and similar obsolescence reserves. Based on a strategy of balancing inventory reductions with customer service and the timing of shipments, net inventory increases occurred in the first half of fiscal 2017 in the Graphics Segment of approximately $0.6 million and in the Technology Segment of approximately $0.9 million. There was a decrease in net inventory in the Lighting Segment of $3.3 million.   

Cash generated from operations and borrowing capacity under the Company’s line of credit facility is the Company’s primary source of liquidity. The Company has an unsecured $30 million revolving line of credit with its bank, with all of the $30 million of the credit line available as of January 27, 2017. This line of credit is a $30 million three year committed credit facility expiring in the third quarter of fiscal 2019. The Company believes that its $30 million line of credit plus cash flows from operating activities are adequate for the Company’s fiscal 2017 operational and capital expenditure needs. The Company is in compliance with all of its loan covenants.

The Company used cash of $2.7 million related to investing activities in the first half of fiscal 2017 as compared to a use of $3.4 million in the same period of the prior year, resulting in a favorable change of $0.6 million. Capital expenditures in the first half of fiscal 2017 decreased $0.6 million to $2.7 million from the same period in fiscal 2016. The largest components of the fiscal 2017 capital expenditures are equipment and building improvements related to the Company’s Lighting and Graphics Segments and computer hardware and software related to Corporate Administration.

The Company used $2.7 million of cash related to financing activities in the first half of fiscal 2017 compared to a source of cash of $0.2 million in the first half of fiscal 2016. The $2.9 million unfavorable change in cash flow was the net result of an increase in dividends paid to shareholders (unfavorable change of $0.8 million), a decrease in the exercise of stock options in the first half of fiscal 2017 (unfavorable change of $2.0 million), and an increase in the purchase of treasury shares (unfavorable change of $0.1 million).

The Company has, or could have, on its balance sheet 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. 

Off-Balance Sheet Arrangements

The Company has no financial instruments with off-balance sheet risk and has no off-balance sheet arrangements.

Cash Dividends

In January 2017, the Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable February 14, 2017 to shareholders of record as of February 6, 2017. The indicated annual cash dividend rate for fiscal 2017 is $0.20 per share. The Board of Directors has adopted a policy regarding dividends which indicates that dividends will be determined by the Board of Directors in its discretion based upon its evaluation of earnings, cash flow requirements, financial condition, debt levels, stock repurchases, future business developments and opportunities, and other factors deemed relevant.

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Critical Accounting Policies and Estimates

The Company is required to make estimates and judgments in the preparation of its financial statements that affect the reported amounts of assets, liabilities, revenues and expenses, and related footnote disclosures.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  The Company continually reviews these estimates and their underlying assumptions to ensure they remain appropriate.  The Company believes the items discussed below are among its most significant accounting policies because they utilize estimates about the effect of matters that are inherently uncertain and therefore are based on management’s judgment.  Significant changes in the estimates or assumptions related to any of the following critical accounting policies could possibly have a material impact on the financial statements.

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 collectability is reasonably assured. 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 five 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 commissioning of lighting controls; revenue from the management of media content and digital hardware related to active digital signage; 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. In certain arrangements with customers, as is the case with the sale of some of our solid-state LED video screens, revenue is recognized upon customer acceptance of the video screen at the job site. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed.  The company provides product warranties and certain post-shipment service, support and maintenance of certain solid state LED video screens and billboards.

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 at a customer site have been installed.

Revenue from the management of media content and digital hardware related to active digital signage is recognized evenly over the service period with the customer. Media content service periods with most customers range from 1 month to 1 year.

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

In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separate unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company’s complete performance at the location, which may include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.

The Company also evaluates the appropriateness of revenue recognition in accordance with the accounting standard on software revenue recognition. Our solid-state LED video screens, billboards and active digital signage contain software elements which the Company has determined are incidental.

Income Taxes

 The Company accounts for income taxes in accordance with the accounting guidance for income taxes. Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes.  Deferred income tax assets and liabilities are reported on the Company’s balance sheet.  Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets. The Company has adopted ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” As a result of early adoption of this accounting guidance, prior periods have been re-classified, which only affected the financial statement presentation and not the measurement of deferred tax liabilities and assets.

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The Company operates in multiple taxing jurisdictions and is subject to audit in these jurisdictions.  The Internal Revenue Service and other tax authorities routinely review the Company’s tax returns.  These audits can involve complex issues which may require an extended period of time to resolve.  In management’s opinion, adequate provision has been made for potential adjustments arising from these audits.

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 Operations.  The reserve for uncertain tax positions is not expected to change significantly in the next twelve months.

Asset Impairment

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

Carrying values for long-lived tangible assets and definite-lived intangible assets, excluding goodwill and indefinite-lived intangible assets, are reviewed for possible impairment as circumstances warrant. Impairment reviews are conducted at the judgment of Company management when it believes that a change in circumstances in the business or external factors warrants a review.  Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the forecast for a product, changes in technology or in the way an asset is being used, a history of negative operating cash flow, or an adverse change in legal factors or in the business climate, among others, may trigger an impairment review.  The Company’s initial impairment review to determine if a potential impairment charge is required is based on an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist.  The analysis requires judgment with respect to changes in technology, the continued success of product lines and future volume, revenue and expense growth rates, and discount rates.

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, and then applying certain percentages against the various aging categories based on the due date 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 amount ultimately not collected may differ from the reserve established, particularly in the case where percentages are applied against aging categories.  In all cases, it is management’s goal to carry a reserve against the Company’s accounts receivable which is adequate based upon the information available at that time so that net accounts receivable is properly stated. 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 contractual terms and historical trends.

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Warranty Reserves

The Company offers a limited warranty that its products are free from defects in workmanship and materials.  The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within one to five years, with some exceptions where the terms extend to 10 years, from the date of shipment.  The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation.  The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues.  The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Inventory Reserves

The Company maintains an inventory reserve for probable obsolete and excess inventory. The Company first determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. Judgment is used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item.  Management values inventory at lower of cost or market.

New Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board issued ASU 2014-09, “Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improves disclosures about revenue. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.” In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” These three standards clarify or improve guidance from ASU 2014-09 and are effective for fiscal years and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal year 2019. The Company will adopt these standards no later than July 1, 2018. While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. These are largely unaffected by the new standard. However, certain product sales require installation and revenue is currently not recognized until the installation is complete. The Company does not expect this new guidance to have a material impact on the amount of overall sales recognized, however, the timing of sales on certain projects may be affected. The Company has not yet quantified this potential impact.

In July 2015, the Financial Accounting Standards Board issued ASU 2015-11, “Simplifying the Measurement of Inventory.” The amended guidance requires an entity to measure in scope inventory at lower of cost and net realizable value. The amended guidance is effective for fiscal years beginning after December 15, 2016, or the Company’s fiscal year 2018, with early adoption permitted. The Company is evaluating the impact the amended guidance will have on its financial statements.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” which eliminates the current requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in the statement of financial position. This update requires that deferred tax liabilities and assets be classified as noncurrent. This update is effective for financial statements issued for fiscal years beginning April 1, 2017. This update may be applied either prospectively or retrospectively. However, early adoption is permitted and the Company has chosen to adopt the standard retrospectively as of June 30, 2016. As a result, prior periods have been adjusted to reflect this change. This update affected the presentation, but not the measurement of deferred tax liabilities and assets.

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, “Leases.” The amended guidance requires an entity to recognize assets and liabilities that arise from leases. The amended guidance is effective for financial statements issued for fiscal years and interim periods within those years, beginning after December 15, 2018, or the Company’s fiscal year 2020, with early adoption permitted. The Company has not yet determined the impact the amended guidance will have on its financial statements.  

In March 2016, the Financial Accounting Standards Board issued ASU 2016-08, “Principal versus Agent Considerations.” The amendment is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amended guidance is effective for financial statements issued for fiscal years and interim periods within those years, beginning after December 15, 2017, or the Company’s fiscal year 2019, with early adoption permitted in fiscal years beginning after December 15, 2016. The Company has not yet determined the impact the amended guidance will have on its financial statements.

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In March 2016, the Financial Accounting Standards Board issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This amended guidance simplifies several aspects of the accounting for share-based payment award transactions. The amended guidance is effective for financial statements issued for fiscal years and interim periods within those years, beginning after December 15, 2016, or the Company’s fiscal year 2018, with early adoption permitted. The Company has not yet determined the impact the amended guidance will have on its financial statements. 

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This amendment provides additional guidance on the measurement of expected credit losses for financial assets based on historical experience, current conditions, and supportable forecasts. The amended guidance is effective for financial statements issued for fiscal years and interim periods within those years, beginning after December 15, 2019, or the Company’s fiscal year 2021. The Company is evaluating the impact of the amended guidance and the anticipated impact to the financial statements is not material.

In August 2016, the Financial Accounting Standards Board issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments,” which provides cash flow classification guidance for certain cash receipts and cash payments. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, or the Company’s fiscal year 2019. The Company is evaluating the impact the amended guidance will have on its financial statements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s exposure to market risk since June 30, 2016.  Additional information can be found in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, which appears on page 13 of the Annual Report on Form 10-K for the fiscal year ended June 30, 2016.

 ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as such term is defined Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We conducted, under the supervision of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016, our disclosure controls and procedures were effective. Management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with GAAP for interim financial statements, and the Company’s Chief Executive Officer and Chief Financial Officer have certified that, based on their knowledge, the condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for each of the periods presented in this report.

Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that control objectives are met. Because of inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any, within a company will be detected. Additionally, controls can be circumvented by individuals, by collusion of two or more people, or by management override. Over time, controls can become inadequate because of changes in conditions or the degree of compliance may deteriorate. Further, the design of any system of controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or fraud may occur and not be detected.

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Changes in Internal Control

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as otherwise described in this Item 4.

PART II.  OTHER INFORMATION

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) The Company does not purchase into treasury its own common shares for general purposes.  However, the Company does purchase its own common shares, through a Rabbi Trust, in connection with investments of employee/participants of the LSI Industries Inc. Non-Qualified Deferred Compensation Plan.  Purchases of Company common shares for this Plan in the second quarter of fiscal 2017 were as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
10/1/16 to 10/31/16	1,752	$8.72	1,752	(1)
11/1/16 to 11/30/16	1,541	$9.91	1,541	(1)
12/1/16 to 12/31/16	1,607	$9.95	1,607	(1)
Total	4,900	$9.50	4,900	(1)

(1) All acquisitions of shares reflected above have been made in connection with the Company's Non-Qualified Deferred Compensation Plan, which has been authorized for 575,000 shares of the Company to be held in and distributed by the Plan.  At December 31, 2016, the Plan held 263,506 common shares of the Company and had distributed 285,331 common shares.

ITEM 6.  EXHIBITS

Exhibits:

10.1	Amended and Restated 2012 Stock Incentive Plan as of November 17, 2016
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a)

31.2 Certification of Principal Financial Officer required by Rule 13a-14(a)

32.1 Section 1350 Certification of Principal Executive Officer

32.2 Section 1350 Certification of Principal Financial Officer

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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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, thereunto duly authorized.

	LSI Industries Inc.
	By:	/s/ Dennis W. Wells
		Dennis W. Wells
		Chief Executive Officer and President
		(Principal Executive Officer)
	By:	/s/ Ronald S. Stowell
		Ronald S. Stowell
		Vice President, Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)
February 3, 2017

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EX-10.1

EXHIBIT 10.1

LSI INDUSTRIES INC.

AMENDED AND RESTATED

2012 STOCK INCENTIVE PLAN

AS OF NOVEMBER 17, 2016

TABLE OF CONTENTS

1.	Purposes		1
2.	Definitions		1
3.	Administration of the Plan		5
	(a)	Authority of Committee	5
	(b)	Binding Authority	6
	(c)	Delegation of Authority	6
4.	Eligibility		7
5.	Common Shares Subject to the Plan		7
	(a)	Authorized Number of Common Shares	7
	(b)	Share Counting	7
	(c)	Award Limitations	8
	(d)	Shares to be Delivered	8
6.	Awards to Participants		8
	(a)	Stock Options	8
	(b)	Stock Appreciation Rights	10
	(c)	Restricted Shares and Restricted Share Units	11
	(d)	Performance-Based Exception	13
	(e)	Unrestricted Share Awards	14
	(f)	Deferred Shares	14
	(g)	Deferred Share Units	14
7.	Deferred Payment		15
8.	Dilution and Other Adjustments		15
9.	Change in Control		15
10.	Termination		16
	(a)	Termination by Death, Disability, or Retirement	16
	(b)	Termination for Cause	16
	(c)	Other Terminations	16
	(d)	Limitation for ISOs	16
	(e)	Transfers and Leaves of Absence	16
11.	Recoupment or Recovery Policy		17
12.	Miscellaneous Provisions		17
	(a)	Rights as a Shareholder	17
	(b)	No Loans	17
	(c)	Assignment or Transfer	17

	(d)	Withholding Taxes	17
	(e)	No Rights to Awards	18
	(f)	Beneficiary Designation	18
	(g)	Fractional Shares	18
	(h)	Unfunded Plan	18
	(i)	Severability	18
	(j)	Limitation of Liability	18
	(k)	Successors	18
	(l)	Code Section 409A Compliance	19
13.	Effective Date, Amendments, Governing Law and Plan Termination		19
	(a)	Effective Date	19
	(b)	Amendments	19
	(c)	Governing Law	20
	(d)	Plan Termination	20

LSI INDUSTRIES INC.
AMENDED AND RESTATED

2012 STOCK INCENTIVE PLAN

AS OF NOVEMBER 17, 2016

1. Purposes

The purposes of the Plan are to provide long-term incentives to those persons with significant responsibility for the success and growth of the Company, to align the interests of such persons with those of the Company’s shareholders, to assist the Company in recruiting, retaining and motivating employees, directors and consultants on a competitive basis and to link compensation to performance.

2. Definitions

For purposes of the Plan, the following capitalized terms shall have the meanings specified below:

(a)     “Affiliate” has the meaning set forth in Rule 12b-2 under the Exchange Act.

(b)     “Award” means a grant of Stock Options, Stock Appreciation Rights, Restricted Shares, Restricted Share Units, unrestricted Common Shares, Deferred Shares or Deferred Share Units or any or all of them, to a Participant.

(c)     “Award Agreement” means an agreement, either in written or electronic format, between the Company and a Participant setting forth the terms and conditions of an Award granted to the Participant.

(d)     “Beneficial Owner” has the meaning given in Rule 13d-3 under the Exchange Act.

(e)     “Board” means the Board of Directors of the Company.

(f)     “Cause” means with respect to any Participant, unless otherwise provided in the applicable Award Agreement, (i) the Participant’s conviction or misappropriation of money or other property or conviction of a felony, or a guilty plea or plea of nolo contendere by Participant with respect to a felony, (ii) conduct by the Participant that is in competition with the Company, conduct by a Participant that breaches the Participant’s duty of loyalty to the Company or a Participant’s willful misconduct, any of which materially injures the Company, (iii) a willful and material breach by the Participant of his or her obligations under any agreement entered into between the Participant and the Company that materially injures the Company, or (iv) the Participant’s failure to substantially perform his or her duties with the Company (other than by reason of the Participant’s Disability) For Participants subject to Section 16 of the Exchange Act, the determination of whether any conduct, action or failure to act constitutes “Cause” shall be made by the Committee in its sole discretion.

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(g)     “Change in Control” means the occurrence of any of the following events:

(i)     Any Person (including a “group” as defined in Section 14(d) of the Exchange Act) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than 25% of the combined voting power of the Company’s then-outstanding securities; provided, however, that no Change of Control shall be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by the Company;

(ii)     During any one year period, individuals who at the beginning of such period constitute the Board and any new director whose election to the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two−thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority of the Board;

(iii)     A reorganization, merger or consolidation of the Company in each case, unless, following such reorganization, merger or consolidation, all or substantially all of the individuals and entities who were the Beneficial Owners of the Company’s outstanding voting securities immediately prior thereto beneficially own, directly or indirectly, more than 75% of the combined voting power of the Company’s then-outstanding voting securities entitled to vote generally in the election of directors resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership immediately prior to such reorganization, merger or consolidation of the outstanding voting securities of the Company; or

(iv)     A liquidation, dissolution, sale or other disposition of all or substantially all of the assets of the Company (other than in a transaction in which all or substantially all of the individuals and entities who were the Beneficial Owners of the Company’s outstanding voting securities immediately prior to such sale or other disposition beneficially own, directly or indirectly, substantially all of the combined voting power of the Company’s then-outstanding voting securities entitled to vote generally in the election of directors of the acquiror of such assets (either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such sale or other disposition).

Notwithstanding anything herein to the contrary, and only to the extent that an Award is subject to Code Section 409A and payment of the Award pursuant to the application of the definition of “Change in Control” above would cause such Award not to otherwise comply with Code Section 409A, payment of an Award may occur upon a Change in Control only to the extent that the event constitutes a “change in the ownership or effective control” of the Company or a “change in the ownership of a substantial portion of the assets” of the Company under Code Section 409A.

(h)     “Code” means the Internal Revenue Code of 1986, as amended, and any rules, regulations or guidance promulgated thereunder. Any reference to the Code or a section thereof shall also refer to any successor Code or section.

(i)     “Committee” means a committee appointed by the Board consisting of at least three members of the Board, all meeting the definitions of “outside director” set forth in Code Section 162(m), “independent director” set forth in The Nasdaq Stock Market rules, and “non-employee director” set forth in Rule 16b-3 of the Exchange Act, or any successor definitions adopted for a similar purpose by the Internal Revenue Service, any national securities exchange on which the Common Shares are listed or the Securities and Exchange Commission.

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(j)     “Common Share” or “Common Shares” means one or more of the common shares, without par value, of the Company.

(k)     “Company” means LSI Industries Inc., a corporation organized under the laws of the State of Ohio, its subsidiaries, divisions and affiliated businesses.

(l)     “Date of Grant” means the date on which the Committee authorizes the grant of an Award or such later date as may be specified by the Committee in such authorization.

(m)     “Deferred Share” means a right to receive Common Shares awarded under Section 6(f) upon the terms and conditions set forth in the respective Award Agreement granting the Award.

(n)     “Deferred Share Unit” means a right to receive Common Shares awarded under Section 6(g) upon the terms and conditions set forth in the respective Award Agreement granting the Award.

(o)     “Disability” means a Participant’s physical or mental incapacity resulting from personal injury, disease, illness or other condition which (i) prevents him or her from performing his or her duties for the Company, as determined by the Committee or its designee, and (ii) results in his or her termination of employment or service with the Company. The Committee may substitute a different definition for the term “Disability” in its discretion as it deems appropriate.

(p)     “Effective Date” has the meaning set forth in Section 13(a).

(q)     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any rules, regulations, schedules or guidance promulgated thereunder. Any reference to the Exchange Act or a section thereof shall also refer to any successor Exchange Act or section.

(r)      “Exercise Price” means the purchase price of a Common Share covered by a Stock Option or SAR, as applicable.

(s)     “Fair Market Value” on any date means the closing price of the Common Shares as reported on The Nasdaq Stock Market or, if applicable, any other national securities exchange on which the Common Shares are principally traded, or, if there were no sales of Common Shares on such date, then on the immediately preceding date on which there were any sales of Common Shares. If the Common Shares cease to be traded on a national securities exchange, the Fair Market Value shall be determined pursuant to a reasonable valuation method prescribed by the Committee. In the case of an ISO (or Tandem SAR), Fair Market Value shall be determined by the Committee in accordance with Code Section 422. For Awards intended to be exempt from Code Section 409A, Fair Market Value shall be determined by the Committee in accordance with Code Section 409A.

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(t)     “Full-Value Award” means Restricted Shares, Restricted Share Units, unrestricted Common Shares, Deferred Shares or Deferred Share Units.

(u)     “Fungible Share Ratio” has the meaning set forth in Section 5(b)(i).

(v)     “ISO” means an Incentive Stock Option satisfying the requirements of Code Section 422 and designated as an ISO by the Committee.

(w)     “Minimum Vesting Requirement” has the meaning set forth in Section 6(a)(i)

(x)     “Non-Employee Director” means a member of the Board who is not an employee of the Company.

(y)     “NQSO” means a non-qualified Stock Option that does not satisfy the requirements of Code Section 422 or that is not designated as an ISO by the Committee.

(z)     “Participant” means a person eligible to receive an Award under the Plan, as set forth in Section 4, and designated by the Committee to receive an Award subject to the conditions set forth in the Plan and any Award Agreement.

(aa)     “Performance-Based Exception” means the performance-based exception to the deductibility limitations of Code Section 162(m), as set forth in Code Section 162(m)(4)(C) and applicable Treasury Department regulations thereunder.

(bb)     “Performance Goals” means the goals established by the Committee, as described in Section 6(d)(ii).

(cc)     “Performance Measures” means the criteria set out in Section 6(d)(iii) that may be used by the Committee as the basis for a Performance Goal.

(dd)     “Performance Period” means the period established by the Committee during which the achievement of Performance Goals is assessed in order to determine whether and to what extent an Award that is conditioned on attaining Performance Goals has been earned.

(ee)     “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Company securities.

(ff)     “Plan” means the LSI Industries Inc. Amended and Restated 2012 Stock Incentive Plan as of November 17, 2016, as amended and restated from time to time.

(gg)     “Prior Plan” means the LSI Industries Inc. 2003 Equity Compensation Plan, as amended and restated.

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(hh)     “Restricted Shares” means Common Shares that are subject to restrictions, as described in Section 6(c).

(ii)     “Restricted Share Units” means a right, as described in Section 6(c), denominated in Common Shares to receive an amount, payable in either cash, Common Shares, Restricted Shares, or a combination thereof, equal to the value of a specified number of Common Shares.

(jj)     “Restriction Period” means, with respect to any Full-Value Award, the period during which any risk of forfeiture or other restrictions set by the Committee, including performance restrictions, remain in effect until such time as they have lapsed under the terms and conditions of the Full-Value Award or as otherwise determined by the Committee, including the Performance Period for Full-Value Awards intended to qualify for the Performance-Based Exception.

(kk)     “Retirement” means retirement with the Company at or after age 65 or at or after the later of age 55 and ten years of service.

(ll)     “Securities Act” means the Securities Act of 1933, as amended, and any rules, regulations, schedules or guidance promulgated thereunder. Any reference to the Securities Act or a section thereof shall also refer to any successor Securities Act or section.

(mm)     “Stock Appreciation Right” or “SAR” means the right, as described in Section 6(b), to receive a payment equal to the excess of the Fair Market Value of a Common Share on the date the SAR is exercised over the Exercise Price established for that SAR at the time of grant, multiplied by the number of Common Shares with respect to which the SAR is exercised.

(nn)     “Stock Option” means the right, as described in Section 6(a), to purchase Common Shares at a specified price for a specified period of time. Stock Options include ISOs and NQSOs.

(oo)     “Tandem SAR” means a SAR granted in tandem with a Stock Option.

3. Administration of the Plan

(a)         Authority of Committee. The Plan shall be administered by the Committee. Unless otherwise determined by the Board, the Compensation Committee of the Board shall serve as the Committee. The Committee shall have all the powers vested in it by the terms of the Plan, such powers to include the sole and exclusive authority to (within the limitations described in the Plan):

(i)     select Participants to be granted Awards under the Plan and grant Awards pursuant to the terms of the Plan;

(ii)     determine the type, size and terms of the Awards to be granted to each Participant;

(iii)     determine the time when Awards are to be granted and any conditions that must be satisfied before an Award is granted;

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(iv)     establish objectives and conditions for earning an Award;

(v)     determine all other terms and conditions, not inconsistent with the terms of the Plan and any operative employment or other agreement, of any Award granted under the Plan, and determine the appropriate Award Agreement evidencing the Award;

(vi)     determine whether the terms, conditions, and objectives for earning an Award have been met, including, without limitation, any such determination or certification, as the case may be, required for compliance with Code Section 162(m);

(vii)     modify or waive the terms and conditions of Awards granted under the Plan, not inconsistent with the terms of the Plan and any operative employment or other agreement, accelerate the vesting, exercise or payment of an Award or cancel or suspend an Award;

(viii)     determine whether the amount or payment of an Award should be reduced or eliminated, and determine if, when and under what conditions payment of all or any part of any Award may be deferred;

(ix)     determine the guidelines and/or procedures for the payment or exercise of Awards;

(x)     determine whether any Awards granted to an employee should qualify for the Performance-Based Exception;

(xi)     adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan and establish and administer any sub-plans that may be governed by the Plan;

(xii)     construe, interpret, administer and implement the Plan, any Award Agreements or related documents and correct any defect, supply an omission or reconcile any inconsistency in or between the Plan, any Award Agreement or related documents; and

(xiii)     make factual determinations with respect to the Plan and any Awards and otherwise supervise the administration of the Plan.

(b)         Binding Authority. The Committee’s interpretations of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it under the Plan, shall be conclusive and binding on all parties, including the Company, its shareholders and all Participants.

(c)         Delegation of Authority. To the extent not prohibited by law or the rules of the national securities exchange on which the Company’s Common Shares are listed, the Committee may allocate its authority hereunder to one or more of its members or delegate its authority hereunder to one or more Non-Employee Directors, except that no such allocation or delegation shall be permitted with respect to Awards intended to qualify for the Performance-Based Exception, and may grant authority to employees of the Company to execute documents on behalf of the Committee or to otherwise assist in the administration and operation of the Plan. When the Committee delegates its authority hereunder to one or more officers of the Company, it shall specify the total number of Awards that the officer or officers may award and the terms on which any Awards may be issued, offered or sold. In no event shall the Committee authorize any officer to designate such officer as a recipient of any Awards.

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4. Eligibility

Subject to the terms and conditions of the Plan, the Committee may select, from all eligible persons, Participants to whom Awards shall be granted under the Plan and shall determine the nature and amount of each Award. Eligible persons include any of the following individuals: (i) any officer or key employee of the Company, (ii) any consultant (as defined in the General Instructions to the Form S-8 registration statement under the Securities Act) to the Company, and (iii) any Non-Employee Director. All Awards shall be evidenced by an Award Agreement, and Awards may be conditioned upon the Participant’s execution of an Award Agreement.

5. Common Shares Subject to the Plan

(a)        Authorized Number of Common Shares. Unless otherwise authorized by the Company’s shareholders and subject to this Section 5 and Section 8, the maximum aggregate number of Common Shares available for issuance under the Plan is 4,400,000, plus (i) the number of Common Shares that, on the Effective Date, are available to be granted under the Prior Plan but which are not then subject to outstanding awards under the Prior Plan, and (ii) the number of Common Shares subject to outstanding awards under the Prior Plan as of the Effective Date which thereafter are forfeited, settled in cash or cancelled or expire. Upon the Effective Date, the Prior Plan will terminate; provided that all outstanding awards under the Prior Plan as of the Effective Date shall remain outstanding and shall be administered and settled in accordance with the provisions of the Prior Plan, as applicable. The maximum number of Common Shares available for issuance with respect to ISOs is 4,400,000.

(b)        Share Counting. The following rules shall apply in determining the number of Common Shares available for grant under the Plan:

(i)     The aggregate number of Common Shares available for issuance under the Plan will be reduced by two and one-half (2.5) Common Shares for each Common Share delivered in settlement of any Full-Value Award and one (1) Common Share for each Common Share delivered in settlement of a Stock Option or Stock Appreciation Right (the “Fungible Share Ratio”).

(ii)     To the extent that any Award is forfeited, cancelled, settled in cash, returned to the Company for failure to satisfy vesting requirements or other conditions of the Award or otherwise terminates without an issuance of Common Shares being made, the maximum share limitation shall be credited pursuant to the share counting provisions described above in Section 5(b)(i), and such number of credited Common Shares may again be made subject to Awards under the Plan.

(iii)     Any Common Shares tendered by a Participant or withheld as full or partial payment of withholding or other taxes or as payment for the exercise or conversion price of an Award or repurchased by the Company with Stock Option proceeds shall not be added back to the number of Common Shares available for issuance under the Plan. Upon exercise of a SAR, the number of Common Shares subject to the Award that are being exercised shall be counted against the maximum aggregate number of Common Shares that may be issued under the Plan on the basis of one Common Share for every Common Share subject thereto, regardless of the actual number of Common Shares used to settle the SAR upon exercise.

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(iv)     Any Common Shares underlying Awards granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who become employees of the Company as a result of a merger, consolidation, acquisition or other corporate transaction shall not, unless required by law or regulation, count against the reserve of available Common Shares under the Plan.

(c)         Award Limitations. Subject to the adjustment provisions of Section 8:

(i)     The maximum aggregate number of Common Shares that may be subject to Stock Options or SARs granted in any calendar year to any one Participant shall be 250,000 Common Shares.

(ii)     The maximum aggregate number of Common Shares that may be subject to Full-Value Awards granted in any calendar year to any one Participant shall be 50,000 Common Shares.

(d)         Shares to be Delivered. Common Shares to be delivered by the Company under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

6. Awards to Participants

(a)         Stock Options.

(i)       Grants. Subject to the terms and conditions of the Plan, Stock Options may be granted to Participants, in such number and upon such terms and conditions as the Committee determines, and may consist of ISOs or NQSOs. Stock options may be granted alone or with Tandem SARs. With respect to Stock Options granted with Tandem SARs, the exercise of either such Stock Options or Tandem SARs will result in the simultaneous cancellation of the same number of Stock Options or Tandem SARs, as the case may be.

(ii)      Minimum Vesting Requirement. Subject to the terms and conditions in this Plan, the Committee shall not grant Stock Options that are exercisable earlier than one year from the Date of Grant (the “Minimum Vesting Requirement”); provided, however, the Committee shall have discretion to award not more than five percent (5%) of the Common Shares that may be granted pursuant to this Plan with vesting terms that do not satisfy this Minimum Vesting Requirement.

(iii)     Exercise Price. The Exercise Price shall be equal to or, at the Committee’s discretion, greater than the Fair Market Value on the date the Stock Option is granted, unless the Stock Option was granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who became employees of the Company as a result of a merger, consolidation, acquisition or other corporate transaction, in which case the assumption or substitution shall be accomplished in a manner that permits the Stock Option to be exempt from Code Section 409A.

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(iv)     Term. The term of Stock Options shall be determined by the Committee in its sole discretion, but in no event shall the term exceed ten years from the Date of Grant.

(v)     ISO Limits. ISOs may be granted only to Participants who are employees of the Company (or of any parent or subsidiary corporation within the meaning of Code Section 424) on the Date of Grant, and may only be granted to an employee who, at the time the Stock Option is granted, does not own more than ten percent of the total combined voting power of all classes of stock of the Company (or of any parent or subsidiary corporation within the meaning of Code Section 424), unless (A) the Exercise Price is at least 110% percent of the Fair Market Value on the Date of Grant, and (B) the ISO is not exercisable after five years from the Date of Grant. The aggregate Fair Market Value of all Common Shares, determined at the time the ISOs are granted, with respect to which ISOs are exercisable by a Participant for the first time during any calendar year (under all plans of the Company) shall not exceed $100,000 or such other amount as may subsequently be specified by the Code. If such Fair Market Value exceeds the $100,000 limit, the ISOs exceeding the limit shall be treated as NQSOs, taking the Stock Options in the order each was granted. The terms of all ISOs shall be consistent with and contain or be deemed to contain all provisions required to qualify as an “incentive stock option” under Code Section 422.

(vi)     No Repricing. Subject to the adjustment provisions of Section 8, without the approval of the Company’s shareholders, (A) the Exercise Price for any outstanding Stock Option may not be decreased after the Date of Grant, (B) no outstanding Stock Option may be surrendered to the Company as consideration for the grant of a new Stock Option with a lower Exercise Price, and (C) no other modifications to any outstanding Stock Option may be made that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements adopted by the national securities exchange on which the Common Shares are listed. Neither the Board nor the Committee shall offer a cash buy-out of “underwater” Stock Options, and such buyouts of “underwater” Stock Options shall be prohibited.

(vii)    Form of Payment. Vested Stock Options may be exercised in whole or in part, and the Exercise Price shall be paid to the Company at the time of exercise, subject to any applicable rules or regulations adopted by the Committee:

(A) to the extent permitted by applicable law, pursuant to cashless exercise procedures that are approved by the Committee;

(B) through the tender of unrestricted Common Shares owned by the Participant (or by delivering a certification or attestation of ownership of such Common Shares) valued at their Fair Market Value on the date of exercise;

(C) in cash or its equivalent; or

(D) by any combination of (A), (B), and (C) above.

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(viii)    No Dividends or Shareholder Rights. No dividends or dividend equivalents may be paid on Stock Options. Except as otherwise provided herein, a Participant shall have no rights as a holder of Common Shares covered by a Stock Option unless and until such Common Shares have been registered to the Participant as the owner.

(ix)      Other Restrictions. Stock Options may be granted subject to such terms and conditions as the Committee determines, including, without limitation: forfeiture conditions, transfer restrictions, restrictions based upon the achievement of specific Performance Goals (Company-wide, divisional and/or individual) which may be based on one or more Performance Measures, time-based restrictions on vesting and/or restrictions under applicable federal or state securities laws.

(b)         Stock Appreciation Rights.

(i)      Grants. Subject to the terms and provisions of the Plan, SARs may be granted to Participants, in such number and upon such terms and conditions as the Committee determines, and may be granted alone or as Tandem SARs. With respect to Tandem SARs, the exercise of either such Stock Options or SARs will result in the simultaneous cancellation of the same number of Tandem SARs or Stock Options, as the case may be.

(ii)      Minimum Vesting Requirement. Subject to the terms and conditions in this Plan, the Committee shall not grant SARs that do not satisfy the Minimum Vesting Requirement; provided, however, the Committee shall have discretion to award not more than five percent (5%) of the Common Shares that may be granted pursuant to this Plan with vesting terms that do not satisfy this Minimum Vesting Requirement.

(iii)     Exercise Price. The Exercise Price shall be equal to or, at the Committee’s discretion, greater than Fair Market Value on the date the SAR is granted, unless the SAR was granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who became employees of the Company as a result of a merger, consolidation, acquisition or other corporate transaction involving the Company, in which case the assumption or substitution shall be accomplished in a manner that permits the SAR to be exempt from Code Section 409A.

(iv)     Term. The term of a SAR shall be determined by the Committee in its sole discretion, but in no event shall the term exceed ten years from the Date of Grant; provided that, each SAR granted in tandem with a Stock Option shall terminate upon the termination or exercise of the related Stock Option.

(v)      No Repricing. Subject to the adjustment provisions of Section 8, without the approval of the Company’s shareholders, (A) the Exercise Price for any outstanding SAR may not be decreased after the Date of Grant, (B) no outstanding SAR may be surrendered to the Company as consideration for the grant of a new SAR with a lower Exercise Price, and (C) no other modifications to any outstanding SAR may be made that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements adopted by the national securities exchange on which the Common Shares are listed. Neither the Board nor the Committee shall offer a cash buy-out of “underwater” SARs, and such buyouts of “underwater” SARs shall be prohibited.

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(vi)     Form of Payment. Vested SARs may be exercised in whole or in part, and the Committee may authorize payment of a SAR in the form of cash, Common Shares valued at its Fair Market Value on the date of the exercise or a combination thereof, or by any other method as the Committee may determine.

(vii)     Tandem SARs. Tandem SARs may be exercised for all or part of the Common Shares subject to the related Stock Option upon the surrender of the right to exercise the equivalent portion of the related Stock Option. A Tandem SAR may be exercised only with respect to the Common Shares for which its related Stock Option is then exercisable. Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (A) the Tandem SAR will expire no later than the expiration of the underlying ISO; (B) the value of the payout with respect to the Tandem SAR may be for no more than 100% of the excess of the Fair Market Value of the Common Shares subject to the underlying ISO at the time the Tandem SAR is exercised over the Exercise Price of the underlying ISO; and (C) the Tandem SAR may be exercised only when the Fair Market Value of the Common Shares subject to the ISO exceeds the Exercise Price of the ISO.

(viii)     No Dividends or Shareholder Rights. No dividends or dividend equivalents may be paid on SARs. Except as otherwise provided herein, a Participant shall have no rights as a holder of Common Shares covered by a SAR unless and until such Common Shares have been registered to the Participant as the owner.

(ix)      Other Restrictions. SARs may be granted subject to such terms and conditions as the Committee determines, including, without limitation: forfeiture conditions, transfer restrictions, restrictions based upon the achievement of specific Performance Goals (Company-wide, divisional and/or individual) which may be based on one or more Performance Measures, time-based restrictions on vesting and/or restrictions under applicable federal or state securities laws.

(c)          Restricted Shares and Restricted Share Units.

(i)       Grants. Subject to the terms and provisions of the Plan, Restricted Shares and Restricted Share Units may be granted to Participants in such number and upon such terms and conditions as the Committee determines. Restricted Shares will be registered in the name of the Participant and deposited with the Company or its agent in certificated or book-entry form.

(ii)      Minimum Vesting Requirement. Subject to the terms and conditions in this Plan, the Committee shall not grant any Restricted Shares or Restricted Share Units that become vested, unrestricted or payable, as the case may be, earlier than as permitted by the Minimum Vesting Requirement; provided, however, the Committee shall have discretion to award not more than five percent (5%) of the Common Shares that may be granted pursuant to this Plan with vesting terms that do not satisfy this Minimum Vesting Requirement.

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(iii)     Restrictions. Restricted Shares or Restricted Share Units may be granted at no cost or at a purchase price determined by the Committee, which may be less than the Fair Market Value, but subject to such terms and conditions as the Committee determines, including, without limitation: forfeiture conditions, transfer restrictions, restrictions based upon the achievement of specific Performance Goals (Company-wide, divisional and/or individual) which may be based on one or more Performance Measures, time-based restrictions on vesting and/or restrictions under applicable federal or state securities laws. Subject to Sections 9 and 10, for Awards to employees, no Restricted Shares or Restricted Share Units conditioned upon the achievement of performance shall be based on a Restriction Period of less than one year, and, except as may be determined by the Committee with respect to not more than five percent (5%) of the Common Shares that may be granted pursuant to this Plan, any Restriction Period based solely on continued employment or service (time-based) shall be for a minimum of three years, subject to (A) pro rata or graded vesting prior to the expiration of such time-based Restriction Period, and (B) acceleration due to the Participant’s death, Disability or Retirement, in each case as specified in the applicable Award Agreement; provided that no portion of any Award of Restricted Shares or Restricted Share Units may vest prior to the first anniversary of the Date of Grant. To the extent the Restricted Shares or Restricted Share Units are intended to qualify for the Performance-Based Exception, except as may be determined by the Committee, the applicable restrictions shall be based on the achievement of Performance Goals over a Performance Period, as described in Section 6(d).

(iv)     Transfer Restrictions. During the Restriction Period, Restricted Shares and Restricted Share Units may not be sold, assigned, transferred or otherwise disposed of, or mortgaged, pledged or otherwise encumbered. In order to enforce the limitations imposed upon the Restricted Shares, the Committee may (A) cause a legend or legends to be placed on any certificates evidencing such Restricted Shares, and/or (B) cause “stop transfer” instructions to be issued, as it deems necessary or appropriate.

(v)     Dividends and Voting Rights. Unless otherwise determined by the Committee, during the Restriction Period, Participants who hold Restricted Shares shall have the right to receive dividends in cash or other property or other distribution or rights in respect of the Restricted Shares and shall have the right to vote the Restricted Shares as the record owners; provided that, unless otherwise determined by the Committee, any dividends or other property payable to a Participant during the Restriction Period shall be distributed to the Participant only if and when the restrictions imposed on the applicable Restricted Shares lapse. Unless otherwise determined by the Committee, during the Restriction Period, Participants who hold Restricted Share Units shall be credited with dividend equivalents in respect of such Restricted Share Units; provided that, unless otherwise determined by the Committee, such dividend equivalents shall be distributed (without interest) to the Participant only if and when the restrictions imposed on the applicable Restricted Share Units lapse. Participants shall have no other rights as a shareholder with respect to Restricted Share Units unless otherwise determined by the Committee. Notwithstanding the forgoing, no Restricted Shares or Restricted Share Units intended to qualify for the Performance-Based Exception shall provide the Participant with dividend or shareholder rights unless otherwise determined by the Committee; provided, however, that if dividend rights are provided, any dividends or other property otherwise payable to the Participant during the Restriction Period with respect to such Restricted Shares or Restricted Share Units shall accumulate and be payable only if and when the specific Performance Goals are attained.

12

(vi)     Payment of Restricted Share Units. Restricted Share Units that become payable in accordance with their terms and conditions shall be settled in cash, Common Shares, Restricted Shares, or a combination thereof, as determined by the Committee.

(vii)     Ownership. Restricted Shares shall be registered in the name of the Participant on the books and records of the Company or its designee (or by one or more physical certificates if physical certificates are issued) subject to the applicable restrictions imposed by the Plan. At the end of the Restriction Period that applies to Restricted Shares, the number of shares to which the Participant is entitled shall be delivered to the Participant free and clear of the restrictions, either in certificated or book-entry form. No Common Shares shall be registered in the name of the Participant with respect to Restricted Share Units, and Participants shall have no ownership interest in the Common Shares to which the Restricted Share Units relate, unless and until payment is made in Common Shares.

(viii)     Forfeiture. If a Participant who holds Restricted Shares or Restricted Share Units fails to satisfy the restrictions, terms or conditions applicable to the Award, except as otherwise determined by the Committee, the Participant shall forfeit the Restricted Shares or Restricted Share Units. The Committee may at any time waive such restrictions or accelerate the date or dates on which the restrictions will lapse; however, to the extent the Restricted Shares or Restricted Share Units are intended to qualify for the Performance-Based Exception, the provisions of Section 6(d)(iv) will apply.

(d)          Performance-Based Exception.

(i)       Grants. Subject to the provisions of the Plan, Full-Value Awards granted in a manner that is intended to qualify for the Performance-Based Exception shall be conditioned upon the achievement of Performance Goals as the Committee shall determine, in its sole discretion.

(ii)      Performance Goals. Performance Goals shall be based on one or more Performance Measures, over a Performance Period, as to be determined by the Committee. Performance Goals shall be objective (as that term is described in Treasury Regulations under Code Section 162(m)) and shall be established in writing by the Committee not later than 90 days after the beginning of the Performance Period (but in no event after 25% of the Performance Period has elapsed), and while the outcome as to the Performance Goal is substantially uncertain.

(iii)     Performance Measures. The Performance Measure(s) may be described in terms of objectives that are related to the individual Participant or objectives that are Company-wide or related to a subsidiary, division, department, region, function or business unit of the Company, and shall consist of one or more or any combination of the following criteria: cash flow, profit, revenue, stock price, market share, sales, net income, operating income, return ratios, earnings per share, earnings (which may include an add back for taxes, interest, and/or depreciation and amortization), operating earnings, profit margins, earnings per Common Share, favorable comparison to established budgets, return on shareholders’ equity, return on assets, attainment of strategic and operational initiatives, comparisons with various stock market indices, reduction in costs or a combination of such factors, personal performance measures, working capital, total assets, net assets, return on sales, return on invested capital, gross margin, costs, shareholders’ equity, shareholder return and/or productivity or productivity improvement. The Performance Goals based on these Performance Measures may be expressed in absolute terms or relative to the performance of other entities.

13

(iv)     Treatment of Awards. With respect to any Full-Value Award that is intended to qualify for the Performance-Based Exception: (A) the Committee shall interpret the Plan and this Section 6(d) in light of Code Section 162(m), (B) the Committee shall not amend the Full-Value Award in any way that would adversely affect the treatment of the Full-Value Award under Code Section 162(m), and (C) such Full-Value Award and any dividends or other property otherwise payable with respect to such Full-Value Award shall not vest or be paid until the Committee shall first have certified in writing that the Performance Goals have been achieved.

(e)     Unrestricted Share Awards.

Subject to the terms and provisions of the Plan, the Committee may grant awards of unrestricted Common Shares to Participants in such number and upon such terms and conditions as the Committee determines in recognition of outstanding achievements or contributions by such Participants or otherwise. Unrestricted Common Shares issued on a bonus basis may be issued for no cash consideration.

(f)     Deferred Shares

The Committee is authorized to grant Deferred Shares to any Participant. The number of Deferred Shares shall be determined by the Committee and may (but is not required to) be based on one or more Performance Goals or Performance Measures, including service to the Company, as the Committee determines, in each case on a specified date or dates or over any period or periods determined by the Committee. Common Shares underlying a Deferred Share award which may be subject to a vesting schedule or other conditions or criteria set by the Committee will be issued on the vesting date(s) or date(s) that those conditions and criteria have been satisfied, as applicable. Unless otherwise provided by the Committee, a holder of Deferred Shares shall have no rights as a Company shareholder with respect to such Deferred Shares until such time as the Award has vested and any other applicable conditions and/or criteria have been satisfied and the Common Shares underlying the Award have been issued to the such holder.

(g)     Deferred Share Units

The Committee is authorized to grant Deferred Share Units to any Participant. The number of Deferred Share Units shall be determined by the Committee and may (but is not required to) be based on one or more Performance Goals or Performance Measures, including service to the Company, as the Committee determines, in each case on a specified date or dates or over any period or periods determined by the Committee. Each Deferred Share Unit shall entitle the holder thereof to receive one Common Share on the date the Deferred Share Unit becomes vested or upon a specified settlement date thereafter (which settlement date may (but is not required to) be the date of the holder’s termination of service). Common Shares underlying a Deferred Share Unit award which is subject to a vesting schedule or other conditions or criteria set by the Committee will not be issued until on or following the date that those conditions and criteria have been satisfied. Unless otherwise provided by the Committee, a holder of Deferred Share Units shall have no rights as a Company shareholder with respect to such Deferred Share Units until such time as the Award has vested and any other applicable conditions and/or criteria have been satisfied and the Common Shares underlying the Award have been issued to such holder.

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7. Deferred Payment

Subject to the terms of the Plan, the Committee may determine that all or a portion of any Award to a Participant, whether it is to be paid in cash, Common Shares or a combination thereof, shall be deferred or may, in its sole discretion, approve deferral elections made by Participants. Deferrals shall be for such periods and upon such terms as the Committee may determine in its sole discretion, which terms shall comply with Code Section 409A.

8. Dilution and Other Adjustments

In the event of any merger, reorganization, consolidation, liquidation, recapitalization, reclassification, redesignation, stock dividend, other distribution (whether in the form of cash, shares or otherwise), stock split, reverse stock split, spin off, combination, repurchase or exchange of shares or issuance of warrants or rights to purchase shares or other securities, or other change in corporate structure affecting the Common Shares, the Committee shall make such adjustments in the aggregate number and type of Common Shares which may be delivered and the individual award maximums as set forth in Section 5, the number and type of Common Shares subject to outstanding Awards and the Exercise Price or other price of Common Shares subject to outstanding Awards (provided the number of Common Shares subject to any Award shall always be a whole number), as may be and to the extent determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. Such adjustment shall be conclusive and binding for all purposes of the Plan. Any such adjustment of an ISO or SAR shall be made in compliance with Code Sections 422 and 424, and no such adjustment shall be made that would cause any Award which is exempt from Code Section 409A or which is or becomes subject to Code Section 409A to fail to comply with the requirements of Code Section 409A.

9. Change in Control

Notwithstanding any other provision of the Plan to the contrary, immediately upon the occurrence of a Change in Control, the following provisions of this Section 9 shall apply except to the extent an Award Agreement provides for a different treatment (in which case the Award Agreement shall govern):

(a)     all outstanding Stock Options and SARs vest and become fully exercisable; and

(b)     all Full-Value Awards become fully vested.

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10. Termination

(a)       Termination by Death, Disability, or Retirement. If a Participant’s employment by the Company terminates by reason of death, Disability or Retirement, or in the case of an advisory relationship if such business relationship terminates by reason of death or Disability, any Award held by such Participant, unless otherwise determined by the Committee at grant or otherwise interpreted pursuant to Section 12(l) hereof, shall be fully vested and may thereafter be exercised by the Participant or by the Participant’s beneficiary or legal representative, for a period of one year following termination of employment, in the case of death or Disability, and 90 days in the case of Retirement, or such longer period as the Committee may specify at or after grant in all cases other than ISOs, or until the expiration of the stated term of such Award, whichever period is shorter; provided that, for Full-Value Awards intended to qualify for the Performance-Based Exception, no vesting may occur or no distribution may be made in the case of Retirement prior to the attainment of the Performance Goals.

(b)       Termination for Cause. If a Participant’s employment or service terminates for Cause, (i) all Stock Options and SARs (or portions thereof) which have not been exercised, whether vested or not, and (ii) all unvested Full-Value Awards, shall immediately be forfeited upon termination, including such Awards that are subject to performance conditions (or unearned portions thereof).

(c)       Other Terminations. If a Participant’s employment or service terminates, voluntarily or involuntarily, for any reason other than death, Disability, Retirement or Cause, (i) any vested portion of Stock Options or SARs held by the Participant at the time of termination may be exercised for a period of three months (or such other period as the Committee may specify at or after the time of grant) from the termination date, or until the expiration of the original term of the Stock Option or SAR, whichever period is shorter, (ii) no unvested portion of any Stock Option or SAR shall become vested, including such Awards that are subject to performance conditions (or unearned portions thereof), and (iii) all unvested Full-Value Awards, including such Awards that are subject to performance conditions (or unearned portions thereof), shall immediately be forfeited upon termination.

(d)       Limitation for ISOs. No ISO may be exercised more than three months following termination of employment for any reason (including Retirement) other than death or Disability, nor more than one year following termination of employment for the reason of death or Disability (as defined in Code Section 422), or such Award will no longer qualify as an ISO and shall thereafter be, and receive the tax treatment applicable to, a NQSO. For this purpose, a termination of employment is cessation of employment, under the rules applicable to ISOs, such that no employment relationship exists between the Participant and the Company.

(e)       Transfers and Leaves of Absence. The transfer of a Participant within the Company shall not be deemed a termination of employment except as required by Code Sections 422 and 409A, and other applicable laws. The following leaves of absences are not deemed to be a termination of employment:

(i)       if approved in writing by the Company, for military service, sickness or any other purpose approved by the Company, and the period of absence does not exceed 90 days;

16

(ii)      if in excess of 90 days, if approved in writing by the Company, but only if the Participant’s right to reemployment is guaranteed by statute or contract and provided that the Participant returns to work within 30 days after the end of such absence; and

(iii)     subject to the restrictions of Code Section 409A and to the extent that such discretion is permitted by law, if the Committee determines in its discretion that the absence is not a termination of employment.

11. Recoupment or Recovery Policy

Any Award shall be subject to forfeiture or repayment pursuant to the terms of any applicable compensation recoupment or recovery policy adopted by the Company, Committee or Board, as thereafter amended, including any policy adopted to comply with the rules of any stock exchange on which the Common Shares are traded or the Securities and Exchange Commission.

12. Miscellaneous Provisions

(a)       Rights as a Shareholder. Except as otherwise provided herein, a Participant shall have no rights as a shareholder with respect to Awards hereunder, unless and until the Common Shares have been registered to the Participant as the owner.

(b)       No Loans. No loans from the Company to Participants shall be permitted in connection with the Plan.

(c)       Assignment or Transfer. Except as otherwise provided under the Plan, no Award or any rights or interests therein shall be transferable other than by will or the laws of descent and distribution. The Committee may, in its discretion, provide that an Award (other than an ISO) is transferable without the payment of any consideration to a Participant’s family member, subject to such terms and conditions as the Committee may impose. For this purpose, “family member” has the meaning given to such term in the General Instructions to the Form S-8 registration statement under the Securities Act. All Awards shall be exercisable, during the Participant’s lifetime, only by the Participant or a person who is a permitted transferee pursuant to this Section 12(c). Once awarded, the Common Shares (other than Restricted Shares) received by Participants may be freely transferred, assigned, pledged or otherwise subjected to lien, subject to the restrictions imposed by the Securities Act, Section 16 of the Exchange Act and the Company’s Insider Trading Policy, each as amended.

(d)       Withholding Taxes. The Company shall have the right to deduct from all Awards paid in cash to a Participant any taxes required by law to be withheld with respect to such Awards. All statutory minimum applicable withholding taxes arising with respect to Awards paid in Common Shares to a Participant shall be satisfied by the Company retaining Common Shares having a Fair Market Value on the date the tax is to be determined that is equal to the amount of such statutory minimum applicable withholding tax (rounded, if necessary, to the next lowest whole number of Common Shares); provided, however, that, subject to any restrictions or limitations that the Company deems appropriate, a Participant may elect to satisfy such statutory minimum applicable withholding tax through cash or cash proceeds.

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(e)     No Rights to Awards. Neither the Plan nor any action taken hereunder shall be construed as giving any person any right to be retained in the employ or service of the Company, and the Plan shall not interfere with or limit in any way the right of the Company to terminate any person’s employment or service at any time. Except as set forth herein, no employee or other person shall have any claim or right to be granted an Award under the Plan. By accepting an Award, the Participant acknowledges and agrees that (i) the Award will be exclusively governed by the Plan, including the right of the Company to amend or cancel the Plan at any time without the Company incurring liability to the Participant (except, to the extent the terms of the Award so provide, for Awards already granted under the Plan), (ii) the Participant is not entitled to future award grants under the Plan or any other plan, and (iii) the value of any Awards received shall be excluded from the calculation of termination or other severance payments or benefits.

(f)     Beneficiary Designation. To the extent allowed by the Committee, each Participant under the Plan may name any beneficiary or beneficiaries to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives all of such benefit. Unless the Committee determines otherwise, each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee and shall be effective only when received in writing by the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

(g)     Fractional Shares. Fractional Common Shares shall not be issued or transferred under an Award, but the Committee may direct that cash be paid in lieu of fractional shares or may round off fractional shares, in its discretion.

(h)     Unfunded Plan. The Plan shall be unfunded and any benefits under the Plan shall represent an unsecured promise to pay by the Company. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general unsecured creditor of the Company.

(i)     Severability. If any provision of the Plan is deemed illegal or invalid, the illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

(j)     Limitation of Liability. Members of the Board and the Committee and officers and employees of the Company who are their designees acting under the Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross or willful misconduct in the performance of their duties hereunder.

(k)     Successors. All obligations of the Company with respect to Awards granted under the Plan shall be binding on any successor to the Company, whether as a result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

18

(l)     Code Section 409A Compliance. Each Award granted under the Plan is intended to be either exempt from or in compliance with the requirements of Code Section 409A and any regulations or guidance that may be adopted thereunder, including any transition relief available under applicable guidance. The Plan may be amended or interpreted by the Committee as it determines appropriate in accordance with Code Section 409A in order for the Plan and Awards to comply with Code Section 409A. If a Participant is a “specified employee” as defined in Code Section 409A at the time of the Participant’s separation from service with the Company, then solely to the extent necessary to avoid the imposition of any additional tax under Code Section 409A, the commencement of any payments or benefits under an Award shall be deferred until the date that is six months following the Participant’s separation from service (or such other period as required to comply with Code Section 409A). Notwithstanding the foregoing, the Company does not guarantee that Awards under the Plan will comply with Code Section 409A and the Committee is under no obligation to make any changes to Awards to cause such compliance.

13. Effective Date, Amendments, Governing Law and Plan Termination

(a)       Effective Date. The Effective Date of the Plan is the date on which the Company’s shareholders approve the Plan at a duly held shareholder meeting.

(b)       Amendments.

(i)      Amendment of the Plan. The Committee or the Board may at any time terminate or amend the Plan in whole or in part, but no such action shall materially and adversely affect any rights or obligations with respect to any Awards granted prior to the date of such termination or amendment without the consent of the affected Participant, except to the extent that the Committee reasonably determines that such termination or amendment is necessary or appropriate to comply with applicable law or the rules and regulations of any stock exchange on which the Common Shares are traded or to preserve any intended favorable, or avoid any unintended unfavorable, tax effects for the Company, Plan or Participants. Notwithstanding the foregoing, unless the Company’s shareholders shall have first approved the amendment, no amendment of the Plan shall be effective if the amendment would: (A) increase the maximum number of Common Shares that may be delivered under the Plan or to any one individual (except to the extent made pursuant to Section 8 hereof), (B) extend the maximum period during which Awards may be granted under the Plan, (C) add to the types of awards that can be made under the Plan, (D) modify the requirements as to eligibility for participation in the Plan, (E) permit a repricing or decrease the Exercise Price to less than the Fair Market Value on the Date of Grant of any Stock Option or SAR, except for adjustments made pursuant to Section 8, (F) materially increase benefits to Participants, or (G) otherwise require shareholder approval pursuant to the Plan or applicable law or the rules of the principal securities exchange on which Common Shares are traded.

(ii)     Amendment of Awards. The Committee may amend, prospectively or retroactively, the terms of an Award, provided that no such amendment is inconsistent with the terms of the Plan or would materially and adversely affect the rights of any Participant without his or her written consent.

19

(c)       Governing Law. To the extent not preempted by Federal law, the Plan and all Award Agreements are construed in accordance with and governed by the laws of the State of Ohio. The Plan is not intended to be governed by the Employment Retirement Income Security Act of 1974, and shall be so construed and administered.

(d)       Plan Termination. No Awards shall be made under the Plan after the tenth anniversary of the Effective Date.

Approved by Board on September 16, 2016

To Be Considered by Shareholders on November 17, 2016

20

EX-31.1

EXHIBIT 31.1

Certification of Principal Executive Officer

Pursuant to Rule 13a-14(a)

I, Dennis W. Wells, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of LSI Industries Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 3, 2017	/s/ Dennis W. Wells
	Principal Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Principal Financial Officer

Pursuant to Rule 13a-14(a)

I, Ronald S. Stowell, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of LSI Industries Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.             The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 3, 2017	/s/ Ronald S. Stowell
	Principal Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF DENNIS W. WELLS

Pursuant to Section 1350 of Chapter 63 of the

United States Code and Rule 13a-14b

In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of LSI Industries Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2016 (the “Report”), I, Dennis W. Wells, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Dennis W. Wells

Dennis W. Wells

Chairman of the Board, Chief Executive Officer and President

Date: February 3, 2017

A signed original of this written statement required by Section 906 has been provided to LSI Industries Inc. and will be retained by LSI Industries Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF RONALD S. STOWELL

Pursuant to Section 1350 of Chapter 63 of the

United States Code and Rule 13a-14b

In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of LSI Industries Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2016 (the “Report”), I, Ronald S. Stowell, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ronald S. Stowell

Ronald S. Stowell

Vice President, Chief Financial Officer, and Treasurer

Date:  February 3, 2017

A signed original of this written statement required by Section 906 has been provided to LSI Industries Inc. and will be retained by LSI Industries Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	6 Months Ended
	Dec. 31, 2016	Jan. 27, 2017
Document Information [Line Items]
Entity Registrant Name	LSI INDUSTRIES INC
Entity Central Index Key	0000763532
Trading Symbol	lyts
Current Fiscal Year End Date	--06-30
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		25,056,164
Document Type	10-Q
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Net sales		$ 85,658	$ 84,687	$ 169,817	$ 170,612
Cost of products and services sold		63,611	60,761	126,432	123,337
Restructuring costs		640		1,143
Gross profit		21,407	23,926	42,242	47,275
Restructuring costs		57		210
Selling and administrative expenses		18,532	18,546	38,148	36,132
Operating income		2,818	5,380	3,884	11,143
Interest (income)		(28)	(17)	(55)	(25)
Interest expense		8	9	21	17
Income before income taxes		2,838	5,388	3,918	11,151
Income tax expense		832	1,606	1,083	3,619
Net income		$ 2,006	$ 3,782	$ 2,835	$ 7,532
Earnings per common share (see Note 4)
Basic (in dollars per share)		$ 0.08	$ 0.15	$ 0.11	$ 0.30
Basic earnings per share (in dollars per share)		$ 0.08	$ 0.15	$ 0.11	$ 0.30
Weighted average common shares outstanding
Basic (in shares)		25,314	24,911	25,294	24,838
Diluted (in shares)	[1]	25,803	25,624	25,859	25,405

[1] Options to purchase 1,682,270 common shares and 1,115,250 common shares at December 31, 2016 and 2015, respectively, and options to purchase 1,626,770 common shares and 1,506,800 common shares at December 31, 2016 and 2015, respectively were not included in the computation of the three month and six month period for diluted earnings per share, respectively, because the exercise price was greater than the average fair market value of the common shares.

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
ASSETS
Cash and cash equivalents	$ 33,023	$ 33,835
Accounts receivable, less allowance for doubtful accounts of $381 and $226, respectively	49,541	46,975
Inventories	42,404	44,141
Assets held for sale	3,176
Other current assets	2,996	2,792
Total current assets	131,140	127,743
Property, Plant and Equipment, at cost
Land	6,422	6,978
Buildings	34,654	39,317
Machinery and equipment	78,908	82,628
Construction in progress	1,697	838
	121,681	129,761
Less accumulated depreciation	(78,255)	(82,299)
Net property, plant and equipment	43,426	47,462
Goodwill	10,508	10,508
Other Intangible Assets, net	5,378	5,586
Other Long-Term Assets, net	5,384	4,261
Total assets	195,836	195,560
LIABILITIES & SHAREHOLDERS’ EQUITY
Accounts payable	13,917	13,892
Accrued expenses	22,980	25,341
Total current liabilities	36,897	39,233
Other Long-Term Liabilities	1,119	807
Commitments and Contingencies (Note 12)
Shareholders’ Equity
Preferred shares, without par value; Authorized 1,000,000 shares, none issued	0	0
Common shares, without par value; Authorized 40,000,000 shares; Outstanding 25,021,703 and 24,982,219 shares, respectively	115,631	113,653
Retained earnings	42,189	41,867
Total shareholders’ equity	157,820	155,520
Total liabilities & shareholders’ equity	$ 195,836	$ 195,560

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands, $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Preferred shares, no par value (in dollars per share)	$ 0	$ 0
Preferred shares, authorized (in shares)	1,000,000	1,000,000
Preferred shares, issued (in shares)	0	0
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	40,000,000	40,000,000
Common stock, shares outstanding (in shares)	25,021,703	24,982,219
Allowance for doubtful accounts	$ 381	$ 226

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash Flows from Operating Activities
Net income	$ 2,835,000	$ 7,532,000
Non-cash items included in net income
Depreciation and amortization	3,605,000	3,174,000
Deferred income taxes	(962,000)	(448,000)
Deferred compensation plan	237,000	310,000
Stock compensation expense	1,688,000	2,150,000
Issuance of common shares as compensation	228,000	113,000
Loss on disposition of fixed assets	53,000	1,000
Fixed asset impairment and accelerated depreciation	354,000
Allowance for doubtful accounts	205,000	131,000
Inventory obsolescence reserve	758,000	699,000
Changes in certain assets and liabilities:
Accounts receivable	(2,771,000)	387,000
Inventories	979,000	(3,480,000)
Refundable income taxes		(475,000)
Accounts payable	(176,000)	(5,962,000)
Accrued expenses and other	(2,630,000)	920,000
Customer prepayments	216,000	438,000
Net cash flows provided by operating activities	4,619,000	5,490,000
Cash Flows from Investing Activities
Purchases of property, plant and equipment	(2,744,000)	(3,384,000)
Proceeds from sale of fixed assets	1,000	4,000
Net cash flows (used in) investing activities	(2,743,000)	(3,380,000)
Cash Flows from Financing Activities
Cash dividends paid	(2,513,000)	(1,721,000)
Exercise of stock options	171,000	2,195,000
Purchase of treasury shares	(390,000)	(277,000)
Issuance of treasury shares	44,000	47,000
Net cash flows provided by (used in) financing activities	(2,688,000)	244,000
Increase (decrease) in cash and cash equivalents	(812,000)	2,354,000
Cash and cash equivalents at beginning of period	33,835,000	26,409,000
Cash and cash equivalents at end of period	$ 33,023,000	$ 28,763,000

XML

Note 1 - Interim Condensed Consolidated Financial Statements

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Condensed Financial Statements [Text Block]

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,

2016,

the results of its operations for the

three

and

six

month periods ended

December

31,

2016

and

2015,

and its cash flows for the

six

month periods ended

December

31,

2016

and

2015.

These statements should be read in conjunction with the financial statements and footnotes included in the fiscal

2016

Annual Report on Form

10

-K.  Financial information as of

June

30,

2016

has been derived from the Company’s audited consolidated financial statements.

XML

Note 2 - Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Significant Accounting Policies [Text Block]

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 (collectively, the “Company”), all of which are wholly owned.  All intercompany transactions and balances have been eliminated in consolidation.

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 collectability is reasonably assured. 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

five

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 commissioning of lighting controls; revenue from the management of media content and digital hardware related to active digital signage; 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. In certain arrangements with customers, as is the case with the sale of some of our solid-state LED (light emitting diode) video screens, revenue is recognized upon customer acceptance of the video screen at the job site. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed.  The Company provides product warranties and certain post-shipment service, support and maintenance of certain solid state LED video screens.

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 at a customer site have been installed.

Revenue from the management of media content and digital hardware related to active digital signage is recognized evenly over the service period with the customer. Media content service periods with most customers range from

one

month to

one

year.

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

In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separate unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company’s complete performance at the location, which

may

include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.

The Company also evaluates the appropriateness of revenue recognition in accordance with the accounting standards on software revenue recognition. Our solid-state LED video screens and active digital signage contain software elements which the Company has determined are incidental.

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, and then applying certain percentages against the various aging categories based on the due date 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.  Receivables deemed uncollectable are written-off against the allowance for doubtful accounts receivable after all reasonable collection efforts have been exhausted. The Company also establishes allowances, at the time revenue is recognized, for returns, discounts, pricing and other possible customer deductions.  These allowances are based upon historical trends.

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

(In thousands)	December 31,			June 30,
	2016			2016
Accounts receivable	$	49,922		$	47,201
Less: Allowance for doubtful accounts		(381	)		(226	)
Accounts receivable, net	$	49,541		$	46,975

Cash and Cash Equivalents:

The cash balance includes cash and cash equivalents which have original maturities of less than

three

months. Cash and cash equivalents consist primarily of bank deposits and a bank money market account that is stated at cost, which approximates fair value. The Company maintains balances at financial institutions in the United States.  In the United States, the FDIC limit for insurance coverage on non-interest bearing accounts is

$250,000.

As of

December

31,

2016

and

June

30,

2016,

the Company had bank balances of

$35,995,000

and

$37,883,000,

respectively, without insurance coverage.

Inventories and Inventory Reserves:

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.

The Company maintains an inventory reserve for obsolete and excess inventory. The Company

first

determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. Judgment is used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item.  

Property, Plant and Equipment and Related Depreciation:

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

Buildings (in years)	28	-	40
Machinery and equipment (in years)	3	-	10
Computer software (in years)	3	-	8

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.  Leasehold improvements are depreciated over the shorter of

fifteen

years or the remaining term of the lease.

The Company recorded

$1,669,000

and

$1,471,000

of depreciation expense in the

second

quarter of fiscal

2017

and

2016,

respectively, and

$3,397,000

and

$2,921,000

of depreciation expense in the

first

half of fiscal

2017

and

2016,

respectively.

The Company is in the process of selling the facilities and certain machinery and equipment in Kansas City, Kansas and in Woonsocket, Rhode Island. Both of the facilities are expected to be sold at a gain. The facilities and machinery and equipment have been separately disclosed on the balance sheet as assets held for sale as of

December

31,

2016.

Assets held for sale were

$1,713,000

in the Lighting segment and

$1,463,000

in the Graphics segment as of

December

31,

2016.

Refer to Note

14

for more information regarding the closure of these facilities.

Goodwill and 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 over periods ranging between

seven

and

twenty

years.  The Company evaluates definite-lived intangible assets for permanent impairment when triggering events are identified. Neither indefinite-lived intangible assets nor the excess of cost over fair value of assets acquired ("goodwill") are amortized, however they are subject to review for impairment.  See additional information about goodwill and intangibles in Note

7.

Fair Value:

The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, accounts receivable, accounts payable, and on occasion, 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.

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment analyses, long-lived asset impairment analyses, in the purchase price of acquired companies (if any), and in the valuation of the contingent earn-out. The accounting guidance on fair value measurement was used to measure the fair value of these nonfinancial assets and nonfinancial liabilities.

Product Warranties:

The Company offers a limited warranty that its products are free from defects in workmanship and materials.  The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within

one

to

five

years, with some exceptions where the terms extend to

10

years, from the date of shipment.  The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation.  The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues.  The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the 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:

	Six			Six			Fiscal
	Months Ended			Months Ended			Year Ended
(In thousands)	December 31,			December 31,			June 30,
	2016			2015			2016
Balance at beginning of the period	$	5,069		$	3,408		$	3,408
Additions charged to expense		2,243			2,259			5,069
Deductions for repairs and Replacements		(1,351	)		(1,357	)		(3,408	)
Balance at end of the period	$	5,961		$	4,310		$	5,069

Research and Development Costs:

Research and development costs are directly attributable to new product development, including the development of new technology for both existing and new products, and consist of salaries, payroll taxes, employee benefits, materials, outside legal costs and filing fees related to obtaining patents, supplies, depreciation and other administrative costs.   The Company expenses as research and development all costs associated with development of software used in solid-state LED products.  All costs are expensed as incurred and are included in selling and administrative expenses. Research and development costs related to both product and software development totaled

$1,269,000

and

$1,320,000

for the

three

months ended

December

31,

2016

and

2015,

respectively, and

$2,670,000

and

$2,631,000

for the

six

months ended

December

31,

2016

and

2015,

respectively.

Cost of Products and Services Sold:

Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of products, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity. Cost of services sold is primarily comprised of the internal and external labor costs required to support the Company’s service revenue along with the management of media content.

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 nonqualified 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, restricted stock units, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled

787,000

and

987,000

shares for the

three

month ended

December

31,

2016

and

2015,

respectively, and

852,000

shares and

836,000

shares for the

six

months ended

December

31,

2016

and

2015,

respectively. See further discussion of earnings per share in Note

4.

Income Taxes:

The Company accounts for income taxes in accordance with the accounting standards for income taxes.  Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes.  Deferred income tax assets are reported on the Company’s balance sheet.  Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets.

New Accounting Pronouncements:

In

June

2014,

the Financial Accounting Standards Board issued ASU

2014

-

09,

“Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improves disclosures about revenue. In

April

2016,

the FASB issued ASU

2016

-

10,

“Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” In

May

2016,

the FASB issued ASU

2016

-

12,

“Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.” In

December

2016,

the FASB issued ASU

2016

-

20,

“Technical Corrections and Improvements to Topic

606,

Revenue from Contracts with Customers.” These

three

 standards clarify or improve guidance from ASU

2014

-

09

and are effective for fiscal years and interim periods within those years, beginning after

December

15,

2017,

or the Company’s fiscal year

2019.

The Company will adopt these standards no later than

July

1,

2018.

While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. These are largely unaffected by the new standard. However, certain product sales require installation and revenue is currently not recognized until the installation is complete. The Company does not expect this new guidance to have a material impact on the amount of overall sales recognized, however, the timing of sales on certain projects

may

be affected. The Company has not yet quantified this potential impact.

In

November

2015,

the FASB issued ASU

2015

-

17,

“Balance Sheet Classification of Deferred Taxes,” which eliminates the current requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in the statement of financial position. This update requires that deferred tax liabilities and assets be classified as noncurrent. This update is effective for financial statements issued for fiscal years beginning

April

 

1,

2017.

This update

may

be applied either prospectively or retrospectively. However, early adoption is permitted and the Company has chosen to adopt the standard retrospectively as of

June

30,

2016.

As a result, prior periods have been adjusted to reflect this change. This update affected the presentation, but not the measurement of deferred tax liabilities and assets.

Comprehensive Income:

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

Subsequent Events:

The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements were filed.  No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements.

Reclassifications:

Certain prior year balance sheet amounts have been reclassified to conform to new accounting guidance on balance sheet classification of deferred taxes. These reclassifications have no impact on net income, earnings per share, or operating cash flows.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

XML

Note 3 - Segment Reporting Information

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE

3

-

SEGMENT

REPORTING

INFORMATION

The accounting guidance on Segment Reporting establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in financial statements. Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how to allocate resources and assess performance. The Company’s

three

operating segments are Lighting, Graphics, and Technology, each of which has a president who is responsible for that business and reports to the CODM. Corporate and Eliminations, which captures the Company’s corporate administrative activities, will also be reported in the segment information.

The Lighting Segment includes outdoor and indoor lighting utilizing both traditional and LED light sources that have been fabricated and assembled for the commercial, industrial market, the petroleum / convenience store market, the automotive dealership market, the quick service restaurant market, along with other markets the Company serves.

The Graphics Segment designs, manufactures and installs exterior and interior visual image elements such as traditional graphics, active digital signage along with the management of media content related to digital signage, LED video screens, and menu board systems that are either digital or traditional by design. These products are used in visual image programs in several markets, including the petroleum / convenience store market, multi-site retail operations, banking, and restaurants. The Graphics Segment implements, installs and provides program management services related to products sold by the Graphics Segment and by the Lighting Segment.

LED video screens that were previously reported in the Technology Segment in prior years’ results have been reclassified to the Graphics Segment. The movement of the LED video screen product line was the result of a change in management responsibility of this product line to the Graphics Segment president during the

first

quarter of fiscal

2017.

This movement aligns the product line with other digital visual image elements sold to graphics customers and is consistent with how the Company’s CODM manages the business. The movement of the video screen product line resulted in a reclassification of

$76,000

of operating loss from the Technology Segment to the Graphics Segment in the

second

quarter of fiscal

2016,

and

$3,000

of operating loss in the

first

half of fiscal

2016.

The Company deemed that

distribution channels and corresponding projected future cash flows that support a customer relationship intangible asset related to the LED video screen product line are adequate to support the asset. The net book value of the asset is

$492,000

as of

December

31,

2016

and future cash flows generated from this asset will continue to be monitored in future quarters.

The Technology Segment designs, engineers, and manufactures electronic circuit boards, assemblies and sub-assemblies, and various control system products used in other applications (primarily the control of solid-state LED lighting). This operating segment sells its products directly to customers (primarily in the transportation, original equipment manufacturers, sports, and medical markets) and also has significant inter-segment sales to the Lighting Segment.

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

There was

no

concentration of consolidated net sales in the

three

and

six

months ended

December

31,

2016

or in the

three

months ended

December

31,

2015.

The Company’s Lighting Segment and Graphics Segment net sales to a petroleum / convenience store customer represented approximately

$17,045,000

or

10%

of consolidated net sales in the

six

months ended

December

31,

2015.

There was

no

concentration of accounts receivable at

December

31,

2016

or

June

30,

2016.

Summarized financial information for the Company’s operating segments is provided for the indicated periods and as of

December

31,

2016

and

December

31,

2015:

	Three Months Ended						Six Months Ended
( In thousands)	December 31						December 31
	2016			2015			2016			2015
Net Sales:
Lighting Segment	$	60,169		$	59,601		$	120,539		$	118,676
Graphics Segment		20,582			21,206			39,476			43,536
Technology Segment		4,907			3,880			9,802			8,400
	$	85,658		$	84,687		$	169,817		$	170,612
Operating Income (Loss):
Lighting Segment	$	2,738		$	5,182		$	5,529		$	10,864
Graphics Segment		1,174			1,959			2,191			4,193
Technology Segment		924			1,069			1,652			2,336
Corporate and Eliminations		(2,018	)		(2,830	)		(5,488	)		(6,250	)
	$	2,818		$	5,380		$	3,884		$	11,143
Capital Expenditures:
Lighting Segment	$	183		$	1,160		$	1,267		$	1,849
Graphics Segment		459			604			825			1,192
Technology Segment		22			108			34			141
Corporate and Eliminations		120			150			618			202
	$	784		$	2,022		$	2,744		$	3,384
Depreciation and Amortization:
Lighting Segment	$	791		$	717		$	1,638		$	1,422
Graphics Segment		376			237			736			471
Technology Segment		324			340			669			676
Corporate and Eliminations		279			304			562			605
	$	1,770		$	1,598		$	3,605		$	3,174

	December 31, 2016		June 30, 2016
Identifiable Assets:
Lighting Segment	$	91,010	$	95,168
Graphics Segment		36,888		33,490
Technology Segment		28,206		28,348
Corporate and Eliminations		39,732		38,554
	$	195,836	$	195,560

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

The Company records a

10%

mark-up on intersegment revenues. Any intersegment profit in inventory is eliminated in consolidation. Intersegment revenues were eliminated in consolidation as follows:

	Three Months Ended				Six Months Ended
	December 31				December 31
(In thousands)	2016		2015		2016		2015
Lighting Segment inter-segment net sales	$	713	$	814	$	1,487	$	1,428
Graphics Segment inter-segment net sales	$	680	$	562	$	812	$	1,006
Technology inter-segment net sales	$	8,346	$	8,932	$	17,131	$	18,316

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

XML

Note 4 - Earnings Per Common Share

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

4

- EARNINGS PER COMMON SHARE

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

	Three Months Ended				Six Months Ended
	December 31				December 31
	2016		2015		2016		2015
BASIC EARNINGS PER SHARE
Net income	$	2,006	$	3,782	$	2,835	$	7,532
Weighted average shares outstanding during the period, net of treasury shares (a)		25,016		24,637		25,007		24,569
Weighted average vested restricted stock units outstanding		37		25		37		26
Weighted average shares outstanding in the Deferred Compensation Plan during the period		261		249		250		243
Weighted average shares outstanding		25,314		24,911		25,294		24,838
Basic earnings per share	$	0.08	$	0.15	$	0.11	$	0.30
DILUTED EARNINGS PER SHARE
Net income	$	2,006	$	3,782	$	2,835	$	7,532
Weighted average shares outstanding
Basic		25,314		24,911		25,294		24,838
Effect of dilutive securities (b):
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any		489		713		565		567
Weighted average shares outstanding (c)		25,803		25,624		25,859		25,405
Diluted earnings per share	$	0.08	$	0.15	$	0.11	$	0.30

(a) Includes shares accounted for like treasury stock included in the Company’s non-qualified deferred compensation plan. (See Note 10.)

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

(c) Options to purchase 1,682,270 common shares and 1,115,250 common shares at December 31, 2016 and 2015, respectively, and options to purchase 1,626,770 common shares and 1,506,800 common shares at December 31, 2016 and 2015, respectively were not included in the computation of the three month and six month period for diluted earnings per share, respectively, because the exercise price was greater than the average fair market value of the common shares.

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Note 5 - Inventories

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE

5

 - INVENTORIES

The following information is provided as of the dates indicated:

	December 31,		June 30,
(In thousands)	2016		2016
Inventories:
Raw materials	$	27,638	$	28,979
Work-in-process		4,108		4,418
Finished goods		10,658		10,744
Total Inventories	$	42,404	$	44,141

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Note 6 - Accrued Expenses

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

NOTE

6

 - ACCRUED EXPENSES

The following information is provided as of the dates indicated:

	December 31,		June 30,
(In thousands)	2016		2016
Accrued Expenses:
Compensation and benefits	$	7,494	$	11,983
Customer prepayments		1,269		1,053
Accrued sales commissions		2,695		2,792
Accrued warranty		5,961		5,069
Other accrued expenses		5,561		4,444
Total Accrued Expenses	$	22,980	$	25,341

XML

Note 7 - Goodwill and Other Intangible Assets

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

NOTE

7

 - GOODWILL AND OTHER INTANGIBLE ASSETS

Carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment. The Company

may

first

assess qualitative factors in order to determine if goodwill and indefinite-lived intangible assets are impaired. If through the qualitative assessment it is determined that it is more likely than not that goodwill and indefinite-lived assets are not impaired, no further testing is required. If it is determined more likely than not that goodwill and indefinite-lived assets are impaired, or if the Company elects not to

first

assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of goodwill and indefinite-lived intangible assets using a combination of a market approach and an income (discounted cash flow) approach, at the reporting unit level. The estimation of the fair value of goodwill and intangible assets requires significant management judgment with respect to revenue and expense growth rates, changes in working capital and the selection and use of an appropriate discount rate.  The estimates of fair value of reporting units are based on the best information available as of the date of the assessment.  The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge.  Company management uses its judgment in assessing whether assets

may

have become impaired between annual impairment tests.  Indicators such as adverse business conditions, economic factors and technological change or competitive activities

may

signal that an asset has become impaired.

The Company identified its reporting units in conjunction with its annual goodwill impairment testing.  The Company relies upon a number of factors, judgments and estimates when conducting its impairment testing including, but not limited to operating results, forecasts, anticipated future cash flows and marketplace data.  There are inherent uncertainties related to these factors and judgments in applying them to the analysis of goodwill impairment.

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

Goodwill
(In thousands)	Lighting			Graphics			Technology
	Segment			Segment			Segment			Total
Balance as of June 30, 2016
Goodwill	$	34,913		$	28,690		$	11,621		$	75,224
Accumulated impairment losses		(34,778	)		(27,525	)		(2,413	)		(64,716	)
Goodwill, net as of June 30, 2016	$	135		$	1,165		$	9,208		$	10,508
Balance as of December 31, 2016
Goodwill	$	34,913			28,690			11,621			75,224
Accumulated impairment losses		(34,778	)		(27,525	)		(2,413	)		(64,716	)
Goodwill, net as of December 31, 2016	$	135		$	1,165		$	9,208		$	10,508

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

	December 31, 2016
Other Intangible Assets	Gross
(In thousands)	Carrying		Accumulated		Net
	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	9,316	$	7,727	$	1,589
Patents		338		172		166
LED technology firmware, software		11,228		11,027		201
Trade name		460		460		--
Non-compete agreements		710		710		--
Total Amortized Intangible Assets		22,052		20,096		1,956
Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		--		3,422
Total Indefinite-lived Intangible Assets		3,422		--		3,422
Total Other Intangible Assets	$	25,474	$	20,096	$	5,378

	June 30, 2016
Other Intangible Assets	Gross
	Carrying		Accumulated		Net
(In thousands)	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	9,316	$	7,581	$	1,735
Patents		338		154		184
LED technology firmware, software		11,228		10,989		239
Trade name		460		460		--
Non-compete agreements		710		704		6
Total Amortized Intangible Assets		22,052		19,888		2,164
Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		--		3,422
Total Indefinite-lived Intangible Assets		3,422		--		3,422
Total Other Intangible Assets	$	25,474	$	19,888	$	5,586

(In thousands)	Amortization Expense of Other Intangible Assets
	December 31, 2016		December 31, 2015
Three Months Ended	$	101	$	127
Six Months Ended	$	208	$	253

The Company expects to record annual amortization expense as follows:

(In thousands)
2017	$	419
2018	$	401
2019	$	401
2020	$	327
2021	$	323
After 2021	$	293

XML

Note 8 - Revolving Line of Credit

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE

8

  -  REVOLVING LINE OF CREDIT

In

March

2016,

the Company renewed its

$30

million unsecured revolving credit line. The line of credit expires in the

third

quarter of fiscal

2019.

 Interest on the revolving line of credit is charged based upon an increment over the LIBOR rate as periodically determined, or at the bank’s base lending rate, at the Company’s option.  The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between

150

and

190

basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the credit facility.  The fee on the unused balance of the

$30

million committed line of credit is

12.5

basis points.  Under the terms of this credit facility, the Company has agreed to a negative pledge of assets and is required to comply with financial covenants that limit the amount of debt obligations, require a minimum amount of tangible net worth, and limit the ratio of indebtedness to EBITDA. There are

no

borrowings against the line of credit as of

December

31,

2016.

The Company is in compliance with all of its loan covenants as of

December

31,

2016

.

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Note 9 - Cash Dividends

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE

9

 -  CASH DIVIDENDS

The Company paid cash dividends of

$2,513,000

and

$1,721,000

in the

six

months ended

December

31,

2016

and

2015,

respectively. Dividends on restricted stock units in the amount of

$19,826

and

$4,690

were accrued as of

December

31,

2016

and

2015,

respectively. These dividends will be paid upon the vesting of the restricted stock units when shares are issued to the award recipients. In

January

2017,

the Board of Directors declared a regular quarterly cash dividend of

$0.05

per share payable

February

14,

2017

to shareholders of record as of

February

6,

2017.

The indicated annual cash dividend rate is

$0.20

per share.

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Note 10 - Equity Compensation

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE

10

-

EQUITY COMPENSATION

Stock Based Compensation

 

The Company has an equity compensation plan that was approved by shareholders in

November

2012

and that covers all of its full-time employees, outside directors and certain advisors.  This

2012

Stock Incentive Plan replaced all previous equity compensation plans. The Company’s shareholders approved an amendment to the

2012

Stock Incentive Plan that added

1,600,000

shares to the plan and implemented the use of a fungible share ratio that consumes

2.5

available shares for every

1

full value share awarded by the Company as stock compensation. The options granted or stock awards made pursuant to this plan are granted at fair market value at the date of grant or award.  Service-based options granted to non-employee directors become exercisable

25%

each

ninety

days (cumulative) from the date of grant and options granted to employees generally become exercisable

25%

per year (cumulative) beginning

one

year after the date of grant. Performance-based options granted to employees become exercisable

33.3%

per year (cumulative) beginning

one

year after the date of grant. The maximum contractual term of the Company’s stock options is

ten

years.  If a stock option holder’s employment with the Company terminates by reason of death, disability or retirement, as defined in the Plan, the Plan generally provides for acceleration of vesting.  The number of shares reserved for issuance is

2,364,601

shares, all of which were available for future grant or award as of

December

31,

2016.

  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. Service based and performance based stock options were granted and restricted stock units (“RSU’s”) were awarded during the

six

months ended

December

31,

2016.

As of

December

31,

2016,

a total of

3,625,372

options for common shares were outstanding from this plan as well as

one

previous stock option plan (which has also been approved by shareholders), and of these, a total of

1,700,025

options for common shares were vested and exercisable.  As of

December

31,

2016,

the approximate unvested stock option expense that will be recorded as expense in future periods is

$2,622,788.

  The weighted average time over which this expense will be recorded is approximately

27

months. Additionally, as of

December

31,

2016,

a total of

118,575

RSU’s were outstanding. The approximate unvested stock compensation expense that will be recorded as expense in future periods for the RSU’s is

$608,468.

The weighted average time over which this expense will be recorded is approximately

33

months.

Stock Options

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
	December 31						December 31
	2016			2015			2016			2015
Dividend yield		2.07	%		1.33	%		1.81	%		1.28	%
Expected volatility		41	%		43	%		43	%		44	%
Risk-free interest rate		2.06	%		1.38	%		1.00	%		1.67	%
Expected life (in years)		6.0			6.0			6.0			6.0

At

December

31,

2016,

the

834,320

options granted during the

first

six

months of fiscal

2017

to employees had exercise prices ranging from

$9.65

to

$11.06

per share, fair values ranging from of

$3.29

to

$3.83

per share, and remaining contractual lives of between

9.5

and

10

years.

At

December

31,

2015,

the

1,016,800

options granted during the

first

six

months of fiscal

2016

to employees had exercise prices ranging from

$8.84

to

$11.82

per share, fair values ranging from of

$3.28

to

$4.48

per share, and remaining contractual lives of between

9.5

and

9.9

years.

The Company calculates stock option expense using the Black-Scholes model.  Stock option expense is recorded on a straight line basis, or sooner if the grantee is retirement eligible as defined in the

2012

Stock Incentive Plan, with an estimated

3.51%

forfeiture rate effective

October

1,

2016.

Previous estimated forfeiture rates were between

2.0%

and

3.4%

between the periods

January

1,

2013

through

September

30,

2016.

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 a reduction of expense of

$142,434

in the

three

months ended

December

31,

2016

and recorded

$342,134

of expense in the

three

months ended

December

31,

2015,

related to stock options. The reduction of stock option expense in the

three

months ended

December

31,

2016

was the result of expectations that the performance criteria related to incentive based options will not be met. The Company recorded

$1,296,009

and

$1,830,707

of expense related to stock options in the

six

months ended

December

31,

2016

and

2015,

respectively.  As of

December

31,

2016,

the Company had

3,159,692

stock options that were vested and that were expected to vest, with a weighted average exercise price of

$8.92

per share, an aggregate intrinsic value of

$4,620,655

and weighted average remaining contractual terms of

6.7

years.

Information related to all stock options for the

six

months ended

December

31,

2016

and

2015

is shown in the following tables:

	Six Months Ended December 31, 2016
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic
	Shares			Price		(in years)		Value
Outstanding at 6/30/16		2,976,490		$	8.97		6.6	$	8,338,974
Granted		834,320		$	11.05
Forfeitures		(147,375	)	$	16.03
Exercised		(38,063	)	$	7.75
Outstanding at 12/31/16		3,625,372		$	9.18		7.1	$	4,648,729
Exercisable at 12/31/16		1,700,025		$	8.73		5.1	$	3,216,899

	Six Months Ended December 31, 2015
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic
	Shares			Price		(in years)		Value
Outstanding at 6/30/15		2,677,436		$	8.85		6.1	$	4,914,601
Granted		1,016,800		$	9.38
Forfeitures		(55,050	)	$	11.65
Exercised		(298,724	)	$	7.20
Outstanding at 12/31/15		3,340,462		$	9.11		6.8	$	12,661,470
Exercisable at 12/31/15		1,628,976		$	9.95		4.5	$	6,032,985

The following table presents information related to unvested stock options:

				Weighted-Average
				Grant Date
	Shares			Fair Value
Unvested at June 30, 2016		1,663,505		$	3.39
Granted		834,320		$	3.83
Vested		(546,978	)	$	3.25
Forfeited		(25,500	)	$	3.50
Unvested at December 31, 2016		1,925,347		$	3.62

The weighted average grant date fair value of options granted during the

six

month periods ended

December

31,

2016

and

2015

was

$3.83

and

$3.63,

respectively. The aggregate intrinsic value of options exercised during the

six

months ended

December

31,

2016

and

2015

was

$99,883

and

$852,596,

respectively. The aggregate grant date fair value of options that vested during the

six

months ended

December

31,

2016

and

2015

was

$1,779,490

and

$1,035,041,

respectively. The Company received

$295,030

and

$2,149,606

of cash from employees who exercised options in the

six

month periods ended

December

31,

2016

and

2015,

respectively. In the

first

six

months of fiscal

2017

the Company recorded

$95,443

as a reduction of federal income taxes payable,

$124,056

as a decrease in common stock,

$22,073

as a reduction of income tax expense, and

$197,427

as a reduction of the deferred tax asset related to the issuance of RSU’s and 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. In the

first

six

months of fiscal

2016

the Company recorded

$300,868

as a reduction of federal income taxes payable,

$46,066

as an increase in common stock,

$84,781

as a reduction of income tax expense, and

$170,021

as a reduction of the deferred tax asset 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.

Restricted Stock Units

A total of

71,700

restricted stock units with a fair value of

$11.06

per share were awarded to employees during the

six

months ended

December

31,

2016.

A total of

72,000

RSU’s with a fair value of

$9.39

per share were awarded to employees during the

six

months ended

December

31,

2015.

The Company determined the fair value of the awards based on the closing price of the Company stock on the date the RSU’s were awarded. The RSU’s have a

four

year ratable vesting period. The RSU’s are non-voting, but accrue cash dividends at the same per share rate as those cash dividends declared and paid on LSI’s common stock. Dividends on RSU’s in the amount of

$19,826

and

$4,690

were accrued as of

December

31,

2016

and

2015,

respectively. Accrued dividends are paid to the holder upon vesting of the RSU’s and issuance of shares.

The following table presents information related to RSU’s:

				Weighted-Average
				Grant Date
	Shares			Fair Value
Unvested at June 30, 2016		62,500		$	9.39
Awarded		71,700		$	11.06
Shares Issued		(15,625	)	$	9.39
Unvested at December 31, 2016		118,575		$	10.40

As of

December

31,

2016,

the

118,575

RSU’s had a remaining contractual life of between

2.5

and

3.5

years. Of the

118,575

RSU’s outstanding as of

December

31,

2016,

114,531

are vested or expected to vest in the future. An estimated forfeiture rate of

3.4%

was used in the calculation of expense related to the RSU’s. The Company recorded

$89,896

and

$392,197

of expense related to RSU’s in the

three

and

six

month periods ended

December

31,

2016,

respectively.

As of

December

31,

2015,

the

67,000

outstanding RSU's had a remaining contractual life of

3.5

years. Of the

67,000

RSU’s outstanding as of

December

31,

2015,

64,434

were expected to vest. An estimated forfeiture rate of

3.3%

was used in the calculation of expense related to the RSU’s. The Company recorded

$33,276

and

$319,533

of expense related to RSU’s in the

three

and

six

month periods ended

December

31,

2015,

respectively.

Director and Employee Stock Compensation Awards

The Company awarded a total of

21,199

and

12,590

common shares in the

six

months ended

December

31,

2016

and

2015,

respectively, as stock compensation awards. These common shares were valued at their approximate

$228,000

and

$113,400

fair market values based on their stock price at dates of issuance multiplied by the number of common shares awarded, respectively, pursuant to the compensation programs for non-employee directors who receive a portion of their compensation as an award of Company stock and for employees who received a nominal recognition award in the form of Company stock. Stock compensation awards are made in the form of newly issued common shares of the Company.

Deferred Compensation Plan

 

The Company has a non-qualified deferred compensation plan providing for both Company contributions and participant deferrals of compensation. This plan is fully funded in a Rabbi Trust. All plan investments are in common shares of the Company. As of

December

31,

2016,

there were

30

participants, all with fully vested account balances. A total of

263,506

common shares with a cost of

$2,514,106,

and

228,103

common shares with a cost of

$2,167,717

were held in the plan as of

December

31,

2016

and

June

 

30,

2016,

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 used approximately

$390,288

and

$276,800

to purchase

39,487

and

29,021

common shares of the Company in the open stock market during the

six

months ended

December

31,

2016

and

2015,

respectively, for either employee salary deferrals or Company contributions into the non-qualified deferred compensation plan. For fiscal year

2017,

the Company estimates the Rabbi Trust for the Nonqualified Deferred Compensation Plan will make net repurchases in the range of

45,000

to

50,000

common shares of the Company. The Company does not currently repurchase its own common shares for any other purpose.

XML

Note 11 - Supplemental Cash Flow Information

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

NOTE

11

 -  SUPPLEMENTAL CASH FLOW INFORMATION

(In thousands)	Six Months Ended December 31
	2016		2015
Cash payments:
Interest	$	21	$	23
Income taxes	$	2,381	$	4,650
Issuance of common shares as compensation	$	228	$	113

XML

Note 12 - Commitments and Contingencies

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE

1

2

-

COMMITMENTS AND CONTINGENCIES

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

The Company

may

occasionally issue a standby letter of credit in favor of

third

parties. As of

December

31,

2016,

there were

no

standby letter of credit agreements.

XML

Note 13 - Severance Costs

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

NOTE

1

3

– SEVERANCE COSTS

The Company recorded severance expense of

$173,000

and

$223,000

in the

six

months ended

December

31,

2016

and

2015,

respectively. This severance expense was related to reductions in staffing not related to plant restructuring. See further discussion of restructuring expenses in Note

14.

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

	Six			Six			Fiscal
	Months Ended			Months Ended			Year Ended
(In thousands)	December 31,			December 31,			June 30,
	2016			2015			2016
Balance at beginning of the period	$	39		$	379		$	379
Accrual of expense		173			223			469
Payments		(205	)		(314	)		(742	)
Adjustments		--			(58	)		(67	)
Balance at end of the period	$	7		$	230		$	39

XML

Note 14 - Restructuring Costs

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

NOTE

1

4

– RESTRUCTURING COSTS

On

September

22,

2016,

the Company announced plans to close its lighting facility in Kansas City, Kansas. The decision was based upon the market shift away from fluorescent and other technologies and the rapid movement to LED lighting which is produced at other LSI facilities. The Company expects to continue to meet the demand for products containing fluorescent light sources as long as these products are commercially viable. All operations at the Kansas City facility ceased prior to

December

31,

2016.

Total restructuring costs related to the closure of the Kansas City facility are expected to be approximately

$900,000.

These costs primarily include employee-related costs (primarily severance), the impairment of manufacturing equipment, plant shut down costs

, costs related to the preparation of the facility for sale, legal costs, and other related costs. In addition, there was also an inventory write-down of

$400,000

recorded in the

first

quarter of fiscal

2017.

The write-down was related to inventory that was previously realizable until the decision in the

first

quarter of fiscal

2017

to shut down the Kanas City plant due to the planned curtailment of the manufacturing of fluorescent light fixtures. The Company owns the facility in Kansas City and expects to realize a gain when the facility is sold. The facility is presented on the balance sheet as an asset held for sale.

The Company also announced the consolidation of the Beaverton, Oregon facility into other LSI facilities. The light assembly of products in the Beaverton facility was moved to the Company’s Columbus, Ohio facility, and administration and engineering functions were moved to the Company’s Cincinnati, Ohio facility. This consolidation was completed

September

30,

2016.

As a result of this consolidation, restructuring charges of

$362,000

were recorded in the

first

half of fiscal

2017,

with the majority of this representing the costs related to the remaining period of the facility’s lease and severance costs for employees who formerly worked in the Beaverton facility.

In

November

2016,

the Company announced the consolidation of the Woonsocket, Rhode Island manufacturing operation into its North Canton, Ohio operation. The manufacturing operations in Woonsocket ceased prior to

December

31,

2016.

The Company owns the facility in Woonsocket and expects to realize a gain when the facility is sold

. The facility is presented on the balance sheet as an asset held for sale. Total restructuring costs related to the consolidation of the Woonsocket facility are expected to be approximately

$300,000.

These costs primarily include employee-related costs (severance), plant shut down costs, costs related to the preparation of the facility for sale, legal costs, and other related costs.

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

	Three		Six Months		Total Expected		Total
	Months Ended		Ended		to be Recognized		Fiscal 2017
(In thousands)	December 31,		December 31,		in Remainder of		Restructuring
	2016		2016		Fiscal 2017		Expenses
Severance and other termination benefits	$	526	$	691	$	77	$	768
Lease obligation		--		213		--		213
Impairment of fixed assets and accelerated depreciation		80		353		--		353
Other		91		96		132		228
Total	$	697	$	1,353	$	209	$	1,562

Impairment and accelerated depreciation expense of

$353,000

was recorded in the

first

half of fiscal

2017

related to machinery and equipment at the Kansas City and Beaverton facilities. There was no impairment expense related to the closure of the Woonsocket facility. Of the

$353,000

of impairment and accelerated depreciation expense,

$322,000

was recorded in the Lighting Segment and

$31,000

was recorded in the Technology Segment. The fair value of the equipment evaluated for impairment was determined by comparing the future undiscounted cash flows to the carrying value of the assets. The future cash flows are from the remaining use of the assets as well as the cash flows expected to result from the future sale of the assets.

The following table presents restructuring costs incurred by line item in the consolidated statement of operations in which the costs are included:

	Three Months Ended		Six Months Ended
(In thousands)	December 31		December 31
	2016		2016
Cost of Goods Sold	$	640	$	1,143
Operating Expenses		57		210
Total	$	697	$	1,353

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

	Three			Six Months		Total Expected		Total
	Months Ended			Ended		to be Recognized		Fiscal 2017
(In thousands)	December 31,			December 31,		In Remainder of		Restructuring
	2016			2016		Fiscal 2017		Expenses
Lighting Segment	$	479		$	770	$	130	$	900
Graphics Segment		221			221		79		300
Technology Segment		(3	)		251		--		251
Corporate and Eliminations		--			111		--		111
Total	$	697		$	1,353	$	209	$	1,562

The above tables exclude the expected gain on the sale of the Kansas City and Woonsocket facilities. Additionally, the above tables do not include expense of

$400,000

recorded during the

first

quarter of fiscal

2017

related to the write-down of inventory included as cost of sales as part of the Kansas City facility closure.

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

(In thousands)
	Balance as of June 30, 2016		Restructuring Expense		Payments			Adjustments			Balance as of December 31, 2016
Severance and termination benefits	$	--	$	691	$	(306	)	$	(3	)	$	382
Lease obligation		--		213		(43	)		--			170
Other		--		96		(90	)		--			6
Total	$	--	$	1,000	$	(439	)	$	(3	)	$	558

The above table does not include fixed asset impairment and accelerated depreciation expense of

$353,000

recorded in the

first

six

months of fiscal

2017.

Refer to Note

13

for information regarding additional severance expenses that are not included in the restructuring costs identified in this footnote.

XML

Note 15 - Income Taxes

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE

1

5

–

INCOME TAXES

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

	Three Months Ended						Six Months Ended
	December 31						December 31
	2016			2015			2016			2015
Reconciliation to effective tax rate:
Provision for income taxes at the anticipated annual tax rate		30.4	%		33.3	%		30.8	%		34.5	%
Enactment of tax law changes		--			(2.0	)		--			(1.0	)
Uncertain tax positions		(0.6	)		(0.3	)		(0.8	)		(0.3	)
Deferred tax asset adjustment		--			--			(1.8	)		--
Other		(0.5	)		(1.2	)		(0.6	)		(0.7	)
Effective tax rate		29.3	%		29.8	%		27.6	%		32.5	%

XML

Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Consolidation:

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

Revenue Recognition, Policy [Policy Text Block]

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 collectability is reasonably assured. 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

five

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 commissioning of lighting controls; revenue from the management of media content and digital hardware related to active digital signage; 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. In certain arrangements with customers, as is the case with the sale of some of our solid-state LED (light emitting diode) video screens, revenue is recognized upon customer acceptance of the video screen at the job site. Product revenue related to orders where the customer requires the Company to install the product is recognized when the product is installed.  The Company provides product warranties and certain post-shipment service, support and maintenance of certain solid state LED video screens.

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 at a customer site have been installed.

Revenue from the management of media content and digital hardware related to active digital signage is recognized evenly over the service period with the customer. Media content service periods with most customers range from

one

month to

one

year.

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

In situations where the Company is responsible for re-imaging programs with multiple sites, each site is viewed as a separate unit of accounting and has stand-alone value to the customer. Revenue is recognized upon the Company’s complete performance at the location, which

may

include a site survey, graphics products, lighting products, and installation of products. The selling price assigned to each site is based upon an agreed upon price between the Company and its customer and reflects the estimated selling price for that site relative to the selling price for sites with similar image requirements.

The Company also evaluates the appropriateness of revenue recognition in accordance with the accounting standards on software revenue recognition. Our solid-state LED video screens and active digital signage contain software elements which the Company has determined are incidental.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

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, and then applying certain percentages against the various aging categories based on the due date 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.  Receivables deemed uncollectable are written-off against the allowance for doubtful accounts receivable after all reasonable collection efforts have been exhausted. The Company also establishes allowances, at the time revenue is recognized, for returns, discounts, pricing and other possible customer deductions.  These allowances are based upon historical trends.

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

(In thousands)	December 31,			June 30,
	2016			2016
Accounts receivable	$	49,922		$	47,201
Less: Allowance for doubtful accounts		(381	)		(226	)
Accounts receivable, net	$	49,541		$	46,975

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents:

The cash balance includes cash and cash equivalents which have original maturities of less than

three

months. Cash and cash equivalents consist primarily of bank deposits and a bank money market account that is stated at cost, which approximates fair value. The Company maintains balances at financial institutions in the United States.  In the United States, the FDIC limit for insurance coverage on non-interest bearing accounts is

$250,000.

As of

December

31,

2016

and

June

30,

2016,

the Company had bank balances of

$35,995,000

and

$37,883,000,

respectively, without insurance coverage.

Inventory, Policy [Policy Text Block]

Inventories and Inventory Reserves:

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.

The Company maintains an inventory reserve for obsolete and excess inventory. The Company

first

determines its obsolete inventory reserve by considering specific known obsolete items, and then by applying certain percentages to specific inventory categories based upon inventory turns. The Company uses various tools, in addition to inventory turns, to identify which inventory items have the potential to become obsolete. Judgment is used to establish excess and obsolete inventory reserves and management adjusts these reserves as more information becomes available about the ultimate disposition of the inventory item.  

Property, Plant and Equipment, Policy [Policy Text Block]

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 (in years)	28	-	40
Machinery and equipment (in years)	3	-	10
Computer software (in years)	3	-	8

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.  Leasehold improvements are depreciated over the shorter of

fifteen

years or the remaining term of the lease.

The Company recorded

$1,669,000

and

$1,471,000

of depreciation expense in the

second

quarter of fiscal

2017

and

2016,

respectively, and

$3,397,000

and

$2,921,000

of depreciation expense in the

first

half of fiscal

2017

and

2016,

respectively.

The Company is in the process of selling the facilities and certain machinery and equipment in Kansas City, Kansas and in Woonsocket, Rhode Island. Both of the facilities are expected to be sold at a gain. The facilities and machinery and equipment have been separately disclosed on the balance sheet as assets held for sale as of

December

31,

2016.

Assets held for sale were

$1,713,000

in the Lighting segment and

$1,463,000

in the Graphics segment as of

December

31,

2016.

Refer to Note

14

for more information regarding the closure of these facilities.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and 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 over periods ranging between

seven

and

twenty

years.  The Company evaluates definite-lived intangible assets for permanent impairment when triggering events are identified. Neither indefinite-lived intangible assets nor the excess of cost over fair value of assets acquired ("goodwill") are amortized, however they are subject to review for impairment.  See additional information about goodwill and intangibles in Note

7.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value:

The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, accounts receivable, accounts payable, and on occasion, 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.

Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in goodwill and other intangible asset impairment analyses, long-lived asset impairment analyses, in the purchase price of acquired companies (if any), and in the valuation of the contingent earn-out. The accounting guidance on fair value measurement was used to measure the fair value of these nonfinancial assets and nonfinancial liabilities.

Standard Product Warranty, Policy [Policy Text Block]

Product Warranties:

The Company offers a limited warranty that its products are free from defects in workmanship and materials.  The specific terms and conditions vary somewhat by product line, but generally cover defective products returned within

one

to

five

years, with some exceptions where the terms extend to

10

years, from the date of shipment.  The Company records warranty liabilities to cover the estimated future costs for repair or replacement of defective returned products as well as products that need to be repaired or replaced in the field after installation.  The Company calculates its liability for warranty claims by applying estimates based upon historical claims as a percentage of sales to cover unknown claims, as well as estimating the total amount to be incurred for known warranty issues.  The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the 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:

	Six			Six			Fiscal
	Months Ended			Months Ended			Year Ended
(In thousands)	December 31,			December 31,			June 30,
	2016			2015			2016
Balance at beginning of the period	$	5,069		$	3,408		$	3,408
Additions charged to expense		2,243			2,259			5,069
Deductions for repairs and Replacements		(1,351	)		(1,357	)		(3,408	)
Balance at end of the period	$	5,961		$	4,310		$	5,069

Research, Development, and Computer Software, Policy [Policy Text Block]

Research and Development Costs:

Research and development costs are directly attributable to new product development, including the development of new technology for both existing and new products, and consist of salaries, payroll taxes, employee benefits, materials, outside legal costs and filing fees related to obtaining patents, supplies, depreciation and other administrative costs.   The Company expenses as research and development all costs associated with development of software used in solid-state LED products.  All costs are expensed as incurred and are included in selling and administrative expenses. Research and development costs related to both product and software development totaled

$1,269,000

and

$1,320,000

for the

three

months ended

December

31,

2016

and

2015,

respectively, and

$2,670,000

and

$2,631,000

for the

six

months ended

December

31,

2016

and

2015,

respectively.

Cost of Sales, Policy [Policy Text Block]

Cost of Products and Services Sold:

Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of products, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity. Cost of services sold is primarily comprised of the internal and external labor costs required to support the Company’s service revenue along with the management of media content.

Earnings Per Share, Policy [Policy Text Block]

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 nonqualified 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, restricted stock units, contingently issuable shares and common shares to be issued under a deferred compensation plan, all of which totaled

787,000

and

987,000

shares for the

three

month ended

December

31,

2016

and

2015,

respectively, and

852,000

shares and

836,000

shares for the

six

months ended

December

31,

2016

and

2015,

respectively. See further discussion of earnings per share in Note

4.

Income Tax, Policy [Policy Text Block]

Income Taxes:

The Company accounts for income taxes in accordance with the accounting standards for income taxes.  Accordingly, deferred income taxes are provided on items that are reported as either income or expense in different time periods for financial reporting purposes than they are for income tax purposes.  Deferred income tax assets are reported on the Company’s balance sheet.  Significant management judgment is required in developing the Company’s income tax provision, including the estimation of taxable income and the effective income tax rates in the multiple taxing jurisdictions in which the Company operates, the estimation of the liability for uncertain income tax positions, the determination of deferred tax assets and liabilities, and any valuation allowances that might be required against deferred tax assets.

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Pronouncements:

In

June

2014,

the Financial Accounting Standards Board issued ASU

2014

-

09,

“Revenue from Contracts with Customers.” This amended guidance supersedes and replaces all existing U.S. GAAP revenue recognition guidance. The guidance established a new revenue recognition model, changes the basis for deciding when revenue is recognized, provides new and more detailed guidance on specific revenue topics, and expands and improves disclosures about revenue. In

April

2016,

the FASB issued ASU

2016

-

10,

“Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” In

May

2016,

the FASB issued ASU

2016

-

12,

“Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients.” In

December

2016,

the FASB issued ASU

2016

-

20,

“Technical Corrections and Improvements to Topic

606,

Revenue from Contracts with Customers.” These

three

 standards clarify or improve guidance from ASU

2014

-

09

and are effective for fiscal years and interim periods within those years, beginning after

December

15,

2017,

or the Company’s fiscal year

2019.

The Company will adopt these standards no later than

July

1,

2018.

While the Company is currently assessing the impact of the new standard, the Company’s revenue is primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. These are largely unaffected by the new standard. However, certain product sales require installation and revenue is currently not recognized until the installation is complete. The Company does not expect this new guidance to have a material impact on the amount of overall sales recognized, however, the timing of sales on certain projects

may

be affected. The Company has not yet quantified this potential impact.

In

November

2015,

the FASB issued ASU

2015

-

17,

“Balance Sheet Classification of Deferred Taxes,” which eliminates the current requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in the statement of financial position. This update requires that deferred tax liabilities and assets be classified as noncurrent. This update is effective for financial statements issued for fiscal years beginning

April

 

1,

2017.

This update

may

be applied either prospectively or retrospectively. However, early adoption is permitted and the Company has chosen to adopt the standard retrospectively as of

June

30,

2016.

As a result, prior periods have been adjusted to reflect this change. This update affected the presentation, but not the measurement of deferred tax liabilities and assets.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income:

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

Subsequent Events, Policy [Policy Text Block]

Subsequent Events:

The Company has evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements were filed.  No items were identified during this evaluation that required adjustment to or disclosure in the accompanying consolidated financial statements.

Reclassification, Policy [Policy Text Block]

Reclassifications:

Certain prior year balance sheet amounts have been reclassified to conform to new accounting guidance on balance sheet classification of deferred taxes. These reclassifications have no impact on net income, earnings per share, or operating cash flows.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

XML

Note 2 - Summary of Significant Accounting Policies (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

(In thousands)	December 31,			June 30,
	2016			2016
Accounts receivable	$	49,922		$	47,201
Less: Allowance for doubtful accounts		(381	)		(226	)
Accounts receivable, net	$	49,541		$	46,975

Property, Plant and Equipment [Table Text Block]

Buildings (in years)	28	-	40
Machinery and equipment (in years)	3	-	10
Computer software (in years)	3	-	8

Schedule of Product Warranty Liability [Table Text Block]

	Six			Six			Fiscal
	Months Ended			Months Ended			Year Ended
(In thousands)	December 31,			December 31,			June 30,
	2016			2015			2016
Balance at beginning of the period	$	5,069		$	3,408		$	3,408
Additions charged to expense		2,243			2,259			5,069
Deductions for repairs and Replacements		(1,351	)		(1,357	)		(3,408	)
Balance at end of the period	$	5,961		$	4,310		$	5,069

XML

Note 3 - Segment Reporting Information (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended						Six Months Ended
( In thousands)	December 31						December 31
	2016			2015			2016			2015
Net Sales:
Lighting Segment	$	60,169		$	59,601		$	120,539		$	118,676
Graphics Segment		20,582			21,206			39,476			43,536
Technology Segment		4,907			3,880			9,802			8,400
	$	85,658		$	84,687		$	169,817		$	170,612
Operating Income (Loss):
Lighting Segment	$	2,738		$	5,182		$	5,529		$	10,864
Graphics Segment		1,174			1,959			2,191			4,193
Technology Segment		924			1,069			1,652			2,336
Corporate and Eliminations		(2,018	)		(2,830	)		(5,488	)		(6,250	)
	$	2,818		$	5,380		$	3,884		$	11,143
Capital Expenditures:
Lighting Segment	$	183		$	1,160		$	1,267		$	1,849
Graphics Segment		459			604			825			1,192
Technology Segment		22			108			34			141
Corporate and Eliminations		120			150			618			202
	$	784		$	2,022		$	2,744		$	3,384
Depreciation and Amortization:
Lighting Segment	$	791		$	717		$	1,638		$	1,422
Graphics Segment		376			237			736			471
Technology Segment		324			340			669			676
Corporate and Eliminations		279			304			562			605
	$	1,770		$	1,598		$	3,605		$	3,174

Reconciliation of Assets from Segment to Consolidated [Table Text Block]

	December 31, 2016		June 30, 2016
Identifiable Assets:
Lighting Segment	$	91,010	$	95,168
Graphics Segment		36,888		33,490
Technology Segment		28,206		28,348
Corporate and Eliminations		39,732		38,554
	$	195,836	$	195,560

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

	Three Months Ended				Six Months Ended
	December 31				December 31
(In thousands)	2016		2015		2016		2015
Lighting Segment inter-segment net sales	$	713	$	814	$	1,487	$	1,428
Graphics Segment inter-segment net sales	$	680	$	562	$	812	$	1,006
Technology inter-segment net sales	$	8,346	$	8,932	$	17,131	$	18,316

XML

Note 4 - Earnings Per Common Share (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended				Six Months Ended
	December 31				December 31
	2016		2015		2016		2015
BASIC EARNINGS PER SHARE
Net income	$	2,006	$	3,782	$	2,835	$	7,532
Weighted average shares outstanding during the period, net of treasury shares (a)		25,016		24,637		25,007		24,569
Weighted average vested restricted stock units outstanding		37		25		37		26
Weighted average shares outstanding in the Deferred Compensation Plan during the period		261		249		250		243
Weighted average shares outstanding		25,314		24,911		25,294		24,838
Basic earnings per share	$	0.08	$	0.15	$	0.11	$	0.30
DILUTED EARNINGS PER SHARE
Net income	$	2,006	$	3,782	$	2,835	$	7,532
Weighted average shares outstanding
Basic		25,314		24,911		25,294		24,838
Effect of dilutive securities (b):
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any		489		713		565		567
Weighted average shares outstanding (c)		25,803		25,624		25,859		25,405
Diluted earnings per share	$	0.08	$	0.15	$	0.11	$	0.30

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Note 5 - Inventories (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	December 31,		June 30,
(In thousands)	2016		2016
Inventories:
Raw materials	$	27,638	$	28,979
Work-in-process		4,108		4,418
Finished goods		10,658		10,744
Total Inventories	$	42,404	$	44,141

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Note 6 - Accrued Expenses (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	December 31,		June 30,
(In thousands)	2016		2016
Accrued Expenses:
Compensation and benefits	$	7,494	$	11,983
Customer prepayments		1,269		1,053
Accrued sales commissions		2,695		2,792
Accrued warranty		5,961		5,069
Other accrued expenses		5,561		4,444
Total Accrued Expenses	$	22,980	$	25,341

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Note 7 - Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Goodwill [Table Text Block]

Goodwill
(In thousands)	Lighting			Graphics			Technology
	Segment			Segment			Segment			Total
Balance as of June 30, 2016
Goodwill	$	34,913		$	28,690		$	11,621		$	75,224
Accumulated impairment losses		(34,778	)		(27,525	)		(2,413	)		(64,716	)
Goodwill, net as of June 30, 2016	$	135		$	1,165		$	9,208		$	10,508
Balance as of December 31, 2016
Goodwill	$	34,913			28,690			11,621			75,224
Accumulated impairment losses		(34,778	)		(27,525	)		(2,413	)		(64,716	)
Goodwill, net as of December 31, 2016	$	135		$	1,165		$	9,208		$	10,508

Schedule of Intangible Assets and Goodwill [Table Text Block]

	December 31, 2016
Other Intangible Assets	Gross
(In thousands)	Carrying		Accumulated		Net
	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	9,316	$	7,727	$	1,589
Patents		338		172		166
LED technology firmware, software		11,228		11,027		201
Trade name		460		460		--
Non-compete agreements		710		710		--
Total Amortized Intangible Assets		22,052		20,096		1,956
Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		--		3,422
Total Indefinite-lived Intangible Assets		3,422		--		3,422
Total Other Intangible Assets	$	25,474	$	20,096	$	5,378

	June 30, 2016
Other Intangible Assets	Gross
	Carrying		Accumulated		Net
(In thousands)	Amount		Amortization		Amount
Amortized Intangible Assets
Customer relationships	$	9,316	$	7,581	$	1,735
Patents		338		154		184
LED technology firmware, software		11,228		10,989		239
Trade name		460		460		--
Non-compete agreements		710		704		6
Total Amortized Intangible Assets		22,052		19,888		2,164
Indefinite-lived Intangible Assets
Trademarks and trade names		3,422		--		3,422
Total Indefinite-lived Intangible Assets		3,422		--		3,422
Total Other Intangible Assets	$	25,474	$	19,888	$	5,586

Finite-lived Intangible Assets Amortization Expense [Table Text Block]

(In thousands)	Amortization Expense of Other Intangible Assets
	December 31, 2016		December 31, 2015
Three Months Ended	$	101	$	127
Six Months Ended	$	208	$	253

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

(In thousands)
2017	$	419
2018	$	401
2019	$	401
2020	$	327
2021	$	323
After 2021	$	293

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Note 10 - Equity Compensation (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three Months Ended						Six Months Ended
	December 31						December 31
	2016			2015			2016			2015
Dividend yield		2.07	%		1.33	%		1.81	%		1.28	%
Expected volatility		41	%		43	%		43	%		44	%
Risk-free interest rate		2.06	%		1.38	%		1.00	%		1.67	%
Expected life (in years)		6.0			6.0			6.0			6.0

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Six Months Ended December 31, 2016
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic
	Shares			Price		(in years)		Value
Outstanding at 6/30/16		2,976,490		$	8.97		6.6	$	8,338,974
Granted		834,320		$	11.05
Forfeitures		(147,375	)	$	16.03
Exercised		(38,063	)	$	7.75
Outstanding at 12/31/16		3,625,372		$	9.18		7.1	$	4,648,729
Exercisable at 12/31/16		1,700,025		$	8.73		5.1	$	3,216,899

	Six Months Ended December 31, 2015
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic
	Shares			Price		(in years)		Value
Outstanding at 6/30/15		2,677,436		$	8.85		6.1	$	4,914,601
Granted		1,016,800		$	9.38
Forfeitures		(55,050	)	$	11.65
Exercised		(298,724	)	$	7.20
Outstanding at 12/31/15		3,340,462		$	9.11		6.8	$	12,661,470
Exercisable at 12/31/15		1,628,976		$	9.95		4.5	$	6,032,985

Schedule of Nonvested Share Activity [Table Text Block]

				Weighted-Average
				Grant Date
	Shares			Fair Value
Unvested at June 30, 2016		1,663,505		$	3.39
Granted		834,320		$	3.83
Vested		(546,978	)	$	3.25
Forfeited		(25,500	)	$	3.50
Unvested at December 31, 2016		1,925,347		$	3.62

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

				Weighted-Average
				Grant Date
	Shares			Fair Value
Unvested at June 30, 2016		62,500		$	9.39
Awarded		71,700		$	11.06
Shares Issued		(15,625	)	$	9.39
Unvested at December 31, 2016		118,575		$	10.40

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Note 11 - Supplemental Cash Flow Information (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

(In thousands)	Six Months Ended December 31
	2016		2015
Cash payments:
Interest	$	21	$	23
Income taxes	$	2,381	$	4,650
Issuance of common shares as compensation	$	228	$	113

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Note 13 - Severance Costs (Tables)

6 Months Ended

Dec. 31, 2016

Employee Severance [Member]

Notes Tables

Schedule of Accrued Severance Liability [Table Text Block]

	Six			Six			Fiscal
	Months Ended			Months Ended			Year Ended
(In thousands)	December 31,			December 31,			June 30,
	2016			2015			2016
Balance at beginning of the period	$	39		$	379		$	379
Accrual of expense		173			223			469
Payments		(205	)		(314	)		(742	)
Adjustments		--			(58	)		(67	)
Balance at end of the period	$	7		$	230		$	39

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Note 14 - Restructuring Costs (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Restructuring and Related Costs [Table Text Block]

	Three		Six Months		Total Expected		Total
	Months Ended		Ended		to be Recognized		Fiscal 2017
(In thousands)	December 31,		December 31,		in Remainder of		Restructuring
	2016		2016		Fiscal 2017		Expenses
Severance and other termination benefits	$	526	$	691	$	77	$	768
Lease obligation		--		213		--		213
Impairment of fixed assets and accelerated depreciation		80		353		--		353
Other		91		96		132		228
Total	$	697	$	1,353	$	209	$	1,562

Restructuring and Related Costs, Summary of Costs Incurred by Line Item in the Statement of Operations [Table Text Block]

	Three Months Ended		Six Months Ended
(In thousands)	December 31		December 31
	2016		2016
Cost of Goods Sold	$	640	$	1,143
Operating Expenses		57		210
Total	$	697	$	1,353

Restructuring Costs and Related Costs Incurred by Segment [Table Text Block]

	Three			Six Months		Total Expected		Total
	Months Ended			Ended		to be Recognized		Fiscal 2017
(In thousands)	December 31,			December 31,		In Remainder of		Restructuring
	2016			2016		Fiscal 2017		Expenses
Lighting Segment	$	479		$	770	$	130	$	900
Graphics Segment		221			221		79		300
Technology Segment		(3	)		251		--		251
Corporate and Eliminations		--			111		--		111
Total	$	697		$	1,353	$	209	$	1,562

Schedule of Liability Balances Related to Restructuring Costs [Table Text Block]

(In thousands)
	Balance as of June 30, 2016		Restructuring Expense		Payments			Adjustments			Balance as of December 31, 2016
Severance and termination benefits	$	--	$	691	$	(306	)	$	(3	)	$	382
Lease obligation		--		213		(43	)		--			170
Other		--		96		(90	)		--			6
Total	$	--	$	1,000	$	(439	)	$	(3	)	$	558

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Note 15 - Income Taxes (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Three Months Ended						Six Months Ended
	December 31						December 31
	2016			2015			2016			2015
Reconciliation to effective tax rate:
Provision for income taxes at the anticipated annual tax rate		30.4	%		33.3	%		30.8	%		34.5	%
Enactment of tax law changes		--			(2.0	)		--			(1.0	)
Uncertain tax positions		(0.6	)		(0.3	)		(0.8	)		(0.3	)
Deferred tax asset adjustment		--			--			(1.8	)		--
Other		(0.5	)		(1.2	)		(0.6	)		(0.7	)
Effective tax rate		29.3	%		29.8	%		27.6	%		32.5	%

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Note 2 - Summary of Significant Accounting Policies (Details Textual)	3 Months Ended		6 Months Ended
	Dec. 31, 2016 USD ($) shares	Dec. 31, 2015 USD ($) shares	Dec. 31, 2016 USD ($) shares	Dec. 31, 2015 USD ($) shares	Jun. 30, 2016 USD ($)
Number of Revenue Sources	5		5
Cash, FDIC Insured Amount	$ 250,000		$ 250,000
Cash, Uninsured Amount	35,995,000		35,995,000		$ 37,883,000
Depreciation	1,669,000	$ 1,471,000	3,397,000	$ 2,921,000
Research and Development Expense	$ 1,269,000	$ 1,320,000	$ 2,670,000	$ 2,631,000
Incremental Common Shares Attributable to Dilutive Effect of Contingently Issuable Shares | shares	787,000	987,000	852,000	836,000
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Liability	$ 0		$ 0
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Asset	0		0
Lighting Segment [Member]
Assets Held-for-sale, Not Part of Disposal Group	1,713,000		1,713,000
Graphics Segment [Member]
Assets Held-for-sale, Not Part of Disposal Group	$ 1,463,000		$ 1,463,000
Minimum [Member]
Media Content Service Period			30 days
Finite-Lived Intangible Asset, Useful Life			7 years
Standard Warranty Term			1 year
Maximum [Member]
Media Content Service Period			1 year
Finite-Lived Intangible Asset, Useful Life			20 years
Standard Warranty Term			5 years
Maximum [Member] | Product Warranty Exceptions [Member]
Standard Warranty Term			10 years
Maximum [Member] | Leasehold Improvements [Member]
Property, Plant and Equipment, Useful Life			15 years

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Note 2 - Summary of Significant Accounting Policies - Net Accounts Receivable (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Accounts receivable	$ 49,922	$ 47,201
Less: Allowance for doubtful accounts	(381)	(226)
Accounts receivable, net	$ 49,541	$ 46,975

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Note 2 - Summary of Significant Accounting Policies - Estimated Useful Lives of Long-lived Assets (Details)	6 Months Ended
	Dec. 31, 2016
Building [Member] | Minimum [Member]
Property, plant, and equipment (Year)	28 years
Building [Member] | Maximum [Member]
Property, plant, and equipment (Year)	40 years
Machinery and Equipment [Member] | Minimum [Member]
Property, plant, and equipment (Year)	3 years
Machinery and Equipment [Member] | Maximum [Member]
Property, plant, and equipment (Year)	10 years
Software and Software Development Costs [Member] | Minimum [Member]
Property, plant, and equipment (Year)	3 years
Software and Software Development Costs [Member] | Maximum [Member]
Property, plant, and equipment (Year)	8 years

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Note 2 - Summary of Significant Accounting Policies - Warranty Liabilities (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Jun. 30, 2016
Balance at beginning of the period	$ 5,069	$ 3,408	$ 3,408
Additions charged to expense	2,243	2,259	5,069
Deductions for repairs and Replacements	(1,351)	(1,357)	(3,408)
Balance at end of the period	$ 5,961	$ 4,310	$ 5,069

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Note 3 - Segment Reporting Information (Details Textual) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Jun. 30, 2016
Number of Operating Segments			3
Intangible Assets, Net (Excluding Goodwill)	$ 5,378,000		$ 5,378,000		$ 5,586,000
Revenue, Net	$ 85,658,000	$ 84,687,000	$ 169,817,000	$ 170,612,000
Intersegment Revenue Markup Percentage			10.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member]
Concentration Risk, Percentage	0.00%	0.00%	0.00%	0.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member]
Concentration Risk, Percentage			0.00%		0.00%
Graphics Segment [Member]
Revenue, Net	$ 20,582,000	$ 21,206,000	$ 39,476,000	$ 43,536,000
Lighting Segment and Graphics Segment [Member] | Petroleum/Convenience Store Customer [Member]
Revenue, Net				$ 17,045,000
Lighting Segment and Graphics Segment [Member] | Petroleum/Convenience Store Customer [Member] | Sales Revenue, Net [Member] | Customer Concentration Risk [Member]
Concentration Risk, Percentage				10.00%
Customer Relationships [Member] | Graphics Segment [Member]
Intangible Assets, Net (Excluding Goodwill)	$ 492,000		492,000
Reclassification of Operating Loss from the Technology Segment to the Graphics Segment [Member] | Second Quarter of Fiscal 2016 [Member]
Prior Period Reclassification Adjustment			76,000
Reclassification of Operating Loss from the Technology Segment to the Graphics Segment [Member] | First Quarter of Fiscal 2016 [Member]
Prior Period Reclassification Adjustment			$ 3,000

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Note 3 - Segment Reporting Information -Summarized Financial Information by Reportable Business Segments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Net Sales:
Net sales	$ 85,658	$ 84,687	$ 169,817	$ 170,612
Operating Income (Loss):
Operating income (loss)	2,818	5,380	3,884	11,143
Capital Expenditures:
Capital expenditures	784	2,022	2,744	3,384
Depreciation and Amortization:
Depreciation and amortization	1,770	1,598	3,605	3,174
Lighting Segment [Member]
Net Sales:
Net sales	60,169	59,601	120,539	118,676
Operating Income (Loss):
Operating income (loss)	2,738	5,182	5,529	10,864
Capital Expenditures:
Capital expenditures	183	1,160	1,267	1,849
Depreciation and Amortization:
Depreciation and amortization	791	717	1,638	1,422
Graphics Segment [Member]
Net Sales:
Net sales	20,582	21,206	39,476	43,536
Operating Income (Loss):
Operating income (loss)	1,174	1,959	2,191	4,193
Capital Expenditures:
Capital expenditures	459	604	825	1,192
Depreciation and Amortization:
Depreciation and amortization	376	237	736	471
Technology Segment [Member]
Net Sales:
Net sales	4,907	3,880	9,802	8,400
Operating Income (Loss):
Operating income (loss)	924	1,069	1,652	2,336
Capital Expenditures:
Capital expenditures	22	108	34	141
Depreciation and Amortization:
Depreciation and amortization	324	340	669	676
Corporate and Eliminations [Member]
Operating Income (Loss):
Operating income (loss)	(2,018)	(2,830)	(5,488)	(6,250)
Capital Expenditures:
Capital expenditures	120	150	618	202
Depreciation and Amortization:
Depreciation and amortization	$ 279	$ 304	$ 562	$ 605

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Note 3 - Segment Reporting Information - Identifiable Assets by Segment (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Identifiable assets	$ 195,836	$ 195,560
Corporate and Eliminations [Member]
Identifiable assets	39,732	38,554
Lighting Segment [Member]
Identifiable assets	91,010	95,168
Graphics Segment [Member]
Identifiable assets	36,888	33,490
Technology Segment [Member]
Identifiable assets	$ 28,206	$ 28,348

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Note 3 - Segment Reporting Information - Inter-segment Revenues (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Net sales	$ 85,658	$ 84,687	$ 169,817	$ 170,612
Lighting Segment [Member]
Net sales	60,169	59,601	120,539	118,676
Graphics Segment [Member]
Net sales	20,582	21,206	39,476	43,536
Technology Segment [Member]
Net sales	4,907	3,880	9,802	8,400
Intersegment Eliminations [Member] | Lighting Segment [Member]
Net sales	713	814	1,487	1,428
Intersegment Eliminations [Member] | Graphics Segment [Member]
Net sales	680	562	812	1,006
Intersegment Eliminations [Member] | Technology Segment [Member]
Net sales	$ 8,346	$ 8,932	$ 17,131	$ 18,316

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Note 4 - Earnings Per Common Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,682,270	1,115,250	1,626,770	1,506,800

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Note 4 - Earnings Per Common Share - Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
BASIC EARNINGS PER SHARE
Net income		$ 2,006	$ 3,782	$ 2,835	$ 7,532
Weighted average shares outstanding during the period, net of treasury shares (a) (in shares)	[1]	25,016	24,637	25,007	24,569
Weighted average vested units and shares outstanding (in shares)		261	249	250	243
Weighted average shares outstanding (in shares)		25,314	24,911	25,294	24,838
Basic earnings per share (in dollars per share)		$ 0.08	$ 0.15	$ 0.11	$ 0.30
DILUTED EARNINGS PER SHARE
Net income		$ 2,006	$ 3,782	$ 2,835	$ 7,532
Basic (in shares)		25,314	24,911	25,294	24,838
Impact of common shares to be issued under stock option plans, and contingently issuable shares, if any (in shares)	[2]	489	713	565	567
Weighted average shares outstanding (in shares)	[3]	25,803	25,624	25,859	25,405
Basic earnings per share (in dollars per share)		$ 0.08	$ 0.15	$ 0.11	$ 0.30
Restricted Stock Units (RSUs) [Member]
BASIC EARNINGS PER SHARE
Weighted average vested units and shares outstanding (in shares)		37	25	37	26

[1] Includes shares accounted for like treasury stock included in the Company's non-qualified deferred compensation plan. (See Note 10.)

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

[3] Options to purchase 1,682,270 common shares and 1,115,250 common shares at December 31, 2016 and 2015, respectively, and options to purchase 1,626,770 common shares and 1,506,800 common shares at December 31, 2016 and 2015, respectively were not included in the computation of the three month and six month period for diluted earnings per share, respectively, because the exercise price was greater than the average fair market value of the common shares.

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Note 5 - Inventories - Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Inventories:
Raw materials	$ 27,638	$ 28,979
Work-in-process	4,108	4,418
Finished goods	10,658	10,744
Total Inventories	$ 42,404	$ 44,141

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Note 6 - Accrued Expenses - Accrued Expenses (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015
Accrued Expenses:
Compensation and benefits	$ 7,494	$ 11,983
Customer prepayments	1,269	1,053
Accrued sales commissions	2,695	2,792
Accrued warranty	5,961	5,069	$ 4,310	$ 3,408
Other accrued expenses	5,561	4,444
Total Accrued Expenses	$ 22,980	$ 25,341

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Note 7 - Goodwill and Other Intangible Assets - Goodwill (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Goodwill, net	$ 10,508	$ 10,508
Lighting Segment [Member]
Goodwill	34,913	34,913
Accumulated impairment losses	(34,778)	(34,778)
Goodwill, net	135	135
Graphics Segment [Member]
Goodwill	28,690	28,690
Accumulated impairment losses	(27,525)	(27,525)
Goodwill, net	1,165	1,165
Technology Segment [Member]
Goodwill	11,621	11,621
Accumulated impairment losses	(2,413)	(2,413)
Goodwill, net	9,208	9,208
All Other Category [Member]
Goodwill	75,224	75,224
Accumulated impairment losses	(64,716)	(64,716)
Goodwill, net	$ 10,508	$ 10,508

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Note 7 - Goodwill and Other Intangible Assets - Other Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Amortized intangible assets, gross	$ 22,052	$ 22,052
Accumulated amortization	20,096	19,888
Amortized intangible assets, net	1,956	2,164
Indefinite-lived intangible assets, gross	3,422	3,422
Total other intangible assets, gross	25,474	25,474
Other Intangible Assets, net	5,378	5,586
Trademarks and Trade Names [Member]
Indefinite-lived intangible assets, gross	3,422	3,422
Customer Relationships [Member]
Amortized intangible assets, gross	9,316	9,316
Accumulated amortization	7,727	7,581
Amortized intangible assets, net	1,589	1,735
Patents [Member]
Amortized intangible assets, gross	338	338
Accumulated amortization	172	154
Amortized intangible assets, net	166	184
Technology-Based Intangible Assets [Member]
Amortized intangible assets, gross	11,228	11,228
Accumulated amortization	11,027	10,989
Amortized intangible assets, net	201	239
Trade Names [Member]
Amortized intangible assets, gross	460	460
Accumulated amortization	460	460
Amortized intangible assets, net
Noncompete Agreements [Member]
Amortized intangible assets, gross	710	710
Accumulated amortization	710	704
Amortized intangible assets, net		$ 6

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Note 7 - Goodwill and Other Intangible Assets - Amortization Expense of Other Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Amortization expense of other intangible assets	$ 101	$ 127	$ 208	$ 253

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Note 7 - Goodwill and Intangible Assets - Future Amortization Expense (Details) $ in Thousands	Dec. 31, 2016 USD ($)
2017	$ 419
2018	401
2019	401
2020	327
2021	323
After 2021	$ 293

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Note 8 - Revolving Line of Credit (Details Textual) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2016
Long-term Line of Credit		$ 0
Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
Maximum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	1.90%
UNITED STATES
Line of Credit Facility, Maximum Borrowing Capacity	$ 30,000
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.125%

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Note 9 - Cash Dividends (Details Textual) - USD ($)	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Jan. 31, 2017
Payments of Ordinary Dividends, Common Stock	$ 2,513,000	$ 1,721,000
Dividends Accrued	$ 19,826	$ 4,690
Subsequent Event [Member]
Quarterly Indicated Per Share Dividend Rate			$ 0.05
Annual Indicated per Share Dividend Rate			$ 0.20

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Note 10 - Equity Compensation (Details Textual)	3 Months Ended		6 Months Ended		12 Months Ended		45 Months Ended
	Dec. 31, 2016 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) shares	Dec. 31, 2016 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) $ / shares shares	Jun. 30, 2016 USD ($) shares	Jun. 30, 2015 shares	Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term			7 years 36 days	6 years 292 days	6 years 219 days	6 years 36 days
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | shares	2,364,601		2,364,601
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | shares	3,625,372	3,340,462	3,625,372	3,340,462	2,976,490	2,677,436
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number | shares	1,700,025	1,628,976	1,700,025	1,628,976
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 2,622,788		$ 2,622,788
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			2 years 90 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares			834,320	1,016,800
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares			$ 11.05	$ 9.38
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares			$ 3.83	$ 3.63
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term			5 years 36 days	4 years 182 days
Share Based Compensation Valuation Assumptions Expected Forfeiture Rate			3.51%
Stock or Unit Option Plan Expense	$ 142,434	$ 342,134	$ 1,296,009	$ 1,830,707
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number | shares	3,159,692		3,159,692
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price | $ / shares	$ 8.92		$ 8.92
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	$ 4,620,655		$ 4,620,655
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Remaining Contractual Term			6 years 255 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value			$ 99,883	852,596
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Aggregate Grant Date Fair Value			1,779,490	1,035,041
Proceeds from Stock Options Exercised			171,000	2,195,000
Reduction of Federal Income Taxes Payable Related To Stock Option Exercise			95,443	300,868
Increase (Decrease) In Common Stock Related To Stock Option Exercise			(124,056)	46,066
Reduction of Income Tax Expense Related to Stock Option Exercises			22,073	84,781
Reduction of Deferred Tax Asset Related to Stock Option Exercises			$ 197,427	$ 170,021
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms				3 years 182 days
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period | shares			21,199	12,590
Stock Issued During Period, Value, Share-based Compensation, Gross			$ 228,000	$ 113,400
Deferred Compensation Plan, Number of Participants	30		30
Treasury Stock, Shares | shares	263,506		263,506		228,103
Treasury Stock, Value	$ 2,514,106		$ 2,514,106		$ 2,167,717
Employee Salary Deferrals or Company Contributions [Member]
Treasury Stock, Value, Acquired, Cost Method			$ 390,288	$ 276,800
Treasury Stock, Shares, Acquired | shares			39,487	29,021
Excluding Tax Effect of Disqualified Dispositions [Member]
Proceeds from Stock Options Exercised			$ 295,030	$ 2,149,606
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term			10 years
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares			$ 11.06	$ 11.82
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares			$ 3.83	$ 4.48
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term			10 years	9 years 328 days
Share Based Compensation Valuation Assumptions Expected Forfeiture Rate							3.40%
Treasury Stock Acquired, Repurchase Authorization, Shares Expected | shares	50,000		50,000
Minimum [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares			$ 9.65	$ 8.84
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares			$ 3.29	$ 3.28
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term			9 years 182 days	9 years 182 days
Share Based Compensation Valuation Assumptions Expected Forfeiture Rate							2.00%
Treasury Stock Acquired, Repurchase Authorization, Shares Expected | shares	45,000		45,000
Restricted Stock Units (RSUs) [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 608,468		$ 608,468
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			2 years 270 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number | shares	118,575	67,000	118,575	67,000	62,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares			$ 11.06	$ 9.39
Share Based Compensation Valuation Assumptions Expected Forfeiture Rate			3.40%	3.30%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number | shares	114,531		114,531
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | shares			71,700	72,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			4 years
Dividends			$ 19,826	$ 4,690
Allocated Share-based Compensation Expense	$ 89,896	$ 33,276	$ 392,197	$ 319,533
Sharebased Compensation Arrangement By Sharebased Payment Award Equity Other Than Options Expected To Vest Outstanding Number | shares		64,434		64,434
Restricted Stock Units (RSUs) [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms			3 years 182 days
Restricted Stock Units (RSUs) [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms			2 years 182 days
Annually [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			33.30%
Non-Employee Directors [Member] | Each Ninety Days [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			25.00%
Employees [Member] | Annually [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			25.00%
The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized | shares			1,600,000
Share-based Compensation Arrangement by Share-based Payment Award, Fungible Share Ratio			2.5

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Note 10 - Equity Compensation - Weighted Average Assumptions Used to Develop the Fair Value of Stock Options (Details)	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Dividend yield	2.07%	1.33%	1.81%	1.28%
Expected volatility	41.00%	43.00%	43.00%	44.00%
Risk-free interest rate	2.06%	1.38%	1.00%	1.67%
Expected life (Year)	6 years	6 years	6 years	6 years

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Note 10 - Equity Compensation - Stock Options (Details) - USD ($)	6 Months Ended		12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Jun. 30, 2016	Jun. 30, 2015
Outstanding (in shares)	2,976,490	2,677,436	2,677,436
Outstanding (in dollars per share)	$ 8.97	$ 8.85	$ 8.85
Outstanding (Year)	7 years 36 days	6 years 292 days	6 years 219 days	6 years 36 days
Outstanding	$ 4,648,729	$ 12,661,470	$ 8,338,974	$ 4,914,601
Granted (in shares)	834,320	1,016,800
Granted (in dollars per share)	$ 11.05	$ 9.38
Forfeitures (in shares)	(147,375)	(55,050)
Forfeitures (in dollars per share)	$ 16.03	$ 11.65
Exercised (in shares)	(38,063)	(298,724)
Exercised (in dollars per share)	$ 7.75	$ 7.20
Outstanding (in shares)	3,625,372	3,340,462	2,976,490	2,677,436
Outstanding (in dollars per share)	$ 9.18	$ 9.11	$ 8.97	$ 8.85
Exercisable (in shares)	1,700,025	1,628,976
Exercisable (in dollars per share)	$ 8.73	$ 9.95
Exercisable (Year)	5 years 36 days	4 years 182 days
Exercisable	$ 3,216,899	$ 6,032,985

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Note 10 - Equity Compensation - Summary of Unvested Stock Options (Details) - $ / shares	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Unvested (in shares)	1,663,505
Unvested (in dollars per share)	$ 3.39
Granted (in shares)	834,320	1,016,800
Granted (in dollars per share)	$ 3.83	$ 3.63
Vested (in shares)	(546,978)
Vested (in dollars per share)	$ 3.25
Forfeited (in shares)	(25,500)
Forfeited (in dollars per share)	$ 3.50
Unvested (in shares)	1,925,347
Unvested (in dollars per share)	$ 3.62

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Note 10 - Equity Compensation - Summary of Restricted Stock Units Activity (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Unvested (in shares)	62,500
Unvested (in dollars per share)	$ 9.39
Awarded (in shares)	71,700	72,000
Awarded (in dollars per share)	$ 11.06
Shares Issued (in shares)	(15,625)
Shares Issued (in dollars per share)	$ 9.39
Unvested (in shares)	118,575	67,000
Unvested (in dollars per share)	$ 10.40

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Note 11 - Supplemental Cash Flow Information - Supplemental Cash Flow Information (Details) - USD ($)	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash payments:
Interest	$ 21,000	$ 23,000
Income taxes	2,381,000	4,650,000
Stock Issued During Period, Value, Share-based Compensation, Gross	$ 228,000	$ 113,400

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Note 12 - Commitments and Contingencies (Details Textual) $ in Thousands	Dec. 31, 2016 USD ($)
Standby Letters of Credit [Member]
Letters of Credit Outstanding, Amount	$ 0

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Note 13 - Severance Costs (Details Textual) - USD ($)	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Severance Costs	$ 173,000	$ 223,000

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Note 13 - Severance Costs - Accrued Severance Liability Activity (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Jun. 30, 2016
Balance at	$ 39	$ 379	$ 379
Accrual of expense	173	223	469
Payments	(205)	(314)	(742)
Adjustments		(58)	(67)
Balance at	$ 7	$ 230	$ 39

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Note 14 - Restructuring Costs (Details Textual) - USD ($)	3 Months Ended	6 Months Ended
	Sep. 30, 2016	Dec. 31, 2016	Dec. 31, 2015
Restructuring and Related Cost, Expected Cost		$ 1,562,000
Inventory Write-down		758,000	$ 699,000
Restructuring Charges		1,000,000
Impairment of Long-Lived Assets Held-for-use		354,000
Machinery and Equipment at the Kansas City and Beaverton Facilities [Member] | Lighting Segment [Member]
Impairment of Long-Lived Assets Held-for-use		322,000
Machinery and Equipment at the Kansas City and Beaverton Facilities [Member] | Technology Segment [Member]
Impairment of Long-Lived Assets Held-for-use		31,000
Closure of Kansas City Facility [Member]
Restructuring and Related Cost, Expected Cost		900,000
Inventory Write-down	$ 400,000
Consolidation of Beaverton, Oregon Facility into Other LSI Facilities [Member]
Restructuring Charges		362,000
Consolidation of Woonsocket, Rhode Island Manufacturing Operation into Its North Canton, Ohio Operation [Member]
Restructuring and Related Cost, Expected Cost		300,000
Closure of Kansas City Facility and Consolidation of Beaverton, Oregon Facility Into Other LSI Facilities [Member] | Machinery and Equipment at the Kansas City and Beaverton Facilities [Member]
Impairment of Long-Lived Assets Held-for-use		$ 353,000

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Note 14 - Restructuring Costs - Summary of Restructuring Costs for the Period (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Dec. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)
Restructuring and related costs, incurred cost	$ 697	$ 1,353
Total expected to be recognized in remainder of fiscal 2017	209	209
Total fiscal 2017 restructuring expenses	1,562	1,562
Severance and Other Termination Benefits [Member]
Restructuring and related costs, incurred cost	526	691
Total expected to be recognized in remainder of fiscal 2017	77	77
Total fiscal 2017 restructuring expenses	768	768
Lease Obligation Restructuring [Member]
Restructuring and related costs, incurred cost		213
Total expected to be recognized in remainder of fiscal 2017
Total fiscal 2017 restructuring expenses	213	213
Restructuring Impairment of Fixed Assets and Accelerated Depreciation [Member]
Restructuring and related costs, incurred cost	80	353
Total expected to be recognized in remainder of fiscal 2017
Total fiscal 2017 restructuring expenses	353	353
Other Restructuring [Member]
Restructuring and related costs, incurred cost	91	96
Total expected to be recognized in remainder of fiscal 2017	132	132
Total fiscal 2017 restructuring expenses	$ 228	$ 228

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Note 14 - Restructuring Costs - Cost Incurred by Line Items on the Statement of Operations (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2016
Restructuring and related costs, incurred cost	$ 697	$ 1,353
Cost of Goods Sold [Member]
Restructuring and related costs, incurred cost	640	1,143
Operating Expense [Member]
Restructuring and related costs, incurred cost	$ 57	$ 210

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Note 14 - Restructuring Costs - Summary of Restructuring Costs by Segment (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Dec. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)
Restructuring and related costs, incurred cost	$ 697	$ 1,353
Total expected to be recognized in remainder of fiscal 2017	209	209
Total fiscal 2017 restructuring expenses	1,562	1,562
Corporate, Non-Segment [Member]
Restructuring and related costs, incurred cost		111
Total expected to be recognized in remainder of fiscal 2017
Total fiscal 2017 restructuring expenses	111	111
Lighting Segment [Member] | Operating Segments [Member]
Restructuring and related costs, incurred cost	479	770
Total expected to be recognized in remainder of fiscal 2017	130	130
Total fiscal 2017 restructuring expenses	900	900
Graphics Segment [Member] | Operating Segments [Member]
Restructuring and related costs, incurred cost	221	221
Total expected to be recognized in remainder of fiscal 2017	79	79
Total fiscal 2017 restructuring expenses	300	300
Technology Segment [Member] | Operating Segments [Member]
Restructuring and related costs, incurred cost	(3)	251
Total expected to be recognized in remainder of fiscal 2017
Total fiscal 2017 restructuring expenses	$ 251	$ 251

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Note 14 - Restructuring Costs - Liability Balances Related to Restructuring Costs (Details) $ in Thousands	6 Months Ended
	Dec. 31, 2016 USD ($)
Balance	$ 0
Restructuring Expense	1,000
Payments	(439)
Adjustments	(3)
Balance	558
Severance and Other Termination Benefits [Member]
Balance	0
Restructuring Expense	691
Payments	(306)
Adjustments	(3)
Balance	382
Lease Obligation Restructuring [Member]
Balance	0
Restructuring Expense	213
Payments	(43)
Adjustments
Balance	170
Other Restructuring [Member]
Balance	0
Restructuring Expense	96
Payments	(90)
Adjustments
Balance	$ 6

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Note 15 - Income Taxes - Reconciliation of Income Tax Rate (Details)	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Reconciliation to effective tax rate:
Provision for income taxes at the anticipated annual tax rate	30.40%	33.30%	30.80%	34.50%
Enactment of tax law changes		(2.00%)		(1.00%)
Uncertain tax positions	(0.60%)	(0.30%)	(0.80%)	(0.30%)
Deferred tax asset adjustment			(1.80%)
Other	(0.50%)	(1.20%)	(0.60%)	(0.70%)
Effective tax rate	29.30%	29.80%	27.60%	32.50%