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

                                  Three Months Ended           Six Months Ended
                                      December 31                 December 31
           (In thousands)          2008          2007         2008          2007

           Lighting Segment     $   43,291     $ 46,814     $  92,927     $  92,085
           Graphics Segment         13,891       28,858        35,027        57,509
           Technology Segment        1,172        2,075         3,990         4,575
           All Other Category        2,433        6,315         4,681        19,894

                                $   60,787     $ 84,062     $ 136,625     $ 174,063

The Company's "forward looking statements" and disclosures as presented earlier in this Form 10-Q/A in the "Safe Harbor" Statement should be referred to when reading Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
THREE MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2007
Net sales of $60,787,000 in the second quarter of fiscal 2009 decreased 27.7% from fiscal 2008 second quarter net sales of $84,062,000. Lighting Segment net sales decreased 7.5% to $43,291,000, Graphics Segment net sales decreased 51.9% to $13,891,000, Technology Segment net sales decreased 43.5% to $1,172,000 and net sales of the All Other Category decreased 61.5% to $2,433,000 as compared to the prior year. Sales to the petroleum / convenience store market represented 22% and 34% of net sales in the second quarter of fiscal years 2009 and 2008, respectively. Net sales to this, the Company's largest niche market, are reported in both the Lighting and Graphics Segments, depending upon the product or service sold, and were down 53% from last year to $13,484,000 as Lighting sales decreased 11% and Graphics sales to this market decreased 70%. The petroleum / convenience store market has been, and will continue to be, a very important niche market for the Company; however, if sales to other markets and customers increase more than net sales to this market, then the percentage of net sales to the petroleum / convenience store market would be expected to decline. See Note 3 to these financial statements on Major Customer Concentrations. Net sales of products and services related to solid state LED technology in light fixtures and video screens for sports, advertising and entertainment markets totaled $2.0 million in the three month period ended December 31, 2008, representing approximately a 2% decrease from the same period last year. In addition, the Company sells certain elements of graphic identification programs that contain solid state LED light sources.
The $3.5 million or 7.5% decrease in Lighting Segment net sales is primarily the result of a $1.4 million or 5.1% decrease in commissioned net sales to the commercial / industrial lighting market, and a $2.1 million net decrease in lighting sales to our niche markets of petroleum / convenience stores, automotive dealerships, and national retail accounts.
The $15.0 million or 51.9% decrease in Graphics Segment net sales is primarily the result of completion of programs for certain graphics customers, including an image conversion program for a national drug store retailer ($1.9 million decrease), two petroleum / convenience store programs ($13.4 million decrease), a grocery retailer program ($1.3 million decrease) and changes in volume or completion of other graphics programs. These decreases were partially offset by increased net sales to certain other customers, including a reimaging program for a grocery customer ($3.6 million increase).

Image and brand programs, whether full conversions or enhancements, are important to the Company's strategic direction. Image programs include situations where our customers refurbish their retail sites around the country by replacing some or all of the lighting, graphic elements, menu board systems and possibly other items they may source from other suppliers. These image programs often take several quarters to complete and involve both our customers' corporate-owned sites as well as their franchisee-owned sites, the latter of which involve separate sales efforts by the Company with each franchisee. The Company may not always be able to replace net sales immediately when a large image conversion program has concluded. Brand programs typically occur as new products are offered or new departments are created within an existing retail store. Relative to net sales to a customer before and after an image or brand program, net sales during the program are typically significantly higher, depending upon how much of the lighting or graphics business is awarded to the Company. Sales related to a customer's image or brand program are reported in either the Lighting Segment, Graphics Segment or All Other Category depending upon the product and/or service provided.
The $0.9 million or 43.5% decrease in net sales of the Technology Segment is primarily the result of decreased sales of solid-state LED video screens to the advertising market ($1.2 million decrease), decreased sales of solid-state LED video screens for the sports markets ($0.6 million decrease), partially offset by increased sales of solid-state LED video screens to the entertainment market ($0.7 million increase).
The $3.9 million or 61.5% decrease in net sales of the All Other Category is primarily the result of completion of a menu board replacement program in the second quarter last year ($4.7 million decrease), partially offset by net increases of sales of menu boards to other quick service restaurant customers ($0.3 million increase) and net increased sales of electrical wire harnesses ($0.4 million increase).
Gross profit of $13,257,000 in the second quarter of fiscal 2009 decreased 43% from the same period last year, and decreased from 27.9% to 21.8% as a percentage of net sales. The decrease in amount of gross profit is due both to decreased Graphics net sales and margins, both product and installation, as well as decreased gross profit margin on decreased Lighting net sales. The following items also influenced the Company's gross profit margin on a consolidated basis:
competitive pricing pressures; increased cost of materials in the Lighting Segment; decreased direct labor reflective of less sales volume; net increased wage, compensation and benefits costs ($0.5 million increase in Lighting and $0.2 million decrease in Graphics); decreased supplies ($0.2 million in Lighting and $0.1 million in Graphics); $0.2 million of decreased depreciation in the Lighting Segment; and $0.1 million decreased repairs and maintenance). Selling and administrative expenses of $14,014,000 in the second quarter of fiscal year 2009 decreased $1.7 million, and increased to 23.1% as a percentage of net sales from 18.7% in the same period last year. Employee compensation and benefits expense decreased a net $0.1 million in the second quarter of fiscal 2009 as compared to the same period last year ($0.1 million decrease in Lighting, $0.3 million decrease in Graphics, $0.1 million decrease in Technology and $0.4 million increase in the All Other Category). Other changes of expense between years include decreased sales commission expense ($1.0 million in Lighting), decreased warranty expense ($0.3 million primarily in Technology), decreased outside services expense ($0.3 million in Lighting and Graphics), increased research & development expense ($0.2 million, primarily in the Lighting Segment associated with research and development spending related to solid-state LED technology), decreased legal fees ($0.2 million in the All Other Category), increased menu board litigation settlement costs ($0.2 million in the All Other Category), net increased bad debt expense ($0.2 million increase in Lighting, $0.1 million decrease in Graphics and $0.1 million increase in Technology), decreased intangible asset amortization expense ($0.1 million in Technology) and decreased advertising and literature ($0.1 million in Lighting).

The Company recorded an impairment of goodwill in three reporting units in the second quarter of fiscal 2009, and accordingly recorded a non-cash expense in the amount of $13,250,000 (the Lighting Segment impairment was $11,185,000, the Graphics Segment impairment was $716,000 and the impairment in the All Other Category was $1,349,000) with no similar impairment expense in the second quarter of the prior year. The impairment was related to a decline in the market value of the Company's stock as well as a decline in the estimated forecasted discounted cash flows expected by the Company.
The Company reported net interest income of $1,000 in the second quarter of fiscal 2009 as compared to net interest income of $80,000 in the same period last year. The Company was in a positive cash position and was debt free for substantially all of fiscal 2008 and generated interest income on invested cash. The Company was occasionally in a borrowing position the second quarter of fiscal 2009.
The effective tax rate in the second quarter of fiscal 2008 was 38.1%, resulting in an income tax expense of $2,966,000. The $629,000 tax benefit in the second quarter of fiscal 2009 reflects a benefit of $531,000 related to the operations of the Company (which includes a $333,000 release of a FIN 48 income tax liability associated with a voluntary disclosure program) and a tax benefit of $98,000 associated with the impairment of goodwill.
The Company reported a net loss of $(13,377,000) in the second quarter of fiscal 2009 as compared to net income of $4,823,000 in the same period last year. The decrease is primarily the result of decreased gross profit on decreased net sales, a $13.3 million pre-tax goodwill impairment, partially offset by decreased operating expenses and decreased income tax expense. The diluted loss per share was $(0.61) in the second quarter of fiscal 2009, as compared to earnings per share of $0.22 in the same period last year. The weighted average common shares outstanding for purposes of computing diluted earnings (loss) per share in the second quarter of fiscal 2009 were 21,799,000 shares as compared to 22,063,000 shares for the same period last year.
SIX MONTHS ENDED DECEMBER 31, 2008 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2007
Net sales of $136,625,000 in the first half of fiscal 2009 decreased 21.5% from fiscal 2008 first half net sales of $174,063,000. Lighting Segment net sales increased 0.9% to $92,927,000, Graphics Segment net sales decreased 39.1% to $35,027,000, Technology Segment net sales decreased 12.8% to $3,990,000 and net sales of the All Other Category decreased 76.5% as compared to the prior year. Sales to the petroleum / convenience store market represented 21% and 32% of net sales in the first half of fiscal years 2009 and 2008, respectively. Net sales to this, the Company's largest niche market, are reported in both the Lighting and Graphics Segments, depending upon the product or service sold, and were down 49% from last year to $28,683,000 as Lighting sales were level and Graphics sales to this market decreased 68%. The petroleum / convenience store market has been, and will continue to be, a very important niche market for the Company; however, if sales to other markets and customers increase more than net sales to this market, then the percentage of net sales to the petroleum / convenience store market would be expected to decline. See Note 3 to these financial statements on Major Customer Concentrations. Net sales of products and services related to solid state LED technology in light fixtures and video screens for sports, advertising and entertainment markets totaled $10.8 million in the six month period ended December 31, 2008, representing approximately a 137% increase from the same period last year. In addition, the Company sells certain elements of graphic identification programs that contain solid state LED light sources.

The $0.8 million or 0.9% increase in Lighting Segment net sales is the net result of a $3.9 million or 7.5% increase in commissioned net sales to the commercial / industrial lighting market, and a $3.0 million net decrease in lighting sales to our niche markets of petroleum / convenience stores, automotive dealerships, and national retail accounts (net sales to one large national retailer decreased $2.6 million as compared to the first half of last year).
The $22.5 million or 39.1% decrease in Graphics Segment net sales is primarily the result of completion of programs for certain graphics customers, including an image conversion program for a national drug store retailer ($3.7 million decrease), two petroleum / convenience store programs ($26.2 million decrease) and changes in volume or completion of other graphics programs. These decreases were partially offset by increased net sales to certain other customers, including a reimaging program for a grocery customer ($7.9 million). Image and brand programs, whether full conversions or enhancements, are important to the Company's strategic direction. Image programs include situations where our customers refurbish their retail sites around the country by replacing some or all of the lighting, graphic elements, menu board systems and possibly other items they may source from other suppliers. These image programs often take several quarters to complete and involve both our customers' corporate-owned sites as well as their franchisee-owned sites, the latter of which involve separate sales efforts by the Company with each franchisee. The Company may not always be able to replace net sales immediately when a large image conversion program has concluded. Brand programs typically occur as new products are offered or new departments are created within an existing retail store. Relative to net sales to a customer before and after an image or brand program, net sales during the program are typically significantly higher, depending upon how much of the lighting or graphics business is awarded to the Company. Sales related to a customer's image or brand program are reported in either the Lighting Segment, Graphics Segment, or the Technology Segment depending upon the product and/or service provided.
The $0.6 million or 12.8% decrease in net sales of the Technology Segment is primarily the result of decreased sales of solid-state LED video screens for the sports markets ($1.6 million decrease), decreased sales of specialty LED lighting ($1.1 million decrease), decreased net sales of solid-state LED video screens to the advertizing market ($1.2 million decrease), partially offset by increased net sales of solid-state LED video screens to the entertainment market ($3.2 million increase).
The $15.2 million or 76.5% decrease in net sales of the All Other Category is primarily the result of completion of a menu board replacement program in the second quarter last year ($15.3 million decrease).
Gross profit of $31,436,000 in the first half of fiscal 2009 decreased 36% from the same period last year, and decreased from 28.3% to 23.0% as a percentage of net sales. The decrease in amount of gross profit is due both to decreased Graphics net sales and margins, both product and installation, as well as decreased gross profit margin on slightly lower Lighting net sales. The following items also influenced the Company's gross profit margin on a consolidated basis: competitive pricing pressures; increased cost of materials in the Lighting Segment; decreased direct labor reflective of less sales volume; net decreased wage, compensation and benefits costs ($0.2 million increase in Lighting, $0.8 million decrease in Graphics and $0.1 million decrease in the All Other Category); decreased supplies ($0.1 million in Lighting and $0.2 million in Graphics); $0.3 million of decreased depreciation in the Lighting Segment; $0.2 million decreased repairs and maintenance, primarily in the Lighting Segment; and net decreased outside services ($0.1 million increase in Lighting and $0.2 million decrease in Graphics.

Selling and administrative expenses of $27,977,000 in the first half of fiscal year 2009 decreased $2.8 million, and increased to 20.5% as a percentage of net sales from 17.7% in the same period last year. Employee compensation and benefits expense decreased $0.6 million in the first half of fiscal 2009 as compared to the same period last year ($0.2 million decrease in Lighting, $0.7 million decrease in Graphics and $0.3 million increase in the All Other Category. Other changes of expense between years include decreased sales commission expense ($0.9 million in the Lighting Segment), decreased warranty expense (0.1 million in Graphics and $0.6 million in Technology), decreased outside services expense ($0.3 million, primarily in the Graphics Segment), net increased research & development expense ($0.5 million increase in Lighting associated primarily with research and development spending related to solid-state LED technology, and $0.1 million decrease in Graphics), decreased legal fees ($0.2 million, primarily in the All Other Category), increased menu board litigation settlement costs ($0.2 million in the All Other Category), increased bad debt expense ($0.1 million increase in Lighting, $0.2 million decrease in Graphics and $0.2 million increase in Technology), decreased intangible asset amortization expense ($0.1 million), decreased supplies ($0.1 million) and decreased advertising and literature ($0.1 million in the Lighting Segment).
The Company recorded an impairment of goodwill in three reporting units in the first half of fiscal 2009, and accordingly recorded a non-cash expense in the amount of $13,250,000 (the Lighting Segment impairment was $11,185,000, the Graphics Segment impairment was $716,000 and the impairment in the All Other Category was $1,349,000) with no similar impairment expense in the first half of the prior year. The impairment was related to a decline in the market value of the Company's stock as well as a decline in the estimated forecasted discounted cash flows expected by the Company.
The Company reported net interest expense of $4,000 in the first half of fiscal 2009 as compared to net interest income of $212,000 in the same period last year. The Company was in a positive cash position and was debt free for substantially all of fiscal 2008 and generated interest income on invested cash. The Company was occasionally in a borrowing position the first half of fiscal 2009.
The effective tax rate in the first half of fiscal 2008 was 36.8%, resulting in an income tax expense of $6,871,000. The $895,000 income tax expense in the first half of fiscal 2009 reflects a tax expense of $993,000 related to the operations of the Company (which includes a $333,000 release of a FIN 48 income tax liability associated with a voluntary disclosure program) and a tax benefit of $98,000 associated with the impairment of goodwill.
The Company reported a net loss of $(10,690,000) in the first half of fiscal 2009 as compared to net income of $11,776,000 in the same period last year. The decrease is primarily the result of decreased gross profit on decreased net sales and a fiscal 2009 $13.3 million pre-tax goodwill impairment expense, partially offset by decreased operating expenses and decreased income tax expense. The diluted loss per share was $(0.49) in the first half of fiscal 2009, as compared to earnings per share of $0.53 in the same period last year. The weighted average common shares outstanding for purposes of computing diluted earnings (loss) per share in the first half of fiscal 2009 were 21,798,000 shares as compared to 22,036,000 shares for the same period last year.

Liquidity and Capital Resources
The Company considers its level of cash on hand, its borrowing capacity, its 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, 2008 the Company had working capital of $73.6 million, compared to $72.9 million at June 30, 2008. The ratio of current assets to current liabilities was 4.72 to 1 as compared to a ratio of 3.32 to 1 at June 30, 2008. The $0.7 million increase in working capital from June 30, 2008 to December 31, 2008 was primarily related to decreased accounts payable ($4.8 million), decreased accrued expenses and customer prepayments ($6.0 million and $0.9 million, respectively), increased cash and cash equivalents ($1.2 million), partially offset by decreased inventory ($6.6 million), decreased net accounts receivable ($3.6 million), and decreased other current assets ($2.0 million). The Company generated $6.6 million of cash from operating activities in the first half of fiscal 2009 as compared to a generation of $7.3 million last year. This $0.7 million decrease in net cash flows from operating activities is primarily the net result of less net income ($22.5 million unfavorable), a non-cash goodwill impairment charge in fiscal 2009 ($13.3 million favorable), less of a reduction in accounts receivable (unfavorable change of $9.5 million), a decrease in inventories rather than an increase (favorable change of $7.6 million), less of a reduction in customer prepayments (favorable change of $10.5 million), a smaller decrease in accounts payable and accrued expenses (favorable change of $0.1 million), decreased depreciation and amortization (unfavorable $0.5 million), larger increases in the reserves for bad debts and inventory obsolescence (favorable $0.2 million) and an increase in deferred income tax assets rather than a decrease (unfavorable $0.6 million). The fiscal 2008 significant reduction in customer prepayments is related to the completion of a menu board replacement program in the Graphics Segment.
Net accounts receivable were $35.2 million and $38.9 million at December 31, 2008 and June 30, 2008, respectively. The decrease of $3.7 million in net receivables is primarily due to a larger amount of net sales in the fourth quarter of fiscal 2008 as compared to the second quarter of fiscal 2009, plus the affect of increased DSO (Days' Sales Outstanding). The DSO increased from 54 days at June 30, 2008 to 63 days at December 31, 2008. The Company believes that its receivables are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate. Inventories at December 31, 2008 decreased $6.6 million from June 30, 2008 levels. Primarily in response to customer programs and the timing of shipments, inventory decreases occurred in the Lighting Segment of approximately $0.9 million (some of this inventory supports certain graphics programs), in the Graphics Segment of approximately $2.8 million, in the Technology Segment of approximately $2.4 million and in the All Other Category of approximately $0.6 million since June 30, 2008.
Cash generated from operations and borrowing capacity under two line of credit facilities are the Company's primary source of liquidity. The Company has an unsecured $50 million revolving line of credit with its bank group, with all $50 million of the credit line available as of January 22, 2009. This line of credit consists of a $30 million three year committed credit facility expiring in the third quarter of fiscal 2011 and a $20 million credit facility expiring in the third quarter of fiscal 2009. Additionally, the Company has a separate $7 million line of credit, renewable annually in the third fiscal quarter, for the working capital needs of its Canadian subsidiary, LSI Saco Technologies. As of January 22, 2009, all $7 million of this line of credit is available. As both of these lines of credit renew in the third quarter of fiscal 2009, the Company believes that the combined $57 million of credit facilities will be extended to the Company by its banks, however, at a higher interest rate due to conditions in the financial markets. The Company believes that the total of available lines of credit plus cash flows from operating activities is adequate for the Company's fiscal 2009 operational and capital expenditure needs. The Company is in compliance with all of its loan covenants.

The Company used $0.9 million of cash related to investing activities in the first half of fiscal 2009 as compared to a generation of $5.5 million last year. The primary change between years relates to the fiscal 2008 divestiture of short-term investments ($8.0 million unfavorable) and decreased purchase of fixed assets ($1.7 million favorable). Capital expenditures of $0.9 million in the first half of fiscal 2009 compared to $2.5 million in the same period last year. Spending in both periods is primarily for tooling and equipment. The Company expects fiscal 2009 capital expenditures to approximate $3 million, exclusive of business acquisitions.
The Company used $4.5 million of cash related to financing activities in the first half of fiscal 2009 as compared to a use of $6.4 million in the same period last year. The $1.9 million change between periods is primarily the result of lower cash dividend payments ($4,314,000 in the first half of fiscal 2009 as compared to $7,107,000 in the same period last year). The $2.8 million reduction in dividend payments between years is primarily the net result of a special year-end dividend of approximately $1.1 million paid in the first quarter of fiscal 2008 with none in fiscal 2009, and a lower per share dividend rate beginning in the second quarter of fiscal 2009. Additionally, the Company had cash flow from the exercise of stock options in the first half of fiscal 2008, while there were no exercises in the first half of fiscal 2009 ($0.8 million unfavorable).
The Company has financial instruments consisting primarily of cash and cash equivalents and short-term investments, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates. The Company has no financial instruments with off-balance sheet risk and has no off balance sheet arrangements.
On January 21, 2009 the Board of Directors declared a regular quarterly cash dividend of $0.05 per share (approximately $1,079,000) payable February 10, 2009 to shareholders of record on February 3, 2009. The Company's cash dividend policy is that the indicated annual dividend rate will be set between 50% and 70% of the expected net income for the current fiscal year. Consideration will also be given by the Board to special year-end cash or stock dividends. The declaration and amount of any cash and stock dividends will be determined by the . . .