None.
| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
You should read the following discussion and analysis together with our audited consolidated financial statements and the accompanying notes. This discussion contains forward-looking statements, within the meaning of Section 27A of Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial position, business and financing plans. These statements involve risks and uncertainties. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under the headings “Forward-Looking Statements” and “Risk Factors.”
Results of Operations
20102011 Compared to 20092010
Consolidated Revenues and Gross Margin
In the year ended December 31, 2010,2011, consolidated revenues increaseddecreased by $15,355,000,$10,974,000, or 49.1%23.5%, to $35,682,000, from $46,656,000 from $31,301,000 in 2009.2010. The increasedecrease is primarily due to increasedreduced demand from existing customers for existing products in both our TelecomTelecommunications (“Telecom”), and Military, Instrumentation, Space and Avionics (“MISA”( “MISA”) market segments. The increased demand wassegments, as well as the effects of weakness in the global macroeconomic environment. Specifically, decreases in Telecom were driven by growthweakness in our customers’ businesses, expanded positions with those customers, new product offerings and improvement in economic conditions. The revenue growth also resulted from the expansion of our product portfolio through the introduction of new lines of cavity filters and of double-oven oscillators, which entered productiontelecommunications network infrastructure spending during the firstsecond half of 2010. Domestic revenues increased by $9,690,000 or 62.4%, to $25,212,0002011, and foreign revenues increased by $5,665,000, or 35.9%, to $21,444,000, as compared to 2009. The increasedecreases in domestic revenues was primarily the result of the introduction of new products for our MISA market segment. Foreign revenues increased primarilywere due to the increased use of foreign production facilities by the OEMs that are the end users of our products.uncertainty related to government budget and spending cycles. The Company continuesis continuing its efforts to grow revenuegain market share with new and existing customers in all of its geographic regions, and by expanding into Asia throughfocusing research and development efforts on the openingdevelopment of a sales and customer service office in Shanghai, China, and intoproducts that will serve additional segments of the timing and frequency equipment market,control markets, such as wireless infrastructure, alternative energy management, energy exploration, homeland security, avionics and military personnel protection and homeland security.protection.
In the year ended December 31, 2010,2011, consolidated gross margin as a percentage of revenues increaseddecreased to 30.2% from 35.0% from 23.7% for 2009.2010. The improvement in gross margindecrease primarily is primarily due to the increase23.5% decrease in revenues compared to 2009,from the comparable period in 2010, which increasederoded gross margin by spreading fixed infrastructure costs over a largersmaller revenue base, and the Company’s implementation of its plan, which was begun in 2009, to effect permanent structural cost reductions in overhead expenses.base. The Company is continuing its efforts to further improve its manufacturing and supply chain efficiency.
Order Backlog
At December 31, 2010,2011, MtronPTI’s order backlog was $10,734,000,$8,634,000, which was a decrease of 23.1%19.6% compared to a backlog of $13,958,000$10,734,000 at December 31, 2009.2010. The decline in backlog is primarily due to a decreasereduced order activity from our existing customers in orders during the second half of 2010, which appears to be the result of reduced short-term demand in repeat orders due to excess inventory levels across the supply chain forboth the Telecom and MISA market segmentsegments, and strong shipments from our production facilities, and a return to a normalized backlog level compared to a significantly higher backlog as of December 31, 2009, due to strong sales during the last six months of 2009 after a particularly weak period stemming from the effectsextended order request dates that fall outside of the global economic crisis.12-month timeframe reflected in the order backlog. The backlog of unfilled orders includes amounts based on signed contracts as well as other agreements we have determined are legally binding and likely to proceed. Although backlog represents only firm orders that are considered likely to be fulfilled within the 12 months following receipt of the order, cancellations or scope adjustments may and do occur.
Backlog is adjusted quarterly to reflect project cancellations, deferrals, revised project scope and cost, and sales of subsidiaries, if any. The Company expects to fill substantially its entire 2010 backlog in 2011,2012, but cannot provide assurances as to the portion of backlog to be fulfilled in a given year.
Operating Income
The operating income of $6,759,000$674,000 for 2010the year ended December 31, 2011 is an improvementa decrease of $8,913,000$6,085,000 from the operating lossincome for 2009the year ended December 31, 2010 of ($2,154,000).$6,759,000. The increasedecrease was attributable to the execution23.5% reduction in revenues for 2011 as compared to 2010, a 4.8 percentage point decrease in consolidated gross margin as a percentage of the Company’s plan to effect permanent structural cost reductionsrevenues, and an increase in overhead expenses, and variable cost and capacity improvements gained from the realignment of operations that took place during 2009. Engineering,engineering, selling and administrative expenses of $519,000 related to additional product development, sales and marketing costs as a percentagepart of revenue improved by 9.4 percentage pointsthe Company’s efforts to 20.5% for 2010 as compared to 2009.gain market share. The Company expectsbelieves that its continuing efforts increase revenuesto gain market share and to improve its manufacturing and supply chain efficiency will benefit operating margins in future periods.
Interest Expense
Interest expense was $109,000 for the year ended December 31, 2011, which was a decrease of $195,000 from $304,000 for the year ended December 31, 2010, which was a decrease of $101,000 from $405,000 for the year ended December 31, 2009.2010. The decrease was primarily due to a maintaining a lower averagethe repayment of MtronPTI’s term loan with RBC Bank on September 30, 2010, which was partially offset by the increase in the balance outstanding onunder MtronPTI’s short-term credit facilityrevolving loan with the First NationalJ.P. Morgan Chase Bank, of OmahaN.A. (“FNBO”Chase”) during the year as well as the repayment of the RBC Centura Bank (“RBC”) term loan on September 30, 2010.ended December 31, 2011.
Income Taxes
Income tax (provision) benefit (expense) provision for the years ended December 31, 2011 and 2010 was ($185,000) and 2009 was $2,945,000, and ($19,000), respectively. The valuation allowance was $263,000 at December 31, 2011, which was unchanged from December 31, 2010. Between December 31, 2009 and December 31, 2010, the valuation allowance decreased by $5,324,000 from $5,587,000 inat December 31, 2009 to $263,000 at December 31, 2010. The valuation allowance increased $1,140,000 from $4,447,000 in 2008 to $5,587,000 in 2009. The decrease of $5,324,000 in 2010 was due toas the realization ofCompany recognized for book purposes the tax benefits of net operating loss carryforwardscarry-forwards and deductible temporary differences reversing in the current year and management’s belief that it is more likely than not that the Company will realize the benefits of its net operating loss carryforwards and tax credits in future periods.
differences. The Company’s overall effective tax rate was 30.6% and (45.5%) due tofor the benefityear ended December 31, 2011 and 2010, respectively. The significant change is the result of its net operating loss carryforwards and the release of the valuation allowance as offor the year ended December 31, 2010.
Net Income
Net income for the year ended December 31, 20102011 was $9,423,000$382,000 compared with net lossincome for the year ended December 31, 20092010 of ($2,522,000).$9,423,000. This increasedecrease in net income can be primarily attributed to an 11.3the following: (i) the recognition of the tax benefits of net operating loss carry-forwards and deductible temporary differences in the year ended December 31, 2010, (ii) a 4.8 percentage point increasedecrease in gross margin, which was primarily the result ofand (iii) a 49.1% increase23.5% decrease in revenues for 20102011 as compared to 2009. Net income also included a tax benefit from its historical net operating losses and tax credits of $2,945,000, which included a change in its net deferred tax benefit of $3,276,000, offset by 2010 current tax expense provision of ($331,000).2010. Basic and diluted net income per share for 20102011 was $4.19$0.15 compared with a net lossincome per share of ($1.15)$4.19 for 2009.
Sale of Select Assets and Liabilities of Subsidiary and Discontinued Operations
In June 2007, the Company finalized its sale of certain assets and liabilities of Lynch Systems to a third party. The assets sold included certain accounts receivable, inventories, machinery and equipment. The Buyer also assumed certain liabilities of Lynch Systems, including accounts payable, customer deposits and accrued warranties. The result of the sale transaction was a loss of $982,000. Lynch Systems retained certain assets including the land, buildings and some equipment used in its operations and certain accounts receivable balances. The Company intends to sell the land, buildings and remaining equipment, which are classified as held for sale. The Company recognized an impairment loss for the remaining assets of Lynch Systems as part of its operations of $20,000 in 2010 and $235,000 in 2009.
The operations of Lynch Systems were discontinued in 2007.2010.
Liquidity and Capital Resources
The Company’s cash and cash equivalents, and investments in marketable securities at December 31, 20102011, totaled $4,182,000,$13,749,000, an increase of $339,000$9,567,000 compared to $3,843,000$4,182,000 at December 31, 2009.2010. Specifically, cash and cash equivalents increased by $331,000,$9,562,000, from $3,816,000 at December 31, 2009 to $4,147,000 at December 31, 2010.2010 to $13,709,000 at December 31, 2011.
Cash provided by operating activities was $2,321,000 in 2011, compared to $5,503,000 in 2010, compared to $637,000 in 2009.2010. The increasedecrease in operating cash flow of $4,866,000$3,093,000 was due to the increasedecrease in net income, which was offset by both the net collection of accounts receivable of $1,473,000 and a decrease in inventory of $271,000, compared to the net increase in accounts receivable of ($1,003,000), an increase in inventory of ($599,000), and a deferred tax benefit of ($3,276,000), an increase in accounts payable, accrued compensation and commissions expense and accrued expenses of ($106,000), and an impairment loss on Lynch System’s assets of $20,000 in 2010, compared to for the net collection of accounts receivable of $1,704,000, an increase in accounts payable, accrued compensation and commissions expense and accrued expenses of $290,000 and $235,000 of impairment loss in 2009.year ended December 31, 2010.
Cash used in investing activities was $767,000$1,694,000 during 2010the year ended December 31, 2011, compared to $325,000$767,000 used during 2009,the year ended December 31, 2010, which primarily was primarily driven by the Company’s continued investment in capitalmachinery and equipment related to new production activities and software.to replace obsolete equipment as needed, as well as the Company’s investment in software to replace the Company’s enterprise resource planning systems.
Cash provided by financing activities was $8,935,000 for the year ended December 31, 2011, compared to a use of cash of ($4,405,000) for the year ended December 31, 2010. The increase in cash provided by financing activities is mainly the result of the Company’s completion of a public offering of 350,000 shares of its common stock at $20.00 per share in February 2011, resulting in net proceeds of $6,404,000, and an increase in net borrowings on notes payable to bank in the amount of $3,026,000. Cash used in financing activities was $4,405,000 during the year ended December 31, 2010 as a result ofincluded repayments of notes payable to banks of $1,696,000 and repayments of long-term debt of $2,620,000, including retirement of theMtronPTI’s term loan with RBC term loanBank on September 30, 2010 and principal payments on the Company’sMtronPTI’s term loan with FNBO. Cash used in financing activities in 2009 was $1,821,000, resulting from $1,053,000First National Bank of repayments against MtronPTI’s short-term credit facility and $768,000 of note repayments made on its outstanding long-term debt agreements.Omaha (“FNBO”).
At December 31, 2010,2011, the Company’s consolidated working capital was $12,829,000,$18,176,000, compared to $5,466,000$12,829,000 at December 31, 2009.2010. At December 31, 2011, the Company had consolidated current assets of $24,946,000, consolidated current liabilities of $6,770,000 and a ratio of consolidated current assets to consolidated current liabilities of 3.68 to 1.00. At December 31, 2010, the Company had consolidated current assets of $17,488,000, consolidated current liabilities of $4,659,000 and a ratio of consolidated current assets to consolidated current liabilities of 3.75 to 1.00. At December 31, 2009, the Company had consolidated current assets of $14,355,000, consolidated current liabilities of $8,889,000 and a ratio of consolidated current assets to consolidated current liabilities of 1.61 to 1.00. The increase in consolidated working capital is the result of an increase in the deferred tax assetcash and cash equivalents of $1,295,000, an increase$9,562,000, offset by a decrease of $1,003,000$1,473,000 in accounts receivable and an increase of $599,000$3,026,000 in inventory, and a combined decrease in accountsthe short-term note payable accrued compensation, commissions expense, and other accrued expenses of $106,000to bank as of December 31, 20102011 compared to December 31, 2009.
Note payable to the bank decreased $1,696,000 to $0 at December 31, 2010, compared to $1,696,000 at December 31, 2009. The decrease is primarily due to the repayment of all amounts previously outstanding under the First National Bank of Omaha (“FNBO”) Revolving Loan of $4,000,000 at December 31, 2010. Total long-term debt (including both the current and long-term portions) was $669,000 at December 31, 2010, a decrease of $2,620,000 as compared to the balance at December 31, 2009 of $3,289,000. The decrease is primarily due to the repayment on September 30, 2010 of the remaining $2,282,000 principal and interest due under the Company’s term loan with RBC and termination of the related loan agreement with RBC.
On October 14, 2004,June 30, 2011, MtronPTI entered into a loan agreement with FNBO, which was amended and restated on July 30, 2010Chase (the “FNBO“Chase Loan Agreement”). The FNBOChase Loan Agreement provides for the following credit facilities: (i) a short-termrevolving line of credit facilityin the amount of up$4,000,000, to $4,000,000be used solely for working capital needs (the “FNBO“Chase Revolving Loan”), (ii) a commercial line of credit in the amount of $2,000,000, to be used solely for tangible capital expenditures and, at Chase’s sole discretion, business acquisitions (the “Chase Commercial Loan”), and (iii) a term loan in the amount of $536,000 (the “Chase Term Loan”). The principal balance of the FNBOChase Revolving Loan bears interest at 30-daythe greater of (x) Chase’s prime rate or (y) the one-month LIBOR rate plus 3.25% (but in no event below 4.25%2.50% per annum (the “CB Rate”), with interest only payments due and payable on a monthly basis and the final paymentoutstanding principal balance plus all accrued but unpaid interest due and payable on June 30, 2013. The Chase Commercial Loan bears interest at the CB Rate, with interest due and payable on a monthly basis and the outstanding principal balance plus all accrued but unpaid interest due and payable on June 30, 2012.
At December 31, 2011, MtronPTI had $3,026,000 outstanding under the Chase Revolving Loan and available borrowing capacity of $389,000 under the Chase Revolving Loan (total borrowing capacity was below the maximum of $4,000,000 available due to certain limitations on the borrowing base as defined in the Chase Loan Agreement). At December 31, 2011, there was no outstanding balance on the Chase Commercial Loan.
The Chase Term Loan bears interest at 5.00% per annum, with principal and interest due on June 30, 2011. There is also an unused commitment feeand payable in monthly installments of 0.50% per annum, payable quarterly. At December 31, 2010,$29,500 and the amount outstanding under the FNBO Revolving Loan was $0, with unused borrowing capacity of $4,000,000, compared to $1,696,000 outstanding and an unused borrowing capacity of $2,304,000 at December 31, 2009.
The FNBO Loan Agreement also provides for a term loan in the original principal amount of $2,000,000 (the “FNBO Term Loan”). At December 31, 2010, the principal balance, of the FNBO Term Loan was approximately $669,000, bearing interest at 30-day LIBOR plus 2.10%, with payments of approximately $24,000 due monthly and all remaining principal andaccrued but unpaid interest due and payable on January 24,31, 2013.
All outstanding obligations of MtronPTI under the FNBOChase Loan Agreement are collateralized by a first priority security interest in all of the assets of MtronPTI, (including general intangibles, but excluding real estate), andproperty. Additionally, in connection with the Chase Loan Agreement, PTI entered into a separate agreement with Chase providing that PTI would not mortgage or otherwise encumber certain real property it owns in Florida while the credit facilities under the Chase Loan Agreement are guaranteed by the Company.outstanding.
The FNBOChase Loan Agreement contains a variety of affirmative and negative covenants, including, but not limited to, financial covenants that MtronPTI maintain: (i) tangible net worth not less than the sum of $7,500,000, plus 50% of the net income earned by MtronPTI for the preceding six-month period at June 30, 2011, with the threshold amount continuing to increase at December 31st and June 30th of each year by 50% of the net income earned by MtronPTI for the preceding six months; (ii) net income of not less than $5,500,000, (ii) a ratio of current assets to current liabilities of$1,000,000 for the fiscal year-to-date period ending June 30, 2011, $1,500,000 for the fiscal year-to-date period ending September 30, 2011, and $2,000,000 for the
fiscal year-to-date period ending December 31, 2011 and thereafter, provided that MtronPTI not less than 1.50 to 1.00;experience two consecutive quarterly losses; and (iii) a ratio of total liabilities to tangible net worth of not greater than 2.75 to 1.00; and (iv) a fixed chargedebt service coverage ratio of not less than 1.25 to 1.00. The FNBO Loan Agreement also places certain limitations on MtronPTI’s ability to make certain payments to1.00, tested at the Company, including but not limited to paymentsend of dividends, advances and repaymentevery fiscal year.
As of inter-company debt, interest payments on inter-company debt and management fees. At December 31, 2010,2011, MtronPTI was not in compliance with all covenantsthe net income covenant under the FNBOChase Loan Agreement.
In connection Based on the definition of net income under the Chase Loan Agreement, MtronPTI had net income of $1,250,000 for the year ended December 31, 2011, as compared to the minimum requirement of $2,000,000. Chase has waived non-compliance with this covenant as of December 31, 2011. Additionally, we have entered into negotiations with Chase regarding an amendment to the Chase Loan Agreement to adjust the financial covenants to permit our compliance with the FNBO Term Loan, MtronPTI enteredterms of such covenants in future periods. While we expect to finalize the amendment with Chase shortly, there can be no assurance that we will be able to enter into such an interest rate swap agreement with FNBO from which it receives periodic payments atamendment. Therefore, we have reclassified the LIBOR Base Rate and makes periodic payments at a fixed rate of 5.60% through the termlong-term portion of the FNBO Term Loan. The Company has designated this swapMtronPTI term loan, which is $58,000, as a cash flow hedge in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging (“ASC 815”). The fair value of the interest rate swap was ($21,000)current at December 31, 20102011. We expect that, with the amendment and ($32,000)based on our current covenant compliance projections, MtronPTI will be in compliance with the Chase Loan Agreement covenants at each quarterly testing date through December 31, 2009, net of any tax effect, and is included in “other accrued expenses” on the condensed consolidated balance sheets. Any change in fair value is reflected in accumulated other comprehensive income (loss), net of any tax effect.2012.
On September 30, 2005,October 14, 2004, MtronPTI entered into a loan agreement with RBC, whichFNBO that was subsequently modifiedamended and restated on September 17, 2009July 30, 2010 (the “RBC“FNBO Loan Agreement”). The RBCFNBO Loan Agreement provided for a revolving credit facility of up to $4,000,000 (the “FNBO Revolving Loan”). The FNBO Loan Agreement also provided for a term loan in the original principal amount of $3,040,000$2,000,000 (the “RBC“FNBO Term Loan”) which bore interest at LIBOR Base Rate plus 2.75% and was repaid in monthly installments based on a 20-year amortization schedule.. On SeptemberJune 30, 2010,2011, the FNBO Revolving Loan expired, the Company repaid the remaining $2,282,000$596,000 of principal and interest due under the RBC Term Loan and terminated the RBC Loan Agreement.
In connection with the RBC Term Loan, MtronPTI entered into a five-year interest rate swap from which it receives periodic payments at the LIBOR Base Rate and makes periodic payments at a fixed rate of 7.51% with monthly settlement and rate reset dates. The Company designated this swap as a cash flow hedge in accordance with ASC 815. The fair value of the interest rate swap was ($97,000) at December 31, 2009, net of any tax effect, and is included in “other accrued expenses” on the condensed consolidated balance sheets. Any change in fair value has been reflected in accumulated other comprehensive income (loss), net of any tax effect. This interest rate swap agreement was terminated concurrently with the repayment of the RBCFNBO Term Loan and the termination ofCompany terminated the RBCFNBO Loan Agreement on September 30, 2010.Agreement.
Debt outstanding at December 31, 2010 included $669,000 of variable rate debt at year-end weighted average interest rate of 5.60% (after considering the effect of the interest rate swap).
Aggregate principal maturities of long-term debt for each of the remaining years until maturity based upon payment terms and interest rates in effect at December 31, 2010 are as follows (in thousands):
2011 | | $ | 299 |
2012 | | | 321 |
2013 | | | 49 |
Total | | $ | 669 |
On February 4, 2011, the Company completed a public offering of 350,000 shares of its common stock at $20.00 per share. The aggregate number of shares sold reflects and includes the exercise in full by the underwriter of its over-allotment option to purchase 45,652 additional shares of the Company’s common stock. The Company received net proceeds of approximately $6.5 million$6,404,000 from the offering, after deducting the underwriting discounts and commissions and estimated offering expenses. These proceeds have been and will continue to be used for general corporate purposes, including working capital and potential technology acquisitions or company acquisitions.other strategic ventures. The offering was made pursuant to a shelf registration statement filed with the SEC on September 23, 2010, and amended on October 25, 2010, which became effective on November 4, 2010 (Registration No. 333-169540), and a prospectus supplement, dated January 31, 2011, filed with the SEC on February 2, 2011. ThinkEquity LLC acted as the sole underwriter with respect to the offering.
We believe that existing cash and cash equivalents, cash generated from operations and available borrowings on its revolving line of credit will be sufficient to meet our ongoing working capital and capital expenditure requirements for the next 12 months.
The Board has adoptedadhered to a policypractice of not paying cash dividends. This policy takes into account theour long-term growth objectives, of the Company, including itsour anticipated investments for organic growth, its acquisition program,potential technology acquisitions or other strategic ventures, and stockholders’ desire for capital appreciation of their holdings. In addition, the Company’s credit facility placesdebt service coverage ratio and tangible net worth financial covenants under the Chase Loan Agreement effectively place certain limitations on MtronPTI’s ability to make certain payments to the Company,its parent, including but not limited to payments of dividends advances and repayment of inter-company debt, interest payments on inter-company debt and management fees.other distributions, which effectively could limit the Company’s ability to pay cash dividends to stockholders. No cash dividends have been paid to the Company’s stockholders since January 30, 1989, and none are expected to be paid for the foreseeable future.
Critical Accounting Policies
The Company’s significant accounting policies are described in Note A to the Consolidated Financial Statements. The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to the carrying value of inventories, the likelihood of collecting its outstanding
accounts receivable, value of stock based compensation, and the provision for income taxes. 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 that are not readily apparent from other sources. In the past, actual results have not been materially different from the Company’s estimates. However, results may differ from these estimates under different assumptions or conditions.
The Company has identified the following as critical accounting policies, based on the significant judgments and estimates used in determining the amounts reported in its consolidated financial statements:
Accounts Receivable
Accounts receivable on a consolidated basis consist principally of amounts due from both domestic and foreign customers. Credit is extended based on an evaluation of the customer’s financial condition and collateral is not generally required. MtronPTI has credit sales to industries that are subject to cyclical economic changes. The Company maintains an allowance for doubtful accounts at a level that management believes is sufficient to cover potential credit losses.
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We base our estimates on our historical collection experience, current trends, credit policy and relationship of our accounts receivable and revenues. In determining these estimates, we examine historical write-offs of our receivables and review each customer’s account to identify any specific customer collection issues. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payment, additional allowances may be required. Our failure to estimate accurately the losses for doubtful accounts and ensure that payments are received on a timely basis could have a material adverse effect on our business, financial condition, and results of operations.
Inventory Valuation
Inventories are stated at the lower of cost or market value using the FIFO (first-in, first-out) method.
The Company maintains a reserve for inventory based on estimated losses that result from inventory that becomes obsolete as of period end. In determining these estimates, the Company performs an analysis of demand and usage for each inventory item over historical time periods. Based on that analysis, the Company reserves a percentage of the inventory amount within each time period based on historical demand and usage patterns of specific items in inventory.
Revenue Recognition
Revenues are recognized upon shipment when title passes. Shipping costs are included in manufacturing cost of sales. The Company believes that recognizing revenue at time of shipment is appropriate because the Company’s sales policies meet the criteria in ASC Topic 605, Revenue Recognition, which are: (i) persuasive evidence that an arrangement exists; (ii) delivery has occurred; (iii) the seller’s price to the buyer is fixed and determinable; and (iv) collectibility is reasonably assured.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Accounting for Income Taxes (“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recorded for deferred tax assets whose realization is not considered more likely than not. At December 31, 2010, a valuation allowance of $263,000 was recorded compared with a valuation allowance of $5,587,000 recorded at December 31, 2009. As of December 31, 2010, the Company has a state net operating loss carryforward for Georgia in the amount of $263,000 that has been fully reserved based on the fact that management has no ability to generate taxable income in the State of Georgia that would allow the net operating loss carryforward to be utilized in a future period. The decrease of $5,324,000 was due to the realization of the tax benefits of deductible temporary differences reversing in the current year and management’s belief that it is more likely than not that the Company will realize the benefits of its net operating loss carryforwards and tax credits in future periods.
The carrying value of the Company’s net deferred tax assets at December 31, 2010 and 2009 were $3,350,000 and $111,000, respectively.
The calculation of tax assets and liabilities involves dealing with uncertainties in the application of complex tax regulations in several different tax jurisdictions. The Company evaluates the exposure associated with the various filing positions and records estimated reserves for tax positions that do not meet the “more likely than not” recognition threshold as defined by ASC 740.
Effective January 1, 2007, the Company adopted the provisions of ASC Topic 740, Accounting for Uncertainty in Income Taxes (“ASC 740”). ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with ASC 740. ASC 740 prescribes a recognition and measurement method for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Based on a review of our tax positions, the Company was not required to record a liability for unrecognized tax benefits as a result of adopting ASC 740 on January 1, 2007. Further, there has been no change during the years ended December 31, 2010 and 2009. Accordingly, we have not accrued any interest and penalties through December 31, 2010.
Stock-Based Compensation
The Company adopted the provisions of ASC Topic 718, Share-Based Payments (“ASC 718”), beginning January 1, 2006, using the modified prospective transition method. ASC 718 requires the Company to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize cost over the requisite service period. Under the modified prospective transition method, financial statements for periods prior to the date of adoption are not adjusted for the change in accounting. However, the compensation expense is recognized for (a) all share-based payments granted after the effective date under ASC 718, and (b) all awards granted under ASC 718 to employees prior to the effective date that remain unvested on the effective date. The Company recognizes compensation expense on fixed awards with pro rata vesting on a straight-line basis over the service period.
The Company estimates the fair value of stock-based compensation on the grant date using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. There is no expected dividend rate. Historical Company information was the primary basis for the expected volatility assumption. Grants from prior year were calculated using historical volatility as the Company believes that the historical volatility over the life of the option is more indicative of the options expected volatility in the future. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates with a remaining term equal to the expected term of the option. ASC 718 also requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on past history of actual performance, a zero forfeiture rate has been assumed.
Recently Issued Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements, which required additional disclosure of significant transfers in and out of instruments categorized as Level 1 and 2 in the Fair Value hierarchy. This update also clarified existing disclosure requirements by defining the level of disaggregation of instruments into classes as well as additional disclosure around the valuation techniques and inputs used to measure fair value. The guidance in this update is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASC 820 did not have a material impact on the Company's consolidated financial position and results of operations.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
| Item 7A. Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
| Item 8. Financial Statements and Supplementary Data. |
See the financial statements included at the end of this report beginning on page 41.34.
| Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s principal executive officer and principal financial officer, with the participation of the Company’s management, have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 20102011 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.
Management’s Annual Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20102011 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2010.2011.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting during our fourth quarter ended December 31, 2010,2011, or in other factors that could significantly affect these controls, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Attestation Report of our Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.
| Item 9B. Other Information. |
Not applicable.
PART III
| Item 10. Directors and Executive Officers and Corporate Governance. |
Directors
The following table sets forth information regarding the members of the Board, including their business experience for the past five years (and, in some instances, for prior years) and their specific experience, qualifications, attributes or skills that led to the conclusion that they should serves as directors.
| | | Offices and Positions Held With the Company, Business Experience and Principal Occupation for the Last Five Years, and Directorships in Public Corporations and Investment Companies |
Marc Gabelli | 43 | 2004 | Chairman of the Board, The LGL Group, Inc. (September 2004 to present); Managing Director and President, GGCP, Inc. (1999 to present), a private corporation that makes investments for its own account; Managing Member, Commonwealth Management Partners LLC (2008 to present), which is the managing member of Venator Global LLC, which is the general partner of Venator Merchant Fund, LP, an investment management vehicle; Director, IFIT Group, a Zurich based financial services administration firm; and Director and Managing Partner, GAMA Funds Holdings GmbH. Mr. Gabelli’s qualifications to serve include his extensive knowledge of the Company’s business and industry due to his longstanding service on the Board, as well as his financial expertise and leadership experience as an executive of various investment firms. |
James Abel | 66 | 2011 | Interim President and Chief Executive Officer, CPI Corporation (February 2012 to present); Director, CPI Corporation (April 2004 to present), a leader in the portrait photography industry; President and Chief Executive Officer, Financial Executives International (May 2008 to February 2009), an organization representing senior financial executives in dealing with the regulatory agencies involved with corporate financial reporting and internal controls; Chief Financial Officer (December 1990 to December 2007) and Director (December 2002 to December 2007), Lamson & Sessions Co., a diversified manufacturer and distributor of a broad line of thermoplastic electrical, consumer, telecommunications and engineered sewer products for major domestic markets. Mr. Abel shares with the Board his significant financial expertise and experience with manufacturing operations. |
Michael Chiu | 43 | 2010 | Chief Executive Officer, Respirgames, Inc. (November 2011 to present), an early-stage medical device startup; Technology and business consultant (June 2010 to present); President and Chief Technology Officer, Trophos Energy (September 2008 to May 2010), a venture-backed bio-energy company; Business Unit Manager, Teradyne, Inc. (May 2005 to April 2007), a semiconductor automated test equipment supplier; Various roles in marketing, product development and engineering at Teradyne Inc. (1994 to April 2007). Dr. Chiu holds a Ph.D. in engineering and an MBA, both from the Massachusetts Institute of Technology. He brings to the Board his experience in management and operations as well as background in product development, engineering and research. |
| | | Offices and Positions Held With the Company, Business Experience and Principal Occupation For Last Five Years, and Directorships in Public Corporations and Investment Companies |
Marc Gabelli | 43 | 2004 | Chairman of the Board, The LGL Group, Inc. (September 2004 to present); Managing Director and President of GGCP, Inc. (1999 to present), a private corporation that makes investments for its own account; Managing Member of Commonwealth Management Partners LLC (2008 to present), which is the managing member of Venator Global LLC, which is the general partner of Venator Merchant Fund, LP, an investment management vehicle; Director of IFIT Group, a Zurich based financial services administration firm; and Director and Managing Partner of GAMA Funds Holdings GmbH. Mr. Gabelli’s qualifications to serve include his extensive knowledge of the Company’s business and industry due to his longstanding service on the Board, as well as his financial expertise and leadership experience as an executive of various investment firms. |
Timothy Foufas | 42 | 2007 | Vice Chairman of the Board, The LGL Group, Inc. (2009 to present); Director, ICTC Group, Inc. (2010 to present), a rural local exchange carrier headquartered in Nome, ND; Managing Partner, Plato Foufas & Co. LLC (2005 to present), a financial services company; President, Levalon Properties LLC (2007 to present), a real estate property management company; Senior Vice President, Bayshore Management Co. LLC (2005 to 2006); Director of Investments, Liam Ventures Inc. (2000 to 2005), a private equity investment firm. Mr. Foufas brings to the Board his management skills and expertise in financial, investment and real estate matters. |
Patrick J. Guarino | 68 | 2006 | Vice Chairman of the Board, The LGL Group, Inc. (March 2010 to present); Managing Partner of August Properties LLC (2005 to present) a private investment company with real estate and securities holdings; Managing Partner of Independent Board Advisory Services, LLC (2002 to 2005), a corporate governance consulting firm; Retired Executive Vice President, Ultramar Diamond Shamrock Corporation (1996 to 2000), a New York Stock Exchange (“ NYSE”), Fortune 200, international petroleum refining and marketing company; Senior Vice President and General Counsel, Ultramar Corporation (1992 to 1996), a NYSE, Fortune 200, international petroleum and marketing company; Senior Vice President and General Counsel of Ultramar PLC, (1986 to 1992), a London Stock Exchange listed international, integrated oil company. Mr. Guarino brings to the Board valuable knowledge of and fluency with legal and corporate governance matters, and the perspective of a former General Counsel of a public company. |
Michael Chiu | 42 | 2010 | Technology and business consultant (June 2010 to present); President and Chief Technology Officer, Trophos Energy (September 2008 to May 2010), a venture-backed bio-energy company; Business Unit Manager, Teradyne, Inc. (May 2005 to April 2007), a semiconductor automated test equipment supplier; Various roles in marketing, product development and engineering at Teradyne Inc. (1994 to April 2007). Dr. Chiu holds a Ph.D. in engineering and an MBA, both from the Massachusetts Institute of Technology. He brings to the Board his experience in management and operations as well as background in product development, engineering and research. |
Paul Kaminski | 49 | 2010 | Chief Financial Officer, Wellspring Capital Management (December 2010 to present), a private equity firm focused on the middle market; Managing Director and Chief Financial Officer of Bruckmann, Rosser, Sherrill & Co. Management L.P. (December 1995 to present), the management company of a private equity fund based in New York, NY (December 1995 to December 2010); Founding Board Member of the Private Equity CFO Association in New York (2002 to present); Various roles within the transaction advisory services and audit practices, Coopers & Lybrand LLP (August 1984 to December 1995). Mr. Kaminski shares with the Board his significant experience in accounting and is a certified public accountant. |
Hans Wunderl | 59 | 2010 | Senior Vice President and Managing Director, Fico (February 2010 to present), a Dutch company that manufactures infrastructure equipment for the semiconductor industry ; Chief Operating Officer, The LGL Group, Inc. (February 2009 to January 2010); Chief Operating Officer, BE Semiconductor Industries N.V. (January 2004 to January 2008), a manufacturer of back-end microelectronic assembly equipment; Chief Executive Officer of Oerlikon Esec (September 2002 to December 2003), a global supplier of die and wire bonding equipment for the semiconductor industry; President – U.S. Operations, of ASM USA (August 1999 to September 2002), a supplier of semiconductor process equipment. Mr. Wunderl shares with the Board his in-depth knowledge of the industry and experience in high technology development and marketing. |
Robert S. Zuccaro | 53 | 2010 | Executive Vice President and Chief Financial Officer, GAMCO Investors, Inc. (February 2011 to present), a publicly-traded registered investment advisor and broker dealer; Managing Director and Chief Financial Officer, Commonwealth Management Partners LLLP (April 2009 to February 2011), a private investment management company and registered CT investment advisor; Executive Vice President and Chief Accounting Officer, National Financial Partners Corporation (July 2003 to December 2008), an independent financial services distribution company ; Vice President and Chief Financial Officer, GAMCO Investors, Inc., (May 1998 to July 2003); Vice President and Treasurer, Cybex International Inc. (August 1984 to December 1997), an international manufacturer and marketer of medical, rehabilitative and fitness products ; Director of Teton Advisors, Inc. (March 2010 to present), an investment advisor to certain mutual funds ; and Director of ICTC Group, Inc. (2010 to present), a rural local exchange carrier headquartered in Nome, ND. Mr. Zuccaro brings to the Board his significant experience in financial services, publicly-held corporations and manufacturing operations, and is a certified public accountant. |
| | | Offices and Positions Held With the Company, Business Experience and Principal Occupation for the Last Five Years, and Directorships in Public Corporations and Investment Companies |
Vincent Enright | 68 | 2011 | Director and Chairman of the Audit Committee for certain funds managed by Gabelli Funds, LLC (1991 to present), a mutual fund manager; Senior Vice President and Chief Financial Officer, KeySpan Corporation (1994 to 1998), a NYSE public utility company; Director, Echo Therapeutics (2008 to present), a medical devices company; Director, Aphton Corporation (September 2004 to November 2006), a biopharmaceutical company. Mr. Enright brings to the Board his significant financial expertise, including his experiences as a public company Chief Financial Officer and as a director and Chairman of the Audit Committee of various investment funds. |
Timothy Foufas | 43 | 2007 | Managing Partner, Plato Foufas & Co. LLC (2005 to present), a financial services company; President, Levalon Properties LLC (2007 to present), a real estate property management company; Senior Vice President, Bayshore Management Co. LLC (2005 to 2006), a real estate property management company; Director of Investments, Liam Ventures Inc. (2000 to 2005), a private equity investment firm; Director, ICTC Group, Inc. (2010 to present), a rural local exchange carrier headquartered in Nome, ND. Mr. Foufas brings to the Board his management skills and expertise in financial, investment and real estate matters. |
Patrick J. Guarino | 69 | 2006 | Managing Partner, August Properties LLC (2005 to present), a private investment company with real estate and securities holdings; Managing Partner, Independent Board Advisory Services, LLC (2002 to 2005), a corporate governance consulting firm; Retired Executive Vice President, Ultramar Diamond Shamrock Corporation (1996 to 2000), a New York Stock Exchange (“NYSE”), Fortune 200, international petroleum refining and marketing company; Senior Vice President and General Counsel, Ultramar Corporation (1992 to 1996), a NYSE, Fortune 200, international petroleum and marketing company; Senior Vice President and General Counsel, Ultramar PLC (1986 to 1992), a London Stock Exchange listed international, integrated oil company. Mr. Guarino brings to the Board valuable knowledge of and fluency with legal and corporate governance matters, and the perspective of a former General Counsel of a public company. |
Manjit Kalha | 36 | 2011 | Chief Executive Officer and Director, Jeet Associates Private Limited (December 2006 to present), a consulting firm based in New Delhi that provides business strategy, finance, and taxation advisory services; Chief Executive Officer, Horizon AMC (June 2008 to present), a firm that provides investment management and consulting services; Co-founder and Chief Operating Officer, Radiant Polymers Private Limited (2001 to 2006), a manufacturing company of high quality specialty plastic components. Mr. Kalha shares with the Board his experience in management and manufacturing operations, and an extensive knowledge of global financial markets. |
| | | Offices and Positions Held With the Company, Business Experience and Principal Occupation for the Last Five Years, and Directorships in Public Corporations and Investment Companies |
Paul Kaminski | 50 | 2010 | Chief Financial Officer, Wellspring Capital Management (December 2010 to present), the management company of a private equity firm focused on the middle market; Managing Director and Chief Financial Officer, Bruckmann, Rosser, Sherrill & Co. Management L.P. (December 1995 to December 2010), the management company of a private equity fund based in New York; Founding Board Member, the Private Equity CFO Association in New York (2002 to 2011); Various roles within the transaction advisory services and audit practices, Coopers & Lybrand LLP (August 1984 to December 1995), the predecessor to PricewaterhouseCoopers, an international accounting firm. Mr. Kaminski shares with the Board his significant experience in accounting and is a certified public accountant. |
Executive Officers
The following table sets forth information regarding our executive officers, including their business experience for the past five years and prior years.
| | Officers and Positions Held With the Company, Business Experience and Principal Occupation Forfor the Last Five Years |
Gregory P. Anderson | 5152 | President and Chief Executive Officer, The LGL Group, Inc. (July 2009 to present); Vice President of Operations of MtronPTI (December 2000 to June 2009), Chief Executive Officer and Chairman of the Board of Directors of The LGL Group, Inc.’s subsidiary, M-tron Industries, Ltd. (July 2009 to present); President and Chairman of the Board of The LGL Group, Inc.’s subsidiary, Piezo Technology, Inc. (July 2009 to present); and Chairman of the Board of the LGL Group, Inc.’s subsidiary, Piezo Technology India Private Ltd. (July 2009 to present). |
R. LaDuane Clifton | 3839 | Chief Accounting Officer, The LGL Group, Inc. (March 2010 to present); Member of Audit Committee of Community First Credit Union of Florida (September 2008 to July 2010); Corporate Controller of The LGL Group, Inc. (August 2009 to March 2010); Chief Financial Officer of a21, Inc. (August 2008 to August 2009);, a publicly-held holding company with businesses in stock photography and an online retailer and manufacturer of framed art; Corporate Controller of a21, Inc. (March 2007 to August 2008); Auditor at KPMG LLP (August 2004 to March 2007)., an international accounting firm. |
Family Relationships
There are no family relationships among our executive officers and directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires the Company's directors, executive officers and holders of more than 10% of the Company's common stock to file with the SEC and NYSE Amex initial reports of ownership and reports of changes in the ownership of common stock and other equity securities of the Company. Such persons are required to furnish the Company with copies of all Section 16(a) filings.
Based solely upon a review of the copies of the forms furnished to the Company, the Company believes that its directors, officers and holders of more than 10% of the Company'sCompany’s common stock complied with all applicable filing requirements during the 20102011 fiscal year except as set forth below:year.
On April 8, 2010, R. LaDuane Clifton filed an Initial Statement of Beneficial Ownership of Securities on Form 3 in connection with his appointment as the Company’s Chief Accounting Officer on March 24, 2010.
On April 8, 2010, Hans Wunderl filed a Statement of Changes in Beneficial Ownership of Securities on Form 4 covering one transaction that occurred on March 24, 2010.
On April 20, 2010, Mario J. Gabelli filed a Statement of Changes in Beneficial Ownership of Securities on Form 4 covering one transaction that occurred on April 15, 2010.
On December 21, 2010, each of Gregory P. Anderson, R. LaDuane Clifton, Michael Chiu, Timothy Foufas, Paul D. Kaminski, Marc Gabelli, Patrick J. Guarino, Hans Wunderl and Robert S. Zuccaro filed a Statement of Changes in Beneficial Ownership of Securities covering a grant by the Company of shares of its common stock on December 15, 2010.
Code of Ethics
The Company adopted a code of ethics as part of its Business Conduct Policy, which applies to all of its employees, including its principal executive, financial and accounting officers. The Company’s Business Conduct Policy is available at www.lglgroup.com.
Audit Committee
The Audit Committee of the Board (the “Audit Committee”) consists of Messrs. Chiu,Abel, Enright, Foufas, Guarino, Kalha and Kaminski. The Board has determined that all Audit Committee members are financially literate and independent under applicable NYSE Amex listing standards. Mr. Kaminski serves as Chairman of the Audit Committee, and the Board has determined that he qualifies as the Audit Committee financial expert, as defined under the Exchange Act.
| Item 11. Executive Compensation. |
Summary Compensation Table
The following table sets forth information with respect to compensation earned by the named executive officers:
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) |
Gregory P. Anderson(1) Chief Executive Officer | 2010 2009 | 170,000 150,888 | 34,000(2) - | 101,180(3) - | 21,250(4) - | 326,430 150,888 |
R. LaDuane Clifton(5) Chief Accounting Officer | 2010 | 130,575 | 13,100(6) | 52,101(7) | 32,225(8) | 228,001 |
Name and Principal Position | | | | | | | | | | | | | | | All Other Compensation ($) | | | | |
Gregory P. Anderson(2) | 2011 | | | 200,000 | | | | 8,000 | (3) | | | - | | | | 245,944 | (4) | | | 46,877 | (5) | | | 500,821 | |
Chief Executive Officer | 2010 | | | 170,000 | | | | 34,000 | (6) | | | 101,180 | (7) | | | - | | | | 21,250 | (8) | | | 326,430 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
R. LaDuane Clifton(9) | 2011 | | | 150,000 | | | | 6,000 | (10) | | | - | | | | 98,378 | (11) | | | 2,392 | (12) | | | 256,770 | |
Chief Accounting Officer | 2010 | | | 130,575 | | | | 13,100 | (13) | | | 52,101 | (14) | | | - | | | | 32,225 | (15) | | | 228,001 | |
(1) | Reflects the aggregate grant date fair value of stock awards or option awards granted in the applicable year, computed in accordance with Financial Accounting Standard Board Standards Codification Topic 718. For a discussion of the assumptions and methodologies used to calculate these amounts, please see Note E – Stock-Based Compensation in the accompanying Notes to Consolidated Financial Statements. |
(2) | Mr. Anderson has served as the Company’s Chief Executive Officer since July 2, 2009. Previously, he served as the Vice President of Operations of MtronPTI from December 2000 to June 2009. |
(2) (3) | On, December 30, 2011, the Company awarded Mr. Anderson a discretionary cash bonus of $8,000. |
(4) | On March 14, 2011, the Company granted Mr. Anderson a discretionary award of options to purchase a total of 25,000 shares of the Company’s common stock under the 2001 Equity Incentive Plan with a grant date fair value of $245,944. These options have an exercise price of $22.50 and vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date; refer to Notes A and E to the Company’s Financial Statements for valuation assumptions. |
(5) | Mr. Anderson was reimbursed for living expenses incurred in connection with performing his duties at the corporate headquarters in Orlando, FL. This amount also includes a reimbursement for the personal income tax expense arising from these expenses. Mr. Anderson also received a one-time payout of paid time-off (“PTO”) in the amount of $15,384 and a 401(k) Company match of $4,681. |
(6) | On, July 21, 2010, the Company awarded Mr. Anderson a discretionary cash bonus of $34,000. |
(3) (7) | On July 21, 2010, the Company granted Mr. Anderson 3,178 restricted shares of the Company’s common stock under the 2001 Equity Incentive Plan with a grant date fair value of $10.44 per share. These shares vested immediately upon the date of the grant, but are not transferable until the termination of Mr. Anderson’s employment with the Company. On December 15, 2010, the Company granted Mr. Anderson 3,598 restricted shares of the Company’s common stock under the 2001 Equity Incentive Plan with a grant date fair value of $18.90 per share. These shares will vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date.date; refer to Notes A and E to the Company’s Financial Statements for valuation assumptions. |
(4) (8) | Mr. Anderson received a one-time paid time-off (“PTO”) payout of PTO in the amount of $21,250. |
(5) (9) | Mr. Clifton has served as the Company’s Chief Accounting Officer since March 2010. He previously served as the Company’s Corporate Controller from August 2009 to March 2010. |
(6) (10) | On December 30, 2011, the Company awarded Mr. Clifton a discretionary cash bonus of $6,000. |
(11) | On March 14, 2011, the Company granted Mr. Clifton a discretionary award of options to purchase a total of 10,000 shares of the Company’s common stock under the 2001 Equity Incentive Plan with a grant date fair value of $98,378. These stock options have an exercise price of $22.50 and vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date; refer to Notes A and E to the Company’s Financial Statements for valuation assumptions. |
(12) | Mr. Clifton received a one-time payout of PTO in the amount of $6,347 and a 401(k) Company match in the amount of $411. |
(13) | On July 21, 2010, the Company awarded Mr. Clifton a discretionary cash bonus of $13,100. |
(7) (14) | On July 21, 2010, the Company granted Mr. Clifton 1,225 restricted shares of the Company’s common stock under the 2001 Equity Incentive Plan with a grant date fair value of $10.44 per share. These shares vested immediately upon the date of the grant, but are not transferable until the termination of Mr. Clifton’s employment with the Company. On December 15, 2010, the Company granted Mr. Clifton 2,080 restricted shares of the Company’s common stock under the 2001 Equity Incentive Plan with a grant date fair value of $18.90 per share. These shares will vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date.date; refer to Notes A and E to the Company’s Financial Statements for valuation assumptions. |
(8) (15) | Mr. Clifton was reimbursed for costs incurred in connection with relocating to the Company’s headquarters in Orlando, Florida in the amount of $29,706. Mr. Clifton also received a one-time payout of PTO in the amount of $2,519. |
Employment Agreements
Gregory P. Anderson
Effective July 2, 2009, the Company entered into an Employment Agreement with Mr. Anderson (the “Anderson Employment Agreement”). Pursuant to the Anderson Employment Agreement, Mr. Anderson is employedserve as the Company’s President and Chief Executive Officer on an “at will” basisbasis. On November 10, 2011, the Company entered into a new employment agreement with Mr. Anderson (the “Anderson Employment Agreement”), effective as of November 2, 2011, to continue serving as the Company’s President and Chief Executive Officer. Under the Anderson Employment Agreement, Mr. Anderson receives an annual base salary of $170,000. Subject$200,000 and is eligible to receive annual bonuses based upon the achievement of certain management objectives determined by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). The Anderson Employment Agreement expires on November 2, 2013.
Pursuant to the Anderson Employment Agreement, if Mr. Anderson’s employment is terminated by the Company for cause (as defined under the Anderson Employment Agreement) or by Mr. Anderson andother than for good reason (as defined under the Company’s meeting certain performance targets,Anderson Employment Agreement), Mr. Anderson will receive his base salary through the date of termination. If Mr. Anderson’s employment is also eligible for (i) an annual bonusterminated as a result of up to 40%his death or disability, Mr. Anderson or his estate (as applicable) will receive his base salary through the date of termination and any earned but unpaid portion of his annual bonus. If Mr. Anderson’s employment is terminated by the Company for reasons other than those stated above or by Mr. Anderson for good reason, or upon the expiration of the term of the Anderson Employment Agreement, Mr. Anderson will receive his base salary paid 50%through the date of termination and $100,000 in cashseverance payments ($50,000 payable in three equal monthly installments during the first three months after termination and 50% inthe remaining $50,000 payable six months after termination), all of his unvested restricted shares of the Company’s common stock will vest (50% to vest six months after termination and (ii)the remaining 50% to vest one year after termination), and a one-time cash bonus payment in recognitionportion of his performance in 2009, in an amount determinedunvested stock options deemed by the Board. Mr. Anderson did not earnCompensation Committee to have been earned prior to termination will vest (such determination to be made as soon as reasonably practicable after the one-time cash bonus payment for 2009 performance and is no longer eligible to receivethird anniversary of the one-time cash bonus payment for 2009.grant date of any such options).
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding equity awards held by named executive officers as of December 31, 2010:2011:
| | | | | | |
Name | Number of shares or units of stock that have not vested (#) | Grant date value of restricted stock that has not vested ($) | | Number of securities underlying unexercised options (#) exercisable | | | Number of securities underlying unexercised options (#) unexercisable | | | Option exercise price ($) | | | | Number of shares of stock that have not vested (#) | | | Market value of shares of stock that have not vested ($) | |
Gregory P. Anderson | 3,598 | 68,000 | | | 0 | (1) | | | 25,000 | (1) | | | 22.50 | | 3/14/16 | | | 2,519 | (2) | | | 15,825 | |
| | | | | | | | | | | | | | | | | | | | | | |
R. LaDuane Clifton | 2,080 | 39,300 | | | 0 | (3) | | | 10,000 | (3) | | | 22.50 | | 3/14/16 | | | 1,456 | (4) | | | 10,672 | |
| | | | | | | | | | | | | | | | | | | | | | |
(1) | On December 15, 2010,March 14, 2011, the Company granted Mr. Anderson 3,598 restrictedoptions to purchase 25,000 shares of the Company’s common stock as a bonus payment for 2010 under the 2001 Equity Incentive Plan with a grant date fair value of $18.90.$245,944. The shares willoptions vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(2) | On December 15, 2010, the Company granted Mr. Clifton 2,080Anderson 3,598 restricted shares of the Company’s common stock as a bonus payment for 2010 under the 2001 Equity Incentive Plan with a grant date fair value of $18.90.$18.90 per share. These shares willvest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(3) | On March 14, 2011, the Company granted Mr. Clifton options to purchase 10,000 shares of common stock under the 2001 Equity Incentive Plan with a grant date fair value of $98,378. The options vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
(4) | On December 15, 2010, the Company granted Mr. Clifton 2,080 restricted shares of common stock as a bonus payment for 2010 under the 2001 Equity Incentive Plan with a grant date fair value of $18.90 per share. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. |
DIRECTOR COMPENSATIONDirector Compensation
The following table sets forth information with respect to compensation earned by or awarded to each Director of the Company who is not a named executive officer and who served on the Board during the fiscal year ended December 31, 2010:2011:
| | Fees Earned or Paid in Cash ($) | | | | | | | | | | |
Marc Gabelli(2) | | | 116,750 | | | | 10,005 | | | | 245,944 | | | | 372,699 | |
James Abel(3) | | | 18,250 | | | | 10,005 | | | | — | | | | 28,255 | |
Michael Chiu(4) | | | 99,500 | | | | 10,005 | | | | — | | | | 109,505 | |
Vincent Enright(3) | | | 16,750 | | | | 10,005 | | | | — | | | | 26,755 | |
Timothy Foufas | | | 31,000 | | | | 10,005 | | | | — | | | | 41,005 | |
Patrick J. Guarino | | | 31,250 | | | | 10,005 | | | | — | | | | 41,255 | |
Manjit Kalha(3) | | | 16,000 | | | | 10,005 | | | | — | | | | 26,005 | |
Paul Kaminski | | | 19,500 | | | | 10,005 | | | | — | | | | 29,505 | |
Hans Wunderl(5) | | | 10,750 | | | | — | | | | — | | | | 10,750 | |
Robert S. Zuccaro(5) | | | 13,250 | | | | — | | | | — | | | | 13,250 | |
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) |
Marc Gabelli | 1(2) | 9,998 | 9,999 |
Michael Chiu(3) | 9,750 | 9,998 | 19,748 |
Timothy Foufas | 46,250 | 9,998 | 56,248 |
Patrick J. Guarino | 49,750 | 9,998 | 59,748 |
Jeremiah M. Healy(5) | 28,500 | -- | 28,500 |
Paul Kaminski(4) | 11,250 | 19,996 | 31,246 |
Anthony R. Pustorino(5) | 28,750 | -- | 28,750 |
Javier Romero(5) | 18,750 | -- | 18,750 |
Hans Wunderl(6) | 24,250 | 9,998 | 34,248 |
Robert S. Zuccaro(4) | 13,000(7) | 9,998 | 22,998 |
(1) | On December 15, 2010,30, 2011, the Company’s then-current directors received 529grants of 1,365 shares of restricted common stock as 50% of their base compensation for fiscal 20112012 ($10,000), except for Mr. Kaminski, who elected to receive a grant of 1,058 shares of restricted common stock as 100% of his base compensation for fiscal 2011 ($20,000). The number of shares granted to each director was determined by dividing the dollar amount of base compensation paid in the form of the share grant by the closing price of the Company’s common stock on the grant date. Such shares were granted under the 2001 Equity2011 Incentive Plan, vested immediately on the grant date, and are transferable only if a director maintains a minimum ownership level of 1,000 shares of the Company’s common stock. |
(2) Mr. Gabelli elected to reduce his annual fee for service as a director and Chairman of the Board to $1 for 2010.
(2) | (3) | Dr. Chiu wasOn March 14, 2011, the Board granted Mr. Gabelli options to purchase 25,000 shares of common stock under the 2001 Equity Incentive Plan with a grant date fair value of $245,944. The options vest as follows: 30% on the first electedanniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. At December 31, 2011, Mr. Gabelli held options to purchase a total of 25,000 shares of common stock; refer to Notes A and E to the Board on October 28, 2010.Company’s Financial Statements for valuation assumptions. During 2011, Mr. Gabelli received a total of $200,003 in director fees that were earned in 2006, 2007, 2008, 2009 and 2010, but with respect to which payment was deferred at his election. These fees were disclosed as earned and deferred by Mr. Gabelli, and were accrued and expensed by the Company, in the years in which they were earned. These fees are not reflected in the table above. |
| (4)(3) | Messrs. KaminskiAbel, Enright, and ZuccaroKalha were first elected to the Board on October 6, 2010.June 28, 2011. |
(4) | Dr. Chiu served as the Chairman of the Strategic Planning Committee during 2011. This Committee was formed to advise and assist the Company’s management in its pursuit of certain strategic opportunities. |
(5) | Messrs. Healy, PustorinoWunderl and RomeroZuccaro did not stand for re-election to the Board at the 20102011 Annual Meeting held on December 15, 2010.August 4, 2011. |
| (6) | Mr. Wunderl was first elected to the Board on February 1, 2010. |
| (7) | Does not include $4,000 paid by the Company to Commonwealth Management Partners LLLP, of which Mr. Zuccaro was the Managing Director and the Chief Financial Officer, for services provided by Mr. Zuccaro during 2010 prior to his election to the Board in October 2010. |
Director Compensation Arrangements
A director who is an employee of the Company is not compensated for services as a member of the Board or any committee thereof. None of the Company’s directors is an employee of the Company. In 2010,2011, directors who were not employees received (i) a retainer of $5,000 ($2,500 in cash and $2,500 in restricted stock whose value was based on trading price at date of grant) per quarter; (ii) a fee of $1,000 for each meeting of the Board attended in person or telephonically that had a duration of at least one hour; and (iii) a fee of $750 for each Audit Committee, Compensation Committee, and Nominating Committee meeting attended in person or telephonically that had a duration of at least one hour. TheIn addition, the Audit Committee Chairman received an additionala $3,000 annual cash retainer, the Nominating Committee Chairman received an additionala $1,000 annual cash retainer and the Compensation Committee Chairman received an additionala $2,000 annual retainer. The Chairman of the Board was entitled to receivereceived a $100,000 annual fee payable(paid in
equal quarterly installments, but Mr. Gabelli elected to reduce his fees for service as a director and Chairman of the Board to $1 for 2010.
On December 15, 2009, the Company’s then-current directors, except for the Chairman of the Board, received grants of 3,165 shares of restricted common stock as 50% of their base compensation for fiscal 2010 ($10,000)installments), and on March 24, 2010, one newly appointed director received a grant of 2,469 shares of restricted common stock under a similar arrangement, as determined based on the closing price of the Company’s common stock on the grant date. Such shares were granted under the 2001 Equity Incentive Plan, vested ratably at the end of each quarterly period during fiscal 2010, and will not be transferable until the earliest to occur of the director’s resignation from the Board or any other termination of the director’s membership thereon, or a change of control, as defined in the 2001 Equity Incentive Plan.
Arrangements for the compensation for directors has not changed from 2010 to 2011, except that (i) Mr. Gabelli has informed the Company that he does not intend to waive or reduce his $100,000 annual fee for serving as Chairman of the Board, his annual retainer as a director or his fees for attending the Board meetings to be held during 2011, and (ii) Dr. Chiu, as Chairman of the Board’s Strategic Planning Committee, which was formed to advise and assist the Company’s management in its pursuit of certain strategic opportunities through the end of the second quarter of 2011, will receive a fee of $20,000 per quarter for his duties as Chairman of the Strategic Planning Committee.Committee received $68,000 in fees determined by the Audit Committee for work performed during 2011.
On December 15, 2010, the Company’s then-current directors received grants of 529 shares of restricted common stock as 50% of their base compensation for fiscal 2011 ($10,000), except for Mr. Kaminski, who elected to receive a grant of 1,058 shares of restricted common stock as 100% of his base compensation for fiscal 2011 ($20,000). The number of shares granted to each director was determined by dividing the dollar amount of base compensation paid in the form of the share grant by the closing price of the Company’s common stock on the grant date. Such shares were granted under the 2001 Equity Incentive Plan, vested immediately on the grant date, and are transferable only if a director maintains a minimum ownership level of 1,000 shares of the Company’s common stock.
The standard compensation arrangements for our directors have not changed from 2011 to 2012. The Chairman of the Strategic Planning Committee may receive fees at the discretion of the Audit Committee for work performed on behalf of the Strategic Planning Committee, if any, in 2012.
On December 30, 2011, the Company’s then-current directors received grants of 1,365 shares of restricted common stock as 50% of their base compensation for fiscal 2012 ($10,000). The number of shares granted to each director was determined by dividing the dollar amount of base compensation paid in the form of the share grant by the closing price of the Company’s common stock on the grant date. Such shares were granted under the 2011 Incentive Plan, vested immediately on the grant date, and are transferable only if a director maintains a minimum ownership level of 1,000 shares of the Company’s common stock.
| Item 12. | Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The following table sets forth information regarding the number of shares of our common stock beneficially owned on March 23, 2011,27, 2012, by:
·‒ | Each person who is known by us to beneficially own 5% or more of our common stock; |
·‒ | Each of our directors and named executive officers; and |
·‒ | All of our directors and executive officers, as a group. |
Except as otherwise set forth below, the address of each of the persons listed below is: The LGL Group, Inc., 2525 Shader Road, Orlando, FL 32804. Unless otherwise indicated, the common stock beneficially owned by a holder includes shares owned by a spouse, minor children and relatives sharing the same home, as well as entities owned or controlled by the named person, and also includes shares subject to options to purchase our common stock exercisable within 60 days after March 23, 2011.27, 2012. Unless otherwise indicated, the stockholders listed in the table have sole voting and investment power with respect to their shares.
| Common Stock Beneficially Owned(1) | | Common Stock Beneficially Owned(1) | |
Name and Address of Beneficial Owner | | | | | | | | |
5% or Greater Stockholders: | | | | | | | | |
| | | |
Mario J. Gabelli | 344,977(2) | 13.2 | | | 397,917 | (2) | | | 15.3 | |
John V. Winfield | 132,335(3) | 5.1 | | | 132,335 | (3) | | | 5.1 | |
| | | | | | | | | | |
Directors and Named Executive Officers: | | | | | | | | | | |
| | | |
Marc Gabelli | 363,906(4) | 13.9 | | | 372,771 | (4) | | | 14.3 | |
Gregory P. Anderson | 6,776 | * | | | 17,659 | (5) | | | * | |
R. LaDuane Clifton | 3,505 | * | | | 8,206 | (6) | | | * | |
Timothy Foufas | 12,720 | * | |
Patrick J. Guarino | 12.720 | * | |
Michael Chiu | 529 | * | |
Paul D. Kaminski | 1,058 | * | |
Hans Wunderl | 2,998 | * | |
Robert S. Zuccaro | 529 | * | |
| | | |
All executive officers and directors as a group (9 persons) | 402,741 | 15.4 | |
| | | |
James Abel | | | | 1,365 | | | | * | |
Michael Chiu | | | 3,144 | | | | * | |
Vincent Enright | | | 2,365 | | | | * | |
Timothy Foufas | | | 12,085 | | | | * | |
Patrick J. Guarino | | | 14,085 | | | | * | |
Manjit Kalha | | | 1,365 | | | | * | |
Paul D. Kaminski | | | 6,365 | | | | * | |
All executive officers and directors as a group (10 persons) | | | 439,410 | (7) | | | 16.8 | |
| * Less than 1% of outstanding shares. |
(1) | The applicable percentage of ownership for each beneficial owner is based on 2,617,2682,599,866 shares of Common Stockcommon stock outstanding as of March 23, 2011.27, 2012. Shares of Common Stockcommon stock issuable upon exercise of options, warrants or other rights beneficially owned that are exercisable within 60 days are deemed outstanding for the purpose of computing the percentage ownership of the person holding such securities and rights and all executive officers and directors as a group. |
(2) | Includes (i) 238,621238,261 shares of Common Stockcommon stock owned directly by Mario J. Gabelli; (ii) 96,756 shares owned by MJG-IV Limited Partnership, of which Mr. Gabelli is the general partner and has an approximate 5% interest; and (iii) 9,60062,900 shares owned by GGCP, Inc., of which Mr. Gabelli is the chief executive officer.officer, a director and controlling shareholder. Mr. Gabelli disclaims beneficial ownership of the shares owned by MJG-IV Limited Partnership and GGCP, Inc., except to the extent of his pecuniary interest therein. Mr. Gabelli’s business address is 401 Theodore Fremd Avenue, Rye, New York 10580-1430. Based solely on information in a Statement of Changes in Beneficial Ownership on Form 4 filed by Mr. Gabelli with the SEC on October 20, 2010.January 11, 2012. |
(3) | Includes (i) 124,135 shares of Common Stockcommon stock owned directly by Mr. Winfield and (ii) 8,200 shares of Common Stockcommon stock owned by The InterGroup Corporation, of which Mr. Winfield is President, Chief Executive Officer and Chairman of the Board. Mr. Winfield’s business address is 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. Based solely on information contained in a Schedule 13D filed with the SEC on April 30, 2010 by Mr. Winfield and The InterGroup Corporation. |
(4) | Includes (i) 13,00414,369 shares of Common Stockcommon stock owned directly by Marc Gabelli; (ii) 7,500 shares issuable upon the exercise of options held by Mr. Gabelli; and (ii)(iii) 350,902 shares beneficially owned by Venator Merchant Fund, L.P. (“Venator Fund”) and Venator Global, LLC (“Venator Global”). Venator Global, which is the sole general partner of Venator Fund, is deemed to have beneficial ownership of the securities owned beneficially by Venator Fund. Mr. Gabelli is the President and owner of Venator Global. |
(5) | Includes 10,159 shares of common stock and 7,500 shares issuable upon the exercise of options. |
(6) | Includes 5,206 shares of common stock and 3,000 shares issuable upon the exercise of options. |
(7) | Includes 421,410 shares of common stock and 18,000 shares issuable upon the exercise of options. |
Equity Compensation Plan Information
See Part II, Item 4, “Equity Compensation Plan Information,”Information”, for information regarding the Company’s equity compensation plans.
| Item 13. Certain Relationships and Related Transactions, and Director Independence. |
Transactions with Related Persons, Promoters and Certain Control Persons
Since January 1, 2010,2011, there were no transactions that are required to be described under Item 404(a) of Regulation S-K promulgated by the SEC. All transactions between us and any of our officers, directors, director nominees, principal stockholders or their immediate family members are to be approved by the Audit Committee, and are to be on terms no less favorable to us than we could obtain from unaffiliated third parties. Such policy and procedures are set forth in a resolution of the Board.
Director Independence
As required under NYSE Amex rules, a majority of the members of a listed company’s Board of Directors must qualify as “independent,” as affirmatively determined by such Board of Directors. The Board has determined that all of the Company’s directors, other than Messrs.Mr. Gabelli, Wunderl and Zuccaro, are independent within the meaning of NYSE Amex rules.
Limitation of Liability of Officers and Directors and Indemnification
As permitted by Section 102 of the DGCL, our certificate of incorporation eliminates the personal liability of our directors for a breach of their fiduciary duty as a director to the fullest extent possible under Delaware law. Consequently, a Director will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for:
·‒ | Any breach of the Director’s duty of loyalty to us or our stockholders; |
·‒ | Any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
·‒ | Voting or assenting to unlawful stock purchases, redemptions or other distributions or payment of dividends; or |
·‒ | Any transaction from which the Director derived an improper personal benefit. |
These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission.
Our certificate of incorporation also provides that we shall indemnify our officers, directors, employees and other agents to the fullest extent permitted under Section 145 of the DGCL.
As permitted by Section 145 of the DGCL, our by-laws provide that:
·‒ | We shall indemnify our directors, officers, employees and other agents to the fullest extent permitted by the DGCL, subject to limited exceptions; |
·‒ | We may advance expenses to our directors, officers, employees and agents in connection with a legal proceeding upon receipt of an undertaking from such director, officer, employee or agent to repay such amount if it is ultimately determined that they were not entitled to be indemnified by us; |
·‒ | The indemnification and advancement of expenses provided in our by-laws does not limit us from providing any other indemnification or advancement of expenses; and |
·‒ | The indemnification provided in our by-laws is not exclusive of any other rights to which those seeking indemnification may be entitled. |
We have entered, and intend to continue to enter, into separate indemnification agreements with each of our directors and executive officers. These indemnification agreements generally require us, among other things, to indemnify our directors and officers against liabilities, costs and expenses, amounts of judgments, fines, penalties or excise taxes and amounts paid in settlement of or incurred in defense of or otherwise in connection with any proceeding or action that may arise by reason of their status or service as a director or officer to the fullest extent permitted under DGCL. Under these indemnification agreements, however, we are not required to indemnify our directors and officers unless they acted in good faith, reasonably believed their conduct was in, and not opposed, to our best interests, and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. These indemnification agreements also generally require us to advance any expenses incurred by the directors and officers as a result of any proceeding against them as to which they could be indemnified.
At present, there is no pending litigation or proceeding involving any of our Directors, Officers, employees or agents in which indemnification is sought, nor are we aware of any threatened litigation or proceeding that may result in a claim for indemnification.
We have purchased a directors and officers liability insurance policy which provides coverage to the Company and any past, present and future duly elected or appointed director or officer for wrongful acts in managing the operations of the Company. CoverageOur insurance policies include Side A and Side A – DIC coverage, which applies to any actual or alleged act, error, omission, breach of duty or neglect in his/her capacity as a director and/or officer of the Company. A portion of the benefits of these policies adhere to the directors and officers themselves. The purpose of the policy is to protect the personal assets of the directors and officers as well as the assets of the Company from exposure to litigation from creditors, vendors, customers, competitors, regulators, employees and stockholders.
| Item 14. Principal Accountant Fees and Services. |
Fees Billed During Fiscal 20102011 and 20092010
Audit Fees
The aggregate audit fees billed for the fiscal years ended December 31, 2010 and 2009 by J.H. CohnMcGladrey & Pullen, LLP as the Company’s independent registered public accounting firm totaledfor the year ended December 31, 2011, and J.H. Cohn LLP as the Company’s independent registered public accounting firm for the year ended December 31, 2010, were $334,000 and $296,000, and $297,000, respectively. Audit fees include services relating to auditing the Company’s annual financial statements, reviewing the Company’s financial statements included in the Company’s quarterly reports on Form 10-Q, comfort letter procedures related to certain financing arrangements, and the review of registration statements.
Audit-Related Fees
Neither McGladrey & Pullen, LLP, nor J.H. Cohn LLP did not renderrendered any audit-related services during 20102011 or 2009.2010.
Tax Fees
Neither McGladrey & Pullen, LLP, nor J.H. Cohn LLP did not renderrendered any tax services during 20102011 or 2009.2010.
All Other Fees
Neither McGladrey & Pullen, LLP, nor J.H. Cohn LLP did not renderrendered any other services during 20102011 or 2009.2010.
Pre-Approval Policies and Procedures
The Audit Committee policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm are reflected in the Audit Committee Charter. The Audit Committee Charter provides that the Audit Committee shall pre-approve all audit and non-audit services provided by the independent registered public accounting firm and shall not engage the independent registered public accounting firm to perform the specific non-audit services proscribed by law or regulation. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any Audit Committee member to whom pre-approval authority is delegated must be presented to the full Audit Committee at its next scheduled meeting.
If any services other than audit services are rendered by our independent registered public accounting firm, the Audit Committee determines whether such services are compatible with maintaining our independent registered public accounting firm’s independence.
All services performed by our independent registered public accounting firm were pre-approved by the Audit Committee.
PART IV
| Item 15. Exhibits and Financial Statement Schedules |
(a) List of documents filed as part of this report:
1. Financial Statements:
‒ | Report of Independent Registered Public Accounting Firm |
‒ | Consolidated Balance Sheets --— December 31, 20102011 and 20092010 |
‒ | Consolidated Statements of Operations --— Years ended December 31, 20102011 and 20092010 |
‒ | Consolidated Statements of Stockholders’ Equity --— Years ended December 31, 20102011 and 20092010 |
‒ | Consolidated Statements of Cash Flows --— Years ended December 31, 20102011 and 20092010 |
‒ | Notes to Consolidated Financial Statements |
2. Financial Statement Schedules:
None.None
3. Exhibit Index
The following is a list of exhibits filed as part of this Form 10-K:
| |
| |
3.1 | Certificate of Incorporation of The LGL Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2007). |
| |
3.2 | The LGL Group, Inc. By-Laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2007). |
| |
10.1 | The LGL Group, Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 10(b) to the Company’s Annual Report on Form 10-K forfiled with the period ended December 31, 1995)SEC on April 1, 1996). |
| |
10.2 | The LGL Group, Inc. 2001 Equity Incentive Plan adopted December 10, 2001 (incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 Registration Statement filed with the SEC on December 29, 2005. |
| 2005). |
10.3 | Amended and Restated Loan Agreement, dated as of June 30, 2010, by and among M-tron Industries, Inc., Piezo Technology, Inc. and First National Bank of Omaha (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 30, 2010). |
| |
10.4
| First Amendment to Amended and Restated Loan Agreement by and among M-tron Industries, Inc., Piezo Technology, Inc. and First National Bank of Omaha, dated as of June 30, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 5, 2010). |
| |
10.5 | Form of Amended and Restated Term Note made by M-tron Industries, Inc. and Piezo Technology, Inc. for the benefit of First National Bank of Omaha (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 16, 2009). |
| |
10.6 | Form of First Amended and Restated Revolving Note made by M-tron Industries, Inc. and Piezo Technology, Inc. for the benefit of First National Bank of Omaha (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 5, 2010). |
| |
10.7 | Unconditional Guaranty, dated as of August 18, 2009, made by The LGL Group, Inc. for the benefit of First National Bank of Omaha (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated August 25, 2009). |
| |
10.8 | EmploymentRestricted Stock Agreement dated as of June 29, 2009,(2001 Equity Incentive Plan) by and between The LGL Group, Inc. and Greg Andersoneach of its directors (incorporated herein by reference to Exhibit 10.110.10 to the Company’s CurrentAnnual Report on Form 8-K10-K filed with the SEC on July 8, 2009)March 24, 2011). |
10.4 | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its executive officers (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2011). |
10.910.5 | The LGL Group, Inc. 2011 Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 30, 2011). |
| |
10.6 | Form of Stock Option Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 30, 2011). |
10.7 | Form of Restricted Stock Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 30, 2011). |
10.8 | Form of Indemnification Agreement by and between The LGL Group, Inc. and its executive officers and directors.*directors (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2011). |
10.9 | |
10.10 | FormEmployment Agreement, dated as of Restricted Stock AgreementNovember 10, 2011, by and between The LGL Group, Inc. and each of its directors.*Gregory P. Anderson (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2011). |
10.10 | Master Loan Agreement, dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and J.P. Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2011). |
10.11 | FormRevolving Promissory Note (Revolving Line), dated as of Restricted Stock AgreementJune 30, 2011, by and between The LGL Group,among M-tron Industries, Inc., Piezo Technology, Inc. and each of its executive officers.*J.P. Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2011). |
10.12 | Revolving Promissory Note (Line of Credit), dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and J.P. Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2011). |
10.13 | Promissory Note (Term Loan), dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and J.P. Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2011). |
21.1 | Subsidiaries of The LGL Group, Inc.* |
23.1 | Consent of Independent Registered Public Accounting Firm – McGladrey & Pullen, LLP.* |
23.123.2 | Consent of Independent Registered Public Accounting Firm – J.H. Cohn LLP.* |
| |
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| |
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| |
32.1 | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| |
32.2 | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| |
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** |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed herewithas part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
The exhibits listed above have been filed separately with the Securities and Exchange CommissionSEC in conjunction with this Annual Report on Form 10-K or have been incorporated by reference into this Annual Report on Form 10-K. Upon request, the Company will furnish to each of its stockholders a copy of any such exhibit. Requests should be addressed to the Office of the Secretary, The LGL Group, Inc., 2525 Shader Rd. Orlando, Florida, 32804.
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.
| | THE LGL GROUP, INC. |
| | |
| | |
March 23, 201130, 2012 | | By: | |
| | | Gregory P. Anderson |
| | | President and Chief Executive Officer (Principal Executive Officer) |
| | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| | |
| | |
| President and Chief Executive Officer | March 23, 201130, 2012 |
GREGORY P. ANDERSON | (Principal Executive Officer) | |
| Chief Accounting Officer | 30, 2012 |
R. LADUANE CLIFTON | (Principal Financial and Accounting Officer) | |
| Chairman of the Board of Directors | 30, 2012 |
MARC J. GABELLI | (Non-Executive) | |
/s/ Timothy FoufasJames Abel | Director | March 30, 2012 |
JAMES ABEL | | |
| Director | March 23, 201130, 2012 |
MICHAEL CHIU | | |
| Director | March 30, 2012 |
VINCENT ENRIGHT | | |
| Director | March 30, 2012 |
TIMOTHY FOUFAS | | |
| Director | 30, 2012 |
PATRICK J. GUARINO | | |
/s/ Michael ChiuManjit Kalha | Director | 30, 2012 |
MICHAEL CHIUMANJIT KALHA | | |
| Director | 30, 2012 |
PAUL KAMINSKI | | |
/s/ Hans Wunderl
| Director | |
HANS WUNDERL | | |
/s/ Robert S. Zuccaro
| Director | March 23, 2011 |
ROBERT S. ZUCCARO | | |
| | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
To the Board of Directors and Stockholders
The LGL Group, Inc.
We have audited the accompanying consolidated balance sheet of The LGL Group, Inc. and Subsidiaries as of December 31, 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The LGL Group, Inc. and Subsidiaries as of December 31, 2011, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Orlando, Florida
March 30, 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
The LGL Group, Inc.
We have audited the accompanying consolidated balance sheets of The LGL Group, Inc. and Subsidiaries as of December 31, 2010, and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the yearsyear then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.audit.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The LGL Group, Inc. and Subsidiaries as of December 31, 2010, and 2009, and their results of operations and cash flows for the yearsyear then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ J.H. Cohn LLP
Roseland, New Jersey
March 23, 2011
THE LGL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
| | | | | |
ASSETS | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | |
Cash and cash equivalents (Note A) | | $ | 4,147 | | | $ | 3,816 | | $ | 13,709 | | | $ | 4,147 | |
Accounts receivable, less allowances of $161 and $259, respectively (Note A) | | | 5,782 | | | | 4,779 | |
Inventories (Note B) | | | 5,947 | | | | 5,348 | |
Accounts receivable, less allowances of $131 and $161, respectively (Note A) | | | | 4,309 | | | | 5,782 | |
Inventories, net (Notes A and B) | | | | 5,676 | | | | 5,947 | |
Deferred income taxes (Notes A and F) | | | 1,295 | | | | -- | | | 960 | | | | 1,295 | |
Prepaid expenses and other current assets | | | 317 | | | | 412 | | | 292 | | | | 317 | |
Total Current Assets | | | 17,488 | | | | 14,355 | | | 24,946 | | | | 17,488 | |
Property, Plant and Equipment (Note A) | | | | | | | | | | | | | | | |
Land | | | 668 | | | | 670 | | | 640 | | | | 668 | |
Buildings and improvements | | | 5,000 | | | | 4,856 | | | 3,620 | | | | 5,000 | |
Machinery and equipment | | | 13,918 | | | | 13,312 | | | 15,001 | | | | 13,918 | |
Gross property, plant and equipment | | | 19,586 | | | | 18,838 | | | 19,261 | | | | 19,586 | |
Less: accumulated depreciation | | | (15,758 | ) | | | (15,113) | | | (14,731 | ) | | | (15,758 | ) |
Net property, plant, and equipment | | | 3,828 | | | | 3,725 | | | 4,530 | | | | 3,828 | |
Deferred income taxes, net (Notes A and F) | | | 2,055 | | | | 111 | | | 2,385 | | | | 2,055 | |
Other assets, net | | | 354 | | | | 377 | | | 560 | | | | 354 | |
Total Assets | | $ | 23,725 | | | $ | 18,568 | | $ | 32,421 | | | $ | 23,725 | |
| | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | | | | |
Note payable to bank (Note C) | | $ | -- | | | $ | 1,696 | | $ | 3,026 | | | $ | — | |
Accounts payable | | | 2,033 | | | | 2,333 | | | 1,755 | | | | 2,033 | |
Accrued compensation and commissions expense | | | 1,302 | | | | 1,220 | | | 1,102 | | | | 1,302 | |
Other accrued expenses | | | 1,025 | | | | 1,020 | | | 545 | | | | 1,025 | |
Current maturities of long-term debt (Note C) | | | 299 | | | | 2,620 | | | 400 | | | | 299 | |
Total Current Liabilities | | | 4,659 | | | | 8,889 | | | 6,828 | | | | 4,659 | |
Long-term debt (Note C) | | | 370 | | | | 669 | |
Long-term debt, net of current portion (Note C) | | | | — | | | | 370 | |
Total Liabilities | | | 5,029 | | | | 9,558 | | | 6,828 | | | | 5,029 | |
| | | | | | | | |
Commitments and Contingencies | | | | | | | | |
| | | | | | | | |
Stockholders' Equity | | | | | | | | |
Common stock, $0.01 par value - 10,000,000 shares authorized; 2,267,260 and 2,227,684 shares issued and outstanding for 2010 and 2009, respectively | | | 22 | | | | 22 | |
Commitments and Contingencies (Notes C and K) | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | |
Common stock, $0.01 par value - 10,000,000 shares authorized; 2,628,188 shares issued and 2,592,734 shares outstanding at December 31, 2011, and 2,267,260 shares issued and outstanding at December 31, 2010 | | | | 26 | | | | 22 | |
Additional paid-in capital | | | 20,893 | | | | 20,708 | | | 27,656 | | | | 20,893 | |
Accumulated deficit | | | (2,181 | ) | | | (11,604) | | | (1,799 | ) | | | (2,181 | ) |
Accumulated other comprehensive loss (Note G) | | | (38 | ) | | | (116) | |
Treasury stock | | | | (315 | ) | | | — | |
Accumulated other comprehensive income (loss) (Note G) | | | | 25 | | | | (38 | ) |
Total Stockholders' Equity | | | 18,696 | | | | 9,010 | | | 25,593 | | | | 18,696 | |
Total Liabilities and Stockholders' Equity | | $ | 23,725 | | | $ | 18,568 | | $ | 32,421 | | | $ | 23,725 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except Per Share Amounts)
| | | | | |
| | | | | | | | | | | |
REVENUES | | $ | 46,656 | | | $ | 31,301 | | $ | 35,682 | | | $ | 46,656 | |
Costs and expenses: | | | | | | | | | | | | | | | |
Manufacturing cost of sales | | | 30,306 | | | | 23,876 | | | 24,918 | | | | 30,306 | |
Engineering, selling and administrative | | | 9,571 | | | | 9,344 | | | 10,090 | | | | 9,571 | |
Impairment loss on Lynch Systems’ assets | | | 20 | | | | 235 | | | — | | | | 20 | |
OPERATING INCOME (LOSS) | | | 6,759 | | | | (2,154) | |
OPERATING INCOME | | | | 674 | | | | 6,759 | |
Other income (expense): | | | | | | | | | | | | | | | |
Interest expense | | | (304 | ) | | | (405) | | | (109 | ) | | | (304 | ) |
Other income, net | | | 23 | | | | 56 | | | 2 | | | | 23 | |
Total Other Income (Expense) | | | (281 | ) | | | (349) | | | (107 | ) | | | (281 | ) |
INCOME (LOSS) BEFORE INCOME TAXES �� | | | 6,478 | | | | (2,503) | |
Income tax benefit (provision) (Note F) | | | 2,945 | | | | (19) | |
INCOME BEFORE INCOME TAXES | | | | 567 | | | | 6,478 | |
Income tax (provision) benefit (Note F) | | | | (185 | ) | | | 2,945 | |
| | | | | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 9,423 | | | $ | (2,522) | |
NET INCOME | | | $ | 382 | | | $ | 9,423 | |
| | | | | | | | | | | | | | | |
Weighted average number of shares used in basic and diluted EPS calculation | | | 2,248,180 | | | | 2,200,010 | | | 2,572,825 | | | | 2,248,180 | |
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE (Note A) | | $ | 4.19 | | | $ | (1.15) | |
BASIC AND DILUTED NET INCOME PER COMMON SHARE (Note A) | | | $ | 0.15 | | | $ | 4.19 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars In Thousands)
| | Shares of Common Stock Outstanding | | | | | | Additional Paid-In Capital | | | | | | Accumulated Other Comprehensive Loss | | | | | | |
Balance at December 31, 2008 | | | 2,183,236 | | | $ | 22 | | | $ | 20,728 | | | $ | (9,082 | ) | | $ | (235 | ) | | $ | (101 | ) | | $ | 11,332 |
Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for year | | | -- | | | | -- | | | | -- | | | | (2,522 | ) | | | -- | | | | -- | | | | (2,522) |
Other comprehensive loss | | | -- | | | | -- | | | | -- | | | | -- | | | | 119 | | | | -- | | | | 119 |
Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | (2,403) |
Stock-based compensation | | | 39,174 | | | | -- | | | | 81 | | | | -- | | | | -- | | | | -- | | | | 81 |
Issuance of treasury shares for vested restricted stock | | | 5,274 | | | | -- | | | | (101 | ) | | | -- | | | | -- | | | | 101 | | | | -- |
Balance at December 31, 2009 | | | 2,227,684 | | | | 22 | | | | 20,708 | | | | (11,604 | ) | | | (116 | ) | | | -- | | | | 9,010 |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income for year | | | -- | | | | -- | | | | -- | | | | 9,423 | | | | -- | | | | -- | | | | 9,423 |
Other comprehensive income | | | -- | | | | -- | | | | -- | | | | -- | | | | 78 | | | | -- | | | | 78 |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,501 |
Stock-based compensation | | | 39,576 | | | | -- | | | | 185 | | | | -- | | | | -- | | | | -- | | | | 185 |
Balance at December 31, 2010 | | | 2,267,260 | | | $ | 22 | | | $ | 20,893 | | | $ | (2,181 | ) | | $ | (38 | ) | | $ | -- | | | $ | 18,696 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares of Common Stock Outstanding | | | | | | Additional Paid-In Capital | | | | | | Accumulated Other Comprehensive (Loss) Income | | | | | | | |
Balance at December 31, 2009 | | | 2,227,684 | | | $ | 22 | | | $ | 20,708 | | | $ | (11,604 | ) | | $ | (116 | ) | | $ | — | | | $ | 9,010 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | 9,423 | | | | — | | | | — | | | | 9,423 | |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 78 | | | | — | | | | 78 | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,501 | |
Stock-based compensation | | | 39,576 | | | | — | | | | 185 | | | | — | | | | — | | | | — | | | | 185 | |
Balance at December 31, 2010 | | | 2,267,260 | | | | 22 | | | | 20,893 | | | | (2,181 | ) | | | (38 | ) | | | — | | | | 18,696 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | — | | | | 382 | | | | — | | | | — | | | | 382 | |
Other comprehensive income | | | — | | | | — | | | | — | | | | — | | | | 63 | | | | — | | | | 63 | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 445 | |
Stock-based compensation | | | 10,928 | | | | — | | | | 363 | | | | — | | | | — | | | | — | | | | 363 | |
Issuance of new shares for capital offering, net of related expenses | | | 350,000 | | | | 4 | | | | 6,400 | | | | — | | | | — | | | | — | | | | 6,404 | |
Purchase of common stock for treasury | | | (35,454 | ) | | | — | | | | — | | | | — | | | | — | | | | (315 | ) | | | (315 | ) |
Balance at December 31, 2011 | | | 2,592,734 | | | $ | 26 | | | $ | 27,656 | | | $ | (1,799 | ) | | $ | 25 | | | $ | (315 | ) | | $ | 25,593 | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
| | |
| | | | | |
OPERATING ACTIVITIES | | | | | |
Net income (loss) | | $ | 9,423 | | | $ | (2,522) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Impairment loss on Lynch Systems’ assets | | | 20 | | | | 235 |
Depreciation | | | 645 | | | | 878 |
Amortization of finite-lived intangible assets and other assets | | | 112 | | | | 60 |
Stock-based compensation | | | 185 | | | | 81 |
Deferred income tax benefit | | | (3,276 | ) | | | -- |
Changes in operating assets and liabilities: | | | | | | | |
Decrease (increase) in accounts receivable, net | | | (1,003 | ) | | | 1,704 |
Decrease (increase) in inventories | | | (599 | ) | | | 60 |
Decrease (increase) in other current assets | | | 102 | | | | (149) |
Increase (decrease) in trade accounts payable, accrued compensation and commissions expense and other accrued liabilities | | | (106 | ) | | | 290 |
Net cash provided by operating activities | | | 5,503 | | | | 637 |
| | | | | | | |
INVESTING ACTIVITIES | | | | | | | |
Capital expenditures | | | (767 | ) | | | (325) |
Net cash used in investing activities | | | (767 | ) | | | (325) |
| | | | | | | |
FINANCING ACTIVITIES | | | | | | | |
Net repayments on note payable to bank | | | (1,696 | ) | | | (1,053) |
Deferred costs related to stock issuance | | | (89 | ) | | | -- |
Repayments of long-term debt | | | (2,620 | ) | | | (768) |
Net cash used in financing activities | | | (4,405 | ) | | | (1,821) |
| | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 331 | | | | (1,509) |
Cash and cash equivalents at beginning of year | | | 3,816 | | | | 5,325 |
Cash and cash equivalents at end of year | | $ | 4,147 | | | $ | 3,816 |
| | | Years Ended December 31, | |
| | | | | | | |
OPERATING ACTIVITIES | | | | | | | |
Net income | | | $ | 382 | | | $ | 9,423 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
Impairment loss on Lynch Systems’ assets | | | | — | | | | 20 | |
Depreciation | | | | 699 | | | | 645 | |
Amortization of finite-lived intangible assets | | | | 144 | | | | 112 | |
Gain on disposal of Lynch property | | | | (6 | ) | | | — | |
Stock-based compensation | | | | 363 | | | | 185 | |
Deferred income tax provision (benefit) | | | | 5 | | | | (3,276 | ) |
Changes in operating assets and liabilities: | | | | | | | | | |
Decrease (increase) in accounts receivable, net | | | | 1,473 | | | | (1,003 | ) |
Decrease (increase) in inventories, net | | | | 271 | | | | (599 | ) |
(Increase) decrease in other assets | | | | (115 | ) | | | 102 | |
(Decrease) in trade accounts payable, accrued compensation and commissions expense and other accrued liabilities | | | | (895 | ) | | | (106 | ) |
Net cash provided by operating activities | | | | 2,321 | | | | 5,503 | |
| | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | |
Capital expenditures | | | | (1,694 | ) | | | (767 | ) |
Net cash used in investing activities | | | | (1,694 | ) | | | (767 | ) |
| | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | |
Net borrowings (repayments) on note payable to bank | | | | 3,026 | | | | (1,696 | ) |
Proceeds from issuance of common stock | | | | 6,562 | | | | — | |
Payment of expenses related to the public offering | | | | (69 | ) | | | — | |
Deferred costs related to stock issuance | | | | — | | | | (89 | ) |
Purchase of treasury stock | | | | (315 | ) | | | — | |
Proceeds from long-term debt | | | | 548 | | | | — | |
Repayments of long-term debt | | | | (817 | ) | | | (2,620 | ) |
Net cash provided by (used in) financing activities | | | | 8,935 | | | | (4,405 | ) |
| | | | | | | | | |
Increase in cash and cash equivalents | | | | 9,562 | | | | 331 | |
Cash and cash equivalents at beginning of year | | | | 4,147 | | | | 3,816 | |
Cash and cash equivalents at end of year | | | $ | 13,709 | | | $ | 4,147 | |
| | | | | | | | | |
Supplemental Disclosure: | | | | | | | | | | | | | |
Cash paid for interest | | $ | 318 | | | $ | 399 | | $ | 91 | | | $ | 318 | |
Cash paid for income taxes | | $ | 78 | | | $ | 22 | | $ | 433 | | | $ | 78 | |
Non-cash Financing Activity: | | | | | | | | |
Issuance of treasury shares for vested restricted stock | | $ | -- | | | $ | 101 | |
Non-cash Investing Activity: | | | | | | | | | |
Note receivable obtained in sale of property by Lynch Systems, net of costs | | | $ | 299 | | | $ | — | |
See Accompanying Notes to Consolidated Financial Statements.
THE LGL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Accounting and Reporting Policies
OrganizationOrganization
The LGL Group, Inc., formerly Lynch Corporation, incorporated in 1928 under the laws of the State of Indiana and reincorporated under the laws of the State of Delaware in 2007, is a holding company with subsidiaries engaged in manufacturing custom-designed highly engineered electronic components. Information on the operations for its single segment and by geographic area of The LGL Group, Inc. and Subsidiaries (“the Company”(the “Company”) is included in Note K --L — “Segment Information.”
As of December 31, 2010,2011, the Subsidiariessubsidiaries of the Company are as follows:
| | Owned By The LGL Group, Inc. | |
M-tron Industries, Inc. | | | 100.0%100.0 | % |
M-tron Industries, Ltd. | | | 100.0%99.9 | % |
Piezo Technology, Inc. | | | 100.0%100.0 | % |
Piezo Technology India Private Ltd. | | | 99.9%99.0 | % |
Lynch Systems, Inc. | | | 100.0%100.0 | % |
The Company operates through its principal subsidiary, M-tron Industries, Inc., which includes the operations of M-tron Industries, Ltd. (“Mtron”) and Piezo Technology, Inc. (“PTI”). The combined operations of Mtron and PTI are referred to herein as “MtronPTI.” MtronPTI has operations in Orlando, Florida, Yankton, South Dakota and Noida, India. In addition, MtronPTI has sales offices in Hong Kong and Shanghai, China. During 2007, the Company sold the operating assets of Lynch Systems, Inc. (“Lynch Systems”), a subsidiary of the Company, to an unrelated third party.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and entities in which it has majority voting control. All inter-company transactions and accounts have been eliminated in consolidation.
Uses of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly-liquid investments with a maturity of less than three months when purchased.
Fair Value Measurements
Effective January 1, 2008, the Company adopted Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a framework for measuring fair value within generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 identifies three primary valuation techniques: the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts such as cash flows or earnings, to a single present amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.
ASC 820 establishes a fair value hierarchy and prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required. Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the Company’s own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.
The Company measures financial assets and liabilities at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC 820”). These measurements involve various valuation techniques and assume that the transactions would occur between market participants in the most advantageous market for the Company. The following is a summary of valuation techniques utilized by the Company for its significant financial assets and liabilities:
Liabilities
To estimate the fair value of the swap liability on hedge contracts as of the measurement date, the Company obtains inputs other than quoted prices that are observable for the liability. Liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2010 and 2009.
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | |
Swap liability on hedge contract | | $ | -- | | | $ | 21 | | | $ | -- | | | $ | 21 |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | |
Swap liability on hedge contracts | | $ | -- | | | $ | 129 | | | $ | -- | | | $ | 129 |
Accounts Receivable
Accounts receivable on a consolidated basis consist principally of amounts due from both domestic and foreign customers. Credit is extended based on an evaluation of the customer’s financial condition and collateral is not generally required. In relation to export sales, the Company requires letters of credit supporting a significant portion of the sales price prior to production to limit exposure to credit risk. Certain credit sales are made to industries that are
subject to cyclical economic changes. The Company maintains an allowance for doubtful accounts at a level that management believes is sufficient to cover potential credit losses.
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimates are based on historical collection experience, current trends, credit policy and relationship between accounts receivable and revenues. In determining these estimates, the Company examines historical write-offs of its receivables and reviews each client’s account to identify any specific customer collection issues. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payment, additional allowances might be required. The Company’s failure to estimate accurately estimate the losses for doubtful accounts and ensure that payments are received on a timely basis could have a material adverse effect on its business, financial condition and results of operations.
Property, Plant and Equipment, Net
Property, plant and equipment areis recorded at cost less accumulated depreciation and includeincludes expenditures for additions and major improvements. Maintenance and repairs are charged to operations as incurred. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range from 5 years to 35 years for buildings and improvements, and from 3 to 10 years for other fixed assets. Property, plant, and equipment are periodically reviewed for indicators of impairment. If any such indicators were noted, the Company would assess the appropriateness of the assets’ carrying value and record any impairment at that time.
Depreciation expense from operations was approximately $699,000 for 2011 and $645,000 for 20102010.
On July 28, 2011, the Company sold certain real property located in Bainbridge, Georgia for $322,610, paid in the form of a promissory note, dated August 1, 2011, in the principal amount of $322,610, bearing interest at a rate of 7% per annum, with all interest and $878,000 for 2009.principal due and payable on August 1, 2013. The real property was formerly used in connection with the operations of Lynch Systems, a subsidiary of the Company whose operating assets were sold in 2007. The promissory note is secured by the real property sold, and if any portion of such real property is re-sold prior to the note’s maturity (any such re-sale subject to the Company’s written consent), the Company will recoup 85% of the net proceeds from such re-sale transaction, up to the principal amount of the note and all accrued interest thereon. The note receivable is carried at its estimated net realizable value.
Inventories
Inventories are stated at the lower of cost or market value using the FIFO (first-in, first-out) method.
The Company maintains a reserve for inventory based on estimated losses that result from inventory that becomes obsolete or for which the Company has excess inventory levels as of period end. In determining these estimates, the Company performs an analysis on demand and usage for each inventory item over historical time periods. Based on that analysis, the Company reserves a percentage of the inventory amount within each time period based on historical demand and usage patterns of specific items in inventory.
Warranties
The Company offers a standard one-year warranty. The Company tests its products prior to shipment in order to ensure that they meet each customer’s requirements based upon specifications received from each customer at the time its order is received and accepted. The Company’s customers may request to return products for various reasons, including but not limited to the customers’ belief that the products are not performing to specification. The Company’s return policy states that it will accept product returns only with prior authorization and if the product does not meet customer specifications, in which case the product would be replaced or repaired. To accommodate the Company’s customers, each request for return is reviewed, and if and when it is approved, a return materials authorization (“RMA”) is issued to the customer. Each month the Company records a specific warranty reserve for approved RMAs covering products that have not yet been returned. The Company does not maintain a general
warranty reserve because, historically, valid warranty returns resulting from a product not meeting specifications or being non-functional have been immaterial.
Intangible Assets
Intangible assets are included in “other assets” and are recorded at cost less accumulated amortization. Amortization is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, which range up to 10 years. The intangible assets consist principally of customer relationships.relationships and goodwill. The net carrying valuesvalue of thesethe amortizable intangible assets are $265,000was $156,000 and $377,000$225,000 as of December 31, 2011 and 2010, respectively. Goodwill, which is not amortizable, was $40,000 as of December 31, 2011 and 2009, respectively.2010.
The estimated aggregate amortization expense for intangible assets, excluding goodwill, for each of the five succeedingremaining years of the estimated useful life is as follows (in thousands):
2011 | | $ | 60 | |
2012 | | | 60 | | $ | 60 | |
2013 | | | 60 | | | 58 | |
2014 | | | 38 | | | 38 | |
2015 | | | 7 | |
Total | | $ | 225 | | $ | 156 | |
Revenue Recognition
Revenues are recognizedThe Company recognizes revenue from the sale of its product in accordance with the criteria in Accounting Standards Codification (“ASC”) 605, Revenue Recognition, which are:
‒ | persuasive evidence that an arrangement exists; |
‒ | the seller’s price to the buyer is fixed and determinable; and |
‒ | collectability is reasonably assured. |
The Company meets these conditions upon shipment because title and risk of loss passes to the customer at whichthat time. However, the Company offers a limited right of return and/or authorized price protection provisions in its agreements with certain electronic component distributors who resell the Company’s products to original equipment manufacturers or electronic manufacturing services companies. As a result, the Company estimates and records a reserve for future returns and other charges against revenue at the time title passes. of shipment consistent with the terms of sale. The reserve is estimated based on historical experience with each respective distributor.
The Company recognizes revenue related to transactions with a right of return and/or authorized price protection provisions when the following conditions are met:
‒ | seller’s price to the buyer is fixed or determinable at the date of sale; |
‒ | buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product; |
‒ | buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product; |
‒ | buyer acquiring the product for resale has economic substance apart from that provided by the seller; |
‒ | seller does not have obligations for future performance; and |
‒ | the amount of future returns can be reasonably estimated. |
Shipping Costs
Amounts billed to customers related to shipping and handling are classified as revenue, and the Company’s shipping and handling costs are included in manufacturing cost of sales. The Company believes that recognizing revenue at time of shipment is appropriate because the Company’s sales policies meet the criteria in ASC Topic 605, which are: (i) persuasive evidence that an arrangement exists, (ii) delivery has occurred, (iii) the seller’s price to the buyer is fixed and determinable, and (iv) collectibility is reasonably assured.
Research and Development Costs
Research and development costs are charged to operations as incurred. Such costs were $1,878,000 in 2011 compared with $1,636,000 in 2010, compared with $2,149,000 in 2009, and are included within engineering, selling and administrative expenses.
Advertising Expense
Advertising costs are charged to operations as incurred. Such costs were $99,000 in 2011, compared with $23,000 in 2010, compared with $34,000 in 2009.2010.
Stock-Based Compensation
The Company adopted the provisions of ASC Topic 718, Share-Based Payment (“ASC 718”), beginning January 1, 2006, using the modified prospective transition method. ASC 718 requires the Company to measuremeasures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognizerecognizes the cost over the requisite service period. Underperiod, typically the modified prospective transition method, financial statements for periods prior to the date of adoption are not adjusted for the change in accounting. However, compensation expense is recognized for (a) all share-based payments granted after the effective date under ASC 718, and (b) all awards granted under ASC 718 to employees prior to the effective date that remain unvested on the effective date. The Company recognizes compensation expense on fixed awards with pro rata vesting on a straight-line basis over the service period.
On December 17, 2008,The Company estimates the Boardfair value of Directors granted restricted shares to eight of its members at 5,555 shares each. All of these shares vested ratably over 2009 at the end of each respective quarter. Compensation expense of $80,000 was recognized during 2009.
On December 15, 2009, the Board of Directors granted restricted shares to eight of its members at 3,165 shares each. On March 24, 2010, the Board of Directors granted 2,469 restricted shares to one newly appointed director. All of these shares vested ratably over 2010 at the end of each respective quarter. Compensation expense of $60,000 was recognized during 2010.
On July 21, 2010, the Board of Directors granted a total of 4,403 shares restricted common stock to members of senior management. All of these shares vested immediately upon the date of grant, but are not transferable until the termination of the holder’s employment with the Company. Compensation expense of $45,000 was recognized during 2010.
On December 15, 2010, the Board of Directors granted restricted shares to seven of its members at 529 shares each as a portion of their base director compensation for fiscal 2011, and granted 1,058 restricted shares to one of its members because he elected to receive all of his base director compensation for fiscal 2011 in the form of restricted shares. These shares vested immediatelyoptions on the grant date using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the entire expense amount of $80,000calculated values. There is no expected dividend rate. Historical Company information was recognized in 2010.
Also on December 15, 2010, the Board of Directors granted restricted shares to fourteen employeesbasis for the expected volatility assumption as the Company believes that the historical volatility over the life of the Company. These shares vest as follows: 30%option is indicative of expected volatility in the future. The risk-free interest rate is based on the first anniversaryU.S. Treasury zero-coupon rates with a remaining term equal to the expected term of the option. The Company also estimates forfeitures at the time of grant date; an additional 30 %and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on the second anniversarypast history of the grant date; and the remaining 40% on the third anniversary of the grant date. The unrecognized amount of restricted shares granted but not vested was $239,000 as of December 31, 2010.
The following table summarizes information about restricted stock grants outstanding and exercisable at December 31, 2010 and 2009 as well as activity during the years then ended:
| | | | | Weighted Average Grant Date Fair Value per Share | | | Weighted Average Years Remaining |
Outstanding non vested at December 31, 2008 | | | 44,440 | | | $ | 1.80 | | | | 1.0 |
Granted during 2009 | | | 25,320 | | | | 3.16 | | | | 1.0 |
Vested during 2009 | | | (44,448 | ) | | | 3.00 | | | | -- |
Forfeited or expired during 2009 | | | (9,495 | ) | | | -- | | | | -- |
Outstanding non vested at December 31, 2009 | | | 15,817 | | | | 3.16 | | | | 1.0 |
Granted during 2010 | | | 23,759 | | | | 15.79 | | | | 3.0 |
Vested during 2010 | | | (26,929 | ) | | | 14.30 | | | | -- |
Forfeited or expired during 2010 | | | -- | | | | -- | | | | -- |
Outstanding non vested at December 31, 2010 | | | 12,647 | | | $ | 18.90 | | | | 3.0 |
actual performance, a zero forfeiture rate has been assumed.
Restricted stock awards are granted at a value equal to the market price of our common stock on the date of the grant.
Earnings (Loss) Per Share
The Company computes earnings (loss) per share in accordance with ASC 260, Earnings Per Share.Share (“ASC 260”). Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share adjusts basic earnings per share for the effects of stock options, restricted stock, and other potentially dilutive financial instruments, only in the periods in which the effects are dilutive. Shares of restricted stock granted to members of the Board of Directors (the “Board”) as a portion of their director fees are deemed to be participating as defined by ASC 260 and therefore are included in the computation of basic earnings per share.
The following securities have beenFor the year ended December 31, 2011, there were options to purchase 90,000 shares of common stock that were excluded from the diluted earnings (loss) per share computation because the impact of the assumed exercise of such stock options would have been anti-dilutive, sincebased on the optionsfact that their exercise price exceeded the market price throughof the datecommon stock as of expiration:
| | | | | |
Options to purchase common stock | | | -- | | | | 20,000 |
Totals | | | -- | | | | 20,000 |
December 31, 2011. There were no outstanding options as of December 31, 2010.
Income Taxes
The Company is subject to U.S. federal, various state and international income taxes. The statute of limitations for assessment by the Internal Revenue Service (“IRS”) and state tax authorities is open for tax years ended December 31, 2007, 2008 and 2009, although carryforward attributes that were generated prior to tax year 2007, including net operating loss carryforwards and tax credits, may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. The Company is generally subject to examinations by foreign tax authorities from 2004 to present.
DeferredCompany’s deferred income tax balances reflect the effects ofassets represent a) temporary differences between the financial statement carrying amountsamount and the tax basis of existing assets and liabilities that will result in deductible amounts in future years, and theirb) the tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Aseffects of December 31, 2010,net operating loss carry-forwards. Based on estimates, the carrying value of our net deferred tax assets net of deferred tax liabilities and valuation allowance, were $3,350,000. At December 31, 2009, deferred tax assets, net of deferred tax liabilities and valuation allowance, were $111,000. The majority of the Company’s net operating loss carryforwards begin to expire in 2027 and thereafter. The Company has research and development credit carry-forwardsassumes that can be used to reduce future income tax liabilities and expire principally between 2020 and 2030. In addition, the Company has foreign tax credit carry-forwards that are available to reduce future U.S. income tax liabilities subject to certain limitations. These foreign tax credit carry-forwards expire at various times through 2020.
ASC 740, Accounting for Income Taxes (“ASC 740”), requires that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extentit is more likely than not that the Company believes that the probability of not realizing a portion of those assets is “more likely than not.” Management considers many factors when assessing the likelihood ofwill be able to generate sufficient future realization of the Company’s deferred tax assets, including recent cumulative earnings experience and expectations of future taxable income by taxing jurisdiction, the carry-forward periods available to the Company for tax reporting purposes, and other relevant factors.
Effective January 1, 2007, the Company adopted the provisions of ASC Topic 740, Accounting for Uncertainty in Income Taxes. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The standard prescribes a recognition and measurement method for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.
Based on a review of the Company’s tax positions, the Company was not required to record a liability for unrecognized tax benefits as a result of adopting ASC 740 on January 1, 2007. Further, there has been no change during the years ended December 31, 2010 and 2009. Accordingly, the Company has not accrued any interest and penalties through December 31, 2010.
taxable income in certain tax jurisdictions to utilize these assets in lieu of cash payments for taxes due. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. If, in the future, the Company experiences losses for a sustained period of time, the Company may not be able to conclude that it is more likely than not that the Company will be able to generate sufficient future taxable income to realize our deferred tax assets. If this occurs, the Company may be required to increase the valuation allowance against the deferred tax assets resulting in additional income tax expense. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
Concentration Risk
In 2010, two separate2011, MtronPTI’s largest customer, an electronics contract manufacturing companiescompany, accounted for approximately $10,255,000 of revenue, or 22.0%10.3% of the Company’s total revenues, compared to approximately 16.3%11.9% in 2010. MtronPTI’s second-largest customer in 2011, which was also an electronics contract manufacturing company, accounted for approximately 8.6% of MtronPTI’s total revenues, compared to approximately 10.1% in 2010. Revenues from the Company’s twoMtronPTI’s 10 largest customers accounted for approximately 55.0% of revenues in 2009.2011, compared to approximately 65.3% of revenues in 2010. Two customers accounted for more than 10.0% of 2010 revenues and no customers accounted for more than 10% of 2009 revenues. Revenues from the Company’s ten largest customers accounted for approximately 65.3% of revenuesaccounts receivable in 2010,2011, compared to approximately 57.4% of revenues from operationsthree customers for 2009. Three customers accounted for more than 10.0% of 2010 accounts receivable and no customers accounted for more than 10.0% of 2009 accounts receivable.2010. At December 31, 2010,2011, the three largest customers accounted for approximately $2,144,000$1,441,000 of accounts receivable, or 36.2%33.4% of the Company'sMtronPTI’s accounts receivable, comparescompared to approximately 24.2%36.2% for the Company'sMtronPTI’s three largest customers in 2009.2010.
In 2010,2011, approximately 17.5%14.7% of the Company’sMtronPTI’s revenue was attributable to finished products that were manufactured by an independent contract manufacturer locatedwith production locations in both Korea and China, compared to 10.9%17.5% for 2009.2010.
At various times throughout the year and at December 31, 2011, some deposits held at financial institutions were in excess of federally insured limits. The Company has not experienced any losses related to these balances, and believes the related risk to be minimal.
Segment Information
The Company reports segment information in accordance with ASC 280, Disclosures about Segments of an Enterprise and Related Information (“ASC 280”). ASC 280 requires companies to report financial and descriptive information for each operating segment based on management’s internal organizational decision-making structure. See Note KL to the Consolidated Financial Statements - “Segment Information” - for the detailed presentation of the Company’s business segment.
Impairments of Long-Lived Assets
Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Management assesses the recoverability of the carrying cost of the assets based on a review of projected undiscounted cash flows. If an asset is held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market information, including appraisals or broker’s estimates, and/or projected discounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset.
Financial Instruments
Cash and cash equivalents, trade accounts receivable, short-term borrowings, and trade accounts payable, and accrued expenses are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The carrying amount of the Company’s borrowings under its revolving line of credit approximates fair value, as the obligation bears interest at a floating rate. The fair value of long-term debt approximates cost based on borrowing rates for similar instruments.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, investments and trade accounts receivable.
The Company maintains cash and cash equivalents and short-term investments with various financial institutions. The Company’s policy is designed to limit exposure to any one institution. At times, such amounts may exceed federally insured limits.
The Company has also entered into an interest rate swap in relation to one of its long-term debt agreements for which it has accounted for as a cash flow hedge (see Note C).
Foreign Currency Translation
The assets and liabilities of international operations are re-measured at the exchange rates in effect at the balance sheet date for monetary assets and liabilities and at historical rates for non-monetary assets and liabilities, with the related re-measurement gains or losses reported within the Consolidated Statementconsolidated statement of Operations.operations. The results of international operations are re-measured at the monthly average exchange rates. The Company’s foreign subsidiaries and respective operations’ functional currency is the U.S. dollar. The Company has determined this based upon the majority of transactions with customers as well as inter-company transactions and parental support being based in U.S. dollars. The Company has recognized a re-measurement gainloss of $3,000$26,000 in 20102011 and a re-measurement gain of $42,000$3,000 in 2009,2010, which is included within other income, net in the consolidated statements of operations.
Guarantees
At December 31, 2009, the Company guaranteed (unsecured) the RBC loan of MtronPTI. On September 30, 2010, the Company repaid the remaining $2,282,000 of principal and interest due under the RBC Term Loan and terminated the RBC Loan Agreement. The Company has also guaranteed (unsecured) all outstanding obligations to the First National Bank of Omaha. As of December 31, 2010, the total outstanding obligations were $669,000.
There are no other financial, performance, indirect guarantees or indemnification agreements.
Recently Issued Accounting Pronouncements
In January 2010,May 2011, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2010-06, (“ASU”) No. 2011-04, Fair Value Measurements and Disclosures (TopicMeasurement (Topic 820) – Improving Disclosures about, Amendments to Achieve Common Fair Value Measurements, which required additional disclosureMeasurement and Disclosure Requirements in U.S. GAAP and IFRS. Many of significant transfersthe amendments in and out of instruments categorized as Level 1 and 2this update change the wording used in the Fair Value hierarchy.existing guidance to better align U.S. generally accepted accounting principles with International Financial Reporting Standards and to clarify the FASB’s intent on various aspects of the fair value guidance. This update also clarified existing disclosure requirements by defining the level of disaggregation of instruments into classes as well as additional disclosure around the valuation techniques and inputs used to measure fair value. The guidance in this update is effective for interimus in our first quarter of 2012 and annual reporting periods beginning after December 15, 2009.should be applied prospectively. The adoption of ASC 820 didthis new guidance will not have a materialsignificant impact on the Company'sour consolidated financial positionstatements.
In June 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, which requires companies to present the total of comprehensive income, the components of net income, and resultsthe components of operations.other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of equity. This update is effective for us in our first quarter of 2012 and should be applied retrospectively. The adoption of this new guidance will not have a significant impact on our consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying the two-step goodwill impairment model that is currently in place. If it is determined through the qualitative assessment that a reporting unit’s fair value is more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. This update is effective for us for our annual impairment tests performed during 2012 and should be applied on a prospective basis. The adoption of this new guidance will not have a significant impact on our consolidated financial statements.
B. Inventories
The Company reduces the value of its inventories to market value when the market value is believed to be less than the cost of the item.
| | | | | |
| | | | | | | | | | | |
| | (in thousands) | | (in thousands) | |
Raw materials | | $ | 2,685 | | | $ | 2,738 | | $ | 2,864 | | | $ | 2,685 | |
Work in process | | | 1,663 | | | | 1,486 | | | 1,384 | | | | 1,663 | |
Finished goods | | | 1,599 | | | | 1,124 | | | 1,428 | | | | 1,599 | |
Total Inventories | | $ | 5,947 | | | $ | 5,348 | |
Total Inventories, net | | | $ | 5,676 | | | $ | 5,947 | |
C. | Note Payable to Banks and Long-Term Debt |
The inventory reserve for obsolescence as of December 31, 2011 and December 31, 2010 was $1,942,000 and $1,605,000, respectively.
| Note payable to banks and long-term debt is comprised of: |
C. Note Payable to Banks and Long-Term Debt
| | |
| | | | | |
| | (in thousands) |
Notes Payable: | | |
MtronPTI revolving loan (First National Bank of Omaha (“FNBO”)) at 30-day LIBOR plus 3.25%, (4.25% at December 31, 2010), due June 30, 2011 | | $ | -- | | | $ | 1,696 |
| | | | | | | |
Long-Term Debt: | | | | | | | |
RBC Centura Bank (“RBC”) term loan retired on September 30, 2010 | | $ | -- | | | $ | 2,341 |
MtronPTI term loan (FNBO) due January 24, 2013. The note bears interest at 30-day LIBOR plus 2.10%. Interest rate swap converts loan to a fixed rate, at 5.60% at December 31, 2010 | | | 669 | | | | 948 |
| | | 669 | | | | 3,289 |
Current maturities | | | 299 | | | | 2,620 |
Long-Term Debt | | $ | 370 | | | $ | 669 |
| | | | | | |
Notes Payable: | | (in thousands) | |
MtronPTI revolving loan with J.P. Morgan Chase Bank, N.A. (“Chase”) at the greater of Chase’s prime rate or the one-month LIBOR rate plus 2.50% per annum (3.25% at December 31, 2011), due June 30, 2013. | | $ | 3,026 | | | $ | — | |
| | | | | | | | |
Long-Term Debt: | | | | | | | | |
MtronPTI term loan with First National Bank of Omaha (“FNBO”), retired on June 30, 2011. | | $ | — | | | $ | 669 | |
MtronPTI term loan with Chase due January 31, 2013. The note bears interest at a fixed rate of 5.00% | | | 400 | | | | — | |
| | | | | | | | |
Less: Current maturities | | | 400 | | | | 299 | |
Long-Term Debt | | $ | — | | | $ | 370 | |
On June 30, 2011, MtronPTI entered into a loan agreement with Chase (the “Chase Loan Agreement”). The Chase Loan Agreement provides for the following credit facilities: (i) a revolving line of credit in the amount of $4,000,000, to be used solely for working capital needs (the “Chase Revolving Loan”), (ii) a commercial line of credit in the amount of $2,000,000, to be used solely for tangible capital expenditures and, at Chase’s sole discretion, business acquisitions (the “Chase Commercial Loan”), and (iii) a term loan in the amount of $536,000 (the “Chase Term Loan”). The Chase Revolving Loan bears interest at the greater of (x) Chase’s prime rate or (y) the one-month LIBOR rate plus 2.50% per annum (the “CB Rate”), with interest due and payable on a monthly basis and the outstanding principal balance plus all accrued but unpaid interest due and payable on June 30, 2013. The Chase Commercial Loan bears interest at the CB Rate, with interest due and payable on a monthly basis and the outstanding principal balance plus all accrued but unpaid interest due and payable on June 30, 2012.
At December 31, 2011, MtronPTI had $3,026,000 outstanding under the Chase Revolving Loan and available borrowing capacity of $389,000 under the Chase Revolving Loan (total borrowing capacity was below the maximum of $4,000,000 available due to certain limitations on the borrowing base as defined in the Chase Loan Agreement). At December 31, 2011, there was no outstanding balance on the Chase Commercial Loan.
The Chase Term Loan bears interest at 5.00% per annum, with principal and interest due and payable in monthly installments of $29,500 and the outstanding principal balance, plus all accrued but unpaid interest due and payable on January 31, 2013.
All outstanding obligations of MtronPTI under the Chase Loan Agreement are collateralized by a first priority security interest in all of the assets of MtronPTI, excluding real property. Additionally, in connection with the Chase Loan Agreement, PTI entered into a separate agreement with Chase providing that PTI would not mortgage or otherwise encumber certain real property it owns in Florida while the credit facilities under the Chase Loan Agreement are outstanding.
The Chase Loan Agreement contains a variety of affirmative and negative covenants, including, but not limited to, financial covenants that MtronPTI maintain: (i) tangible net worth not less than the sum of $7,500,000, plus 50% of the net income earned by MtronPTI for the preceding six-month period at June 30, 2011, with the threshold amount continuing to increase at December 31st and June 30th of each year by 50% of the net income earned by MtronPTI for the preceding six months; (ii) net income of not less than $1,000,000 for the fiscal year-to-date period ending June 30, 2011, $1,500,000 for the fiscal year-to-date period ending September 30, 2011, and $2,000,000 for the fiscal year-to-date period ending December 31, 2011 and thereafter, provided that MtronPTI not experience two consecutive quarterly losses; and (iii) a debt service coverage ratio of not less than 1.25 to 1.00, tested at the end of every fiscal year.
As of December 31, 2011, MtronPTI was not in compliance with the net income covenant under the Chase Loan Agreement. Based on the definition of net income under the Chase Loan Agreement, MtronPTI had net income of $1,250,000 for the year ended December 31, 2011, as compared to the minimum requirement of $2,000,000. Chase has waived non-compliance with this covenant as of December 31, 2011. Additionally, we have entered into negotiations with Chase regarding an amendment to the Chase Loan Agreement to adjust the financial covenants to permit our compliance with the terms of such covenants in future periods. While we expect to finalize the amendment with Chase shortly, there can be no assurance that we will be able to enter into such an amendment. Therefore, we have reclassified the long-term portion of the MtronPTI term loan, which is $58,000, as current at December 31, 2011. We expect that, with the amendment and based on our current covenant compliance projections, MtronPTI will be in compliance with the Chase Loan Agreement covenants at each quarterly testing date through December 31, 2012.
On October 14, 2004, MtronPTI entered into a loan agreement with First National Bank of Omaha (“FNBO”), whichFNBO that was amended and restated on July 30, 2010 (the “FNBO Loan Agreement”). The FNBO Loan Agreement providesprovided for a short-termrevolving credit facility of up to $4,000,000 as of December 31, 2010 (the “FNBO Revolving Loan”). The principal balance of the FNBO Revolving Loan bearsbore interest at 30-day LIBOR plus 3.25% (but in no event below 4.25%), with interest only payments due monthly and the final payment of principal and interest due on June 30, 2011. There is also an unused commitment fee of 0.50% per annum, payable quarterly. At December 31, 2010, the amount outstanding under the FNBO Revolving Loan was $0, with unused borrowing capacity of $4,000,000, compared to $1,696,000 outstanding and an unused borrowing capacity of $2,304,000 at December 31, 2009.
The FNBO Loan Agreement also providesprovided for a term loan in the original principal amount of $2,000,000 (the “FNBO Term Loan”). At December 31, 2010, the principal balance of the FNBO Term Loan was $669,000, bearing, which bore interest at 30-day LIBOR plus 2.10%, with payments. On June 30, 2011, the FNBO Revolving Loan expired, the Company repaid the remaining $596,000 of approximately $24,000 due monthly and all remaining principal and interest due January 24, 2013.
All outstanding obligations under the FNBO Term Loan Agreement are collateralized by a first priority security interest in all of the assets of MtronPTI except real estate, and are guaranteed by the Company.
The FNBO Loan Agreement contains a variety of affirmative and negative covenants, including, but not limited to, financial covenants that MtronPTI maintain: (i) tangible net worth of not less than $5,500,000, (ii) a ratio of current assets to current liabilities of not less than 1.50 to 1.00; (iii) a ratio of total liabilities to tangible net worth of not greater than 2.75 to 1.00; and (iv) a fixed charge coverage ratio of not less than 1.25 to 1.00. The FNBO Loan Agreement also places certain limitations on MtronPTI’s ability to make certain payments to the Company including but not limited to payments of dividends, advances and repayment for inter-company debt, interest payments on inter-company debt and management fees. At December 31, 2010, MtronPTI was in compliance with all covenants underterminated the FNBO Loan Agreement.
In connection with the FNBO Term Loan, MtronPTI entered into an interest rate swap agreement with FNBO from which it receivesreceived periodic payments at the LIBOR Base Rate and makesmade periodic payments at a fixed rate of 5.60% through the term of the FNBO Term Loan. The Company hashad designated this swap as a cash flow hedge in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging (“ASC 815”). The fair value of the interest rate swap was ($14,000) at June 30, 2011 and ($21,000) at December 31, 2010, and ($32,000) at December 31, 2009, net of any tax effect, and is included in “other accrued expenses” on the consolidated balance sheets. Any change in fair value is reflected in accumulated other comprehensive loss, net of any tax effect.
On September 30, 2005, MtronPTI entered into a loan agreement with RBC, which was subsequently modified on September 17, 2009 (the “RBC Loan Agreement”). The RBC Loan Agreement provided for a loan in the original principal amount of $3,040,000 (the “RBC Term Loan”) which bore interest at LIBOR Base Rate plus 2.75% and was repaid in monthly installments based on a 20-year amortization schedule. On September 30, 2010, the Company repaid the remaining $2,282,000 of principal and interest due under the RBC Term Loan and terminated the RBC Loan Agreement.
Debt outstanding at December 31, 2010 included $669,000 of variable rate debt at year-end weighted average interest rate of 5.60% (after considering the effectfair value of the interest rate swap).swap at June 30, 2011, ($14,000), has been recognized in earnings for the period ended June 30, 2011. The interest rate swap agreement was terminated on June 30, 2011 in connection with the repayment of the FNBO Term Loan and the termination of the FNBO Loan Agreement.
Aggregate principal maturities of long-term debt for each of the remaining years until maturity based upon payment terms and interest rates in effect at December 31, 20102011 are as follows (in thousands):
2011 | | $ | 299 | |
2012 | | | 321 | | $ | 342 | |
2013 | | | 49 | | | 58 | |
Total | | $ | 669 | | $ | 400 | |
D. | Related Party Transactions |
At December 31, 2010,2011, the Company had $4,147,000$13,709,000 of cash and cash equivalents compared with $3,816,000$4,147,000 at December 31, 2009.2010. Of this amount, $10,087,000 at December 31, 2011 compared with $949,000 at December 31, 2010, compared with $948,000 at December 31, 2009, iswas invested in United States Treasury money market funds for which an entity controlled by a 10% stockholder of the Company, and for which a director of the Company serves as Executive Vice President and Chief Financial Officer, serves asa Director of the investment manager. The fund transactions in 20102011 and 2009, including purchases or sales of investment positions,2010 are directed at the discretion of Company management and carried out on an arm’s length bases withby the related party.
E. Stock-Based Compensation The Company measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the requisite service period, typically the vesting period.
On May 26, 2005,August 4, 2011, the Company’s shareholdersstockholders approved amendments tothe 2011 Incentive Plan. 500,000 shares of common stock are authorized for issuance under the 2011 Incentive Plan. After the 2011 Incentive Plan was approved by the Company’s stockholders on August 4, 2011, the 2001 Equity Incentive Plan was terminated pursuant to increasea Board resolution.
The Company estimates the total numberfair value of sharesstock options on the grant date using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. There is no expected dividend rate. Historical Company information was the basis for the expected volatility assumption as the Company believes that the historical volatility over the life of the Company’s common stock available for issuance from 300,000option is indicative of expected volatility in the future. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates with a remaining term equal to 600,000 shares and to add provisions that require terms and conditions of awards to comply with section 409Athe expected term of the Internal Revenue Codeoption. The Company also estimates forfeitures at the time of 1986. Alsogrant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on May 26, 2005,past history of actual performance, a zero forfeiture rate has been assumed.
On March 14, 2011, the CompanyBoard granted options to purchase 120,000a total of 90,000 shares of Company common stock to certain employeesmembers of senior management and directorsthe Company’s Chairman of the Company at $13.17 per share.Board. These options were fully vested in 2005, were anti-dilutive,have an exercise price of $22.50, have a five-year life expiring on March 14, 2016, and expiredvest as follows: 30% on the first anniversary of May 25, 2010.the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. The weighted average grant date fair value was $9.82 and the total stock compensation related expense for this grant for the year ended December 31, 2011, was approximately $211,000. The unrecognized compensation expense related to these options of approximately $673,000 as of December 31, 2011, will be recognized over the vesting period.
The following table summarizes the inputs to the option valuation model for the options granted during the year ended December 31, 2011:
| | | |
Historical volatility | | | 91 | % |
Dividend rate | | | 0 | % |
Expected term (in years) | | | 3.45 | |
Risk-free rate | | | 1.11 | % |
The following table summarizes information about stock options outstanding and exercisable at December 31, 2010 and 20092011 as well as activity during the yearsyear then ended:
| | | | | Weighted Average Exercise price | | | Weighted Average Years Remaining |
Outstanding at December 31, 2008 | | | 200,000 | | | $ | 17.07 | | | | 0.8 |
Granted during 2009 | | | -- | | | | -- | | | | -- |
Exercised during 2009 | | | -- | | | | -- | | | | -- |
Forfeited or expired during 2009 | | | (180,000 | ) | | | 17.50 | | | | -- |
Outstanding at December 31, 2009 | | | 20,000 | | | | 13.17 | | | | 0.4 |
Granted during 2010 | | | -- | | | | -- | | | | -- |
Exercised during 2010 | | | -- | | | | -- | | | | -- |
Forfeited or expired during 2010 | | | (20,000 | ) | | | 13.17 | | | | -- |
Outstanding at December 31, 2010 | | | -- | | | $ | -- | | | | -- |
Exercisable at December 31, 2010 | | | -- | | | $ | -- | | | | -- |
Vested at December 31, 2010 | | | -- | | | $ | -- | | | | -- |
| | | | | Weighted Average Exercise Price | | | Weighted Average Years Remaining | | | Aggregate Intrinsic Value | |
Outstanding at December 31, 2009 | | | 20,000 | | | $ | 13.17 | | | | 0.4 | | | $ | — | |
Granted during 2010 | | | — | | | | — | | | | — | | | | — | |
Exercised during 2010 | | | — | | | | — | | | | — | | | | — | |
Forfeited during 2010 | | | — | | | | — | | | | — | | | | — | |
Expired during 2010 | | | (20,000 | ) | | | 13.17 | | | | 0.4 | | | | — | |
Outstanding at December 31, 2010 | | | — | | | | — | | | | — | | | | — | |
Granted during 2011 | | | 90,000 | | | | 22.50 | | | | 4.0 | | | | — | |
Exercised during 2011 | | | — | | | | — | | | | — | | | | — | |
Forfeited during 2011 | | | — | | | | — | | | | — | | | | — | |
Expired during 2011 | | | — | | | | — | | | | — | | | | — | |
Outstanding at December 31, 2011 | | | 90,000 | | | $ | 22.50 | | | | 4.0 | | | $ | — | |
Exercisable at December 31, 2011 | | | — | | | $ | — | | | | — | | | $ | — | |
Vested at December 31, 2011 | | | — | | | $ | — | | | | — | | | $ | — | |
Equity Compensation Plan InformationRestricted stock awards are granted at a value equal to the market price of the Company’s common stock on the date of the grant. On December 15, 2010, the Board granted a total of 12,647 restricted shares of common stock to 12 employees and the officers of the Company. These shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the remaining 40% on the third anniversary of the grant date. On December 30, 2011, the Board granted a total of 10,928 restricted shares of common stock to its eight members as a portion of their base director compensation for 2012. These shares vested immediately on the grant date. Total stock compensation related expense for these grants for the year ended December 31, 2011, was approximately $152,000. The unrecognized compensation expense related to these awards of approximately $167,000 as of December 31, 2011, will be recognized over the remaining vesting period.
The 2001 Equity Compensationfollowing table summarizes information about restricted stock grants outstanding at December 31, 2011 as well as activity during the year then ended:
| | | | | Weighted Average Grant Date Fair Value per Share | |
Outstanding non vested at December 31, 2009 | | | 15,817 | | | $ | 3.16 | |
Granted during 2010 | | | 23,759 | | | | 15.79 | |
Vested during 2010 | | | (26,929 | ) | | | 14.30 | |
Forfeited or expired during 2010 | | | — | | | | — | |
Outstanding non vested at December 31, 2010 | | | 12,647 | | | | 18.90 | |
Granted during 2011 | | | 10,928 | | | | 7.33 | |
Vested during 2011 | | | (14,714 | ) | | | 7.32 | |
Forfeited or expired during 2011 | | | — | | | | — | |
Outstanding non vested at December 31, 2011 | | | 8,861 | | | $ | 18.90 | |
The 2011 Incentive Plan had 476,441489,072 shares remaining available for future issuance at December 31, 2010.2011.
F.Income Taxes
The Company files consolidated federal income tax returns, which includes all U.S. subsidiaries.
The Company has a total Federal net operating loss (“NOL”) carry-forward of $3,929,000$5,942,000 as of December 31, 2010.2011. This NOL carry-forward expires through 20302031 if not utilized prior to that date. The Company has a total Statestate NOL carry-forward of $11,017,000$13,088,000 as of December 31, 2010.2011. This NOL carry-forward expires through 20302031 if not utilized prior to that date. The Company has research and development credit carry-forwards of approximately $1,046,000$1,087,000 at December 31, 2010,2011, that can be used to reduce future income tax liabilities and expire principally between 2020 and 2030.2031. In addition, the Company has foreign tax credit carry-forwards of approximately $359,000 at December 31, 2010,2011, that are available to reduce future U.S. income tax liabilities subject to certain limitations. These foreign tax credit carry-forwards expire at various times through 2020.
Deferred income taxes for 20102011 and 20092010, were provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Tax effects of temporary differences and carry-forwards at December 31, 20102011 and 20092010, are as follows:
| | | | | | | | | | | |
| | Deferred Tax | | | Deferred Tax | | Deferred Tax | | | Deferred Tax | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | (in thousands) | | (in thousands) | |
Inventory reserve | | $ | 945 | | | $ | -- | | | $ | 1,357 | | | $ | -- | | $ | 737 | | | $ | — | | | $ | 945 | | | $ | — | |
Fixed assets | | | -- | | | | 151 | | | | -- | | | | 192 | | | — | | | | 528 | | | | — | | | | 151 | |
Other reserves and accruals | | | 350 | | | | -- | | | | 532 | | | | -- | | | 224 | | | | — | | | | 350 | | | | — | |
Stock-based compensation | | | | 77 | | | | — | | | | — | | | | — | |
Undistributed foreign earnings | | | -- | | | | 723 | | | | -- | | | | 549 | | | — | | | | 919 | | | | — | | | | 723 | |
Other | | | -- | | | | 81 | | | | -- | | | | 104 | | | — | | | | 57 | | | | — | | | | 81 | |
Tax credit carry-forwards | | | 1,516 | | | | -- | | | | 1,450 | | | | -- | | | 1,557 | | | | — | | | | 1,516 | | | | — | |
Federal tax loss carry-forwards | | | 1,335 | | | | -- | | | | 2,827 | | | | -- | | | 2,020 | | | | — | | | | 1,335 | | | | — | |
State tax loss carry-forwards | | | 422 | | | | -- | | | | 377 | | | | -- | | | 497 | | | | — | | | | 422 | | | | — | |
Total deferred income taxes | | | 4,568 | | | $ | 955 | | | | 6,543 | | | $ | 845 | | | 5,112 | | | $ | 1,504 | | | | 4,568 | | | $ | 955 | |
Valuation allowance | | | (263 | ) | | | | | | | (5,587 | ) | | | | | | (263 | ) | | | | | | | (263 | ) | | | | |
Net deferred tax assets | | $ | 4,305 | | | | | | | $ | 956 | | | | | | $ | 4,849 | | | | | | | $ | 4,305 | | | | | |
At December 31, 2011, the net deferred tax assets of $3,345,000 presented in the Company’s balance sheet comprises deferred tax assets of $4,849,000, offset by deferred tax liabilities of $1,504,000. At December 31, 2010, the net deferred tax assets of $3,350,000 presented in the Company’s balance sheet comprises deferred tax assets of $4,568,000,$4,305,000, offset by deferred tax liabilities of $955,000. At December 31, 2009, the net deferred tax assets of $111,000 presented in the Company’s balance sheet comprises deferred tax assets of $956,000, offset by deferred tax liabilities of $845,000. The carrying value of the Company’s net deferred tax assets at December 31, 2009 of $111,000 is equal to the amount of the Company’s carry-forward alternative minimum tax (“AMT”) at that date. These AMT credits do not expire.
The provision (benefit) provision for income taxes is summarized as follows:
| | | | | | | | | | | |
| | (in thousands) | | (in thousands) | |
Current: | | | | | | | | | | | |
Federal | | $ | -- | | | $ | (16 | | $ | — | | | $ | — | |
State and local | | | 65 | | | | -- | | | — | | | | 65 | |
Foreign | | | 266 | | | | 35 | | | 180 | | | | 266 | |
Total Current | | | 331 | | | | 19 | | | 180 | | | | 331 | |
| | | | | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | | | | |
Federal | | | (2,960 | ) | | | -- | | | 25 | | | | (2,960 | ) |
State and local | | | (316 | ) | | | -- | | | (20 | ) | | | (316 | ) |
Total Deferred | | | (3,276 | ) | | | -- | | | 5 | | | | (3,276 | ) |
| | $ | (2,945 | ) | | $ | 19 | | $ | 185 | | | $ | (2,945 | ) |
A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes:
| | | | | |
| | (in thousands) |
| | | | | |
Tax (benefit) provision at expected statutory rate | | $ | 2,203 | | | $ | (851) |
State taxes, net of federal benefit | | | 112 | | | | (91) |
Permanent differences | | | 4 | | | | 8 |
Credits | | | (73 | ) | | | -- |
Other | | | 133 | | | | (213) |
Valuation allowance | | | (5,324 | ) | | | 1,166 |
(Benefit) provision for income taxes | | $ | (2,945 | ) | | $ | 19 |
| | | | | | |
| | (in thousands) | |
| | | | | | |
Tax provision at expected statutory rate | | $ | 193 | | | $ | 2,203 | |
State taxes, net of federal benefit | | | (29 | ) | | | 112 | |
Permanent differences | | | 17 | | | | 4 | |
Credits | | | (217 | ) | | | (73 | ) |
Foreign tax expense, and other | | | 221 | | | | 133 | |
Change in valuation allowance | | | — | | | | (5,324 | ) |
Provision (benefit) for income taxes | | $ | 185 | | | $ | (2,945 | ) |
The (Loss) income tax (benefit) provision for the year ended December 31, 2010 and 2009 included federal, state, and foreign taxes.
Income (loss) before income taxes from domestic operations was ($473,000) and $5,046,000 in 2011 and ($2,440,000) in 2010, and 2009, respectively. Profit and (loss) before income taxes from foreign operations was $1,075,000 and $1,432,000 in 2011 and ($63,000) in 2010, and 2009, respectively. At December 31, 2010,2011, U.S. income taxes have been provided on approximately $3,390,000$4,281,000 of earnings of the Company’s foreign subsidiaries, because these earnings are not considered to be indefinitely reinvested. As of December 31, 2010,2011, earnings of non-U.S. subsidiaries considered to be indefinitely reinvested totaled $473,000.$481,000. No provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. taxes, reduced by any foreign tax credits available. It is not practicable to estimate the amount of additional tax that might be payable on this undistributed foreign income.
The valuation allowance decreased $5,324,000 from $5,587,000 in 2009 to $263,000 at December 31, 2010. As of December 31, 2010,2011, the Company has a state net operating loss carryforward forNOL carry-forward of $497,000. Approximately $263,000 of the state NOL carry-forward relates to the State of Georgia in the amount of $263,000 thatand has been fully reserved based on the fact that managementthe Company has no ability to generate taxable income in the State of Georgia that would allow the net operating loss carryforwardcarry-forward to be utilized in a future period. The valuation allowance increased $1,140,000 from $4,447,000 in 2008 to $5,587,000 in 2009.was $263,000 at December 31, 2011 and 2010.
The Company will recognize any interest and penalties related to unrecognized tax positions in income tax expense. At the date of adoption of ASC 740, the Company did not have a liability for unrecognized tax positions. In addition, the Company did not record any increases or decreases to its liability for unrecognized tax positions during the yearyears ended December 31, 2011 or 2010. Accordingly, the Company has not accrued for any interest and penalties as of December 31, 2011 or 2010. The Company does not anticipate any change in its liability for unrecognized tax positions over the next fiscal year.
The Company files income tax returns in the U.S. Federal, various state, and Hong Kong and India jurisdictions. The statute of limitations for assessment by the Internal Revenue Service (“IRS”) and state tax authorities is open
for tax years ended December 31, 2007, 2008, 2009 and 2009,2010, although carryforwardcarry-forward attributes that were generated prior to tax year 2007,2008, including net operating loss carryforwardscarry-forwards and tax credits, may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. The Company is generally subject to examinations by foreign tax authorities from 2004 to the present.
G.Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes the changes in fair value of investments classified as available-for-sale and the changes in fair values of derivatives designated as cash flow hedges.
For the year ended December 31, 2011, total comprehensive income was $445,000, comprised of other comprehensive income, net of tax, of $63,000, plus net income of $382,000. Other comprehensive income included $5,000 from the unrealized increase in the market value of marketable securities (included in other current assets). The Company terminated the interest rate swap with FNBO, and reclassified a loss of $14,000 from other comprehensive income to earnings for the period ended June 30, 2011. As of December 31, 2011, accumulated other comprehensive income was approximately $25,000, and was comprised only of the change in the fair value of investments classified as available-for-sale, net of the related tax effect.
For the year ended December 31, 2010, total comprehensive income was $9,501,000, comprised of other comprehensive income of $78,000, plus net income of $9,423,000. Other comprehensive income included $8,000 included in other income from the unrealized increase in the market value of marketable securities (included in other current assets), $107,000 from the change in the fair value of the interest rate swaps and ($37,000) for the tax effect of the changes in comprehensive income.
ForH. Stockholders’ Equity
On August 29, 2011, the year endedBoard authorized the Company to repurchase up to 100,000 shares of its common stock in accordance with applicable securities laws. This authorization increased the total number of shares authorized and available for repurchase under the Company’s existing share repurchase program to 540,000 shares, at such times, amounts and prices as the Company shall deem appropriate. As of December 31, 2009,2011, the Company has repurchased a total comprehensive loss was ($2,403,000), comprised of other comprehensive income35,454 shares of $119,000, lesscommon stock at a cost of $315,000, which shares are currently held in treasury.
On February 4, 2011, the Company completed a public offering of 350,000 shares of common stock at $20.00 per share. The aggregate number of shares sold reflects and includes the exercise in full by the underwriter of its over-allotment option to purchase 45,652 additional shares of common stock. The Company received net lossproceeds of ($2,522,000). Other comprehensive income included $13,000 included in other income$6,404,000 from the unrealized increaseoffering, after deducting the underwriting discounts and commissions and offering expenses. These proceeds have been and will continue to be used for general corporate purposes, including working capital and potential technology acquisitions or other strategic ventures.
I. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value guidance identifies three primary valuation techniques: the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts such as cash flows or earnings, to a single present amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required.
Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the Company’s own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.
Assets
To estimate the market value of its marketable securities, (included in otherthe Company obtains current assets) and $106,000market pricing from the change in thequoted market sources or uses pricing for identical securities. Assets measured at fair value of the interest rate swaps.on a recurring basis are summarized below.
The change in accumulated other comprehensive loss, net of related tax benefit, at December 31, 2010 and 2009 are as follows: | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | |
Equity securities | | $ | 40 | | | $ | — | | | $ | — | | | $ | 40 | |
U.S. Treasury securities (cash equivalents) | | $ | 10,087 | | | $ | — | | | $ | — | | | $ | 10,087 | |
| | |
| | | | | |
| | (in thousands) |
Balance beginning of year | | $ | (116 | ) | | $ | (235) |
Deferred gain on swap liability on hedge contracts | | | 107 | | | | 106 |
Unrealized gain on available-for-sale securities | | | 8 | | | | 13 |
Other comprehensive income (tax effect) | | | (37 | ) | | | -- |
Balance end of year | | $ | (38 | ) | | $ | (116) |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | |
Equity securities | | $ | 35 | | | $ | — | | | $ | — | | | $ | 35 | |
U.S. Treasury securities (cash equivalents) | | $ | 949 | | | $ | — | | | $ | — | | | $ | 949 | |
The components of accumulated other comprehensive loss, net of related taxes at December 31, 2010 and 2009, are as follows:
Liabilities
| | |
| | | | | |
| | (in thousands) |
Deferred loss on swap liability on hedge contracts | | $ | (21 | ) | | $ | (129) |
Unrealized gain on available-for-sale securities | | | 20 | | | | 13 |
Other comprehensive income (tax effect) | | | (37 | ) | | | -- |
Accumulated other comprehensive loss | | $ | (38 | ) | | $ | (116) |
To estimate the fair value of the swap liability on hedge contracts as of the measurement date, the Company obtains inputs other than quoted prices that are observable for the liability. Liabilities measured at fair value on a recurring basis are summarized below. | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | |
Interest rate swap | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
H.
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | |
Interest rate swap | | $ | — | | | $ | 21 | | | $ | — | | | $ | 21 | |
J. Employee Benefit Plans
The Company offers a defined contribution plan for eligible employees, but did not make any contributions in 2010 or 2009, respectively. Under the MtronPTI defined contribution plan,which the Company makes discretionary contributions up to 50% of the first 6% of eligible compensation contributed by participants. The Company reinstated the match in June 2011, and contributed approximately $59,000 for contributions made between July 2011 and December 2011. The Company did not make any contributions during 2010. Participants vest in employer contributions starting after their second year of service at 20% increments vesting 100% in year six.
I. ��K. Commitments and Contingencies
In the normal course of business, the Company and its subsidiaries may become defendants in certain product liability, patent infringement, worker claims and other litigation. The Company and its subsidiaries have no litigation pending at this time.
The Company’s wholly-owned subsidiary, Lynch Systems, Inc., whose operating assets were sold to an unrelated third party during 2007, owns certain real estate assets in Bainbridge, GA, including a building that has a known environmental liability. There are no pending claims or litigation against the Company related to this matter, but the Company has recorded a liability for the expected cost of remediation of $81,000 as of December 31, 2010 and 2009, respectively, based on an independent estimate of the remediation costs obtained by the Company which is included in other accrued expenses on the Company’s consolidated balance sheets.
Rent expense under operating leases was $213,000$282,000 and $141,000$213,000 for the years ended December 31, 20102011 and 2009,2010, respectively. The Company leases certain property and equipment, including warehousing, and sales and distribution equipment, under operating leases that extend from one to two years. Certain of these leases have renewal options.
J.L. Segment Information
The Company has one reportable business segment from operations: frequency control devices (quartz crystals and oscillators) that represent products manufactured and sold by MtronPTI. The Company’s foreign operations in Hong Kong and India exist under MtronPTI.
Operating income (loss) is equal to revenues less costs of sales, operating expenses, excluding investment income, interest expense, and income taxes. Identifiable assets of each segment are the assets used by the segment in its operations excluding general corporate assets. General corporate assets are principally cash and cash equivalents, short-term investments and certain other investments and receivables.
| | |
| | | | | |
| | (in thousands) |
Revenues from Operations | | | | | |
Frequency control devices – USA | | $ | 25,212 | | | $ | 15,522 |
Frequency control devices – Foreign | | | 21,444 | | | | 15,779 |
Total consolidated revenues | | $ | 46,656 | | | $ | 31,301 |
| | | | | | | |
Operating Income (Loss) from Operations | | | | | | | |
Frequency control devices | | $ | 8,455 | | | $ | 59 |
Unallocated corporate expense | | | (1,676 | ) | | | (1,978) |
Impairment loss on Lynch Systems’ assets | | | (20 | ) | | | (235) |
Consolidated total operating income (loss) | | | 6,759 | | | | (2,154) |
Interest expense | | | (304 | ) | | | (405) |
Other income | | | 23 | | | | 56 |
Other loss | | | (281 | ) | | | (349) |
Income (Loss) Before Income Taxes | | $ | 6,478 | | | $ | (2,503) |
| | | | | | | |
Capital Expenditures | | | | | | | |
Frequency control devices | | $ | 768 | | | $ | 325 |
| | | | | | | |
Total Assets | | | | | | | |
Frequency control devices | | $ | 17,928 | | | $ | 16,921 |
General corporate | | | 5,498 | | | | 1,310 |
Total assets from discontinued operations and Lynch Systems’ remaining assets | | | 299 | | | | 337 |
Consolidated total assets | | $ | 23,725 | | | $ | 18,568 |
K. | | | |
| | | | | | |
| | (in thousands) | |
Revenues from Operations | | | | | | |
Frequency control devices – USA | | $ | 15,645 | | | $ | 25,212 | |
Frequency control devices – Foreign | | | 20,037 | | | | 21,444 | |
Total consolidated revenues | | $ | 35,682 | | | $ | 46,656 | |
| | | | | | | | |
Operating Income from Operations | | | | | | | | |
Frequency control devices | | $ | 2,558 | | | $ | 8,455 | |
Unallocated corporate expense | | | (1,884 | ) | | | (1,676 | ) |
Impairment loss on Lynch Systems’ assets | | | — | | | | (20 | ) |
Consolidated total operating income | | | 674 | | | | 6,759 | |
Interest expense | | | (109 | ) | | | (304 | ) |
Other income | | | 2 | | | | 23 | |
Other loss | | | (107 | ) | | | (281 | ) |
| | | | | | | | |
Income Before Income Taxes | | $ | 567 | | | $ | 6,478 | |
| | | | | | | | |
Capital Expenditures | | | | | | | | |
Frequency control devices | | | 1,211 | | | | 593 | |
General corporate | | | 483 | | | | 175 | |
Total capital expenditures | | $ | 1,694 | | | $ | 768 | |
| | | | | | | | |
Total Assets | | | | | | | | |
Frequency control devices | | $ | 16,276 | | | $ | 17,928 | |
General corporate | | | 15,808 | | | | 5,498 | |
Total assets from discontinued operations and Lynch Systems’ remaining assets | | | 337 | | | | 299 | |
Consolidated total assets | | $ | 32,421 | | | $ | 23,725 | |
M. Foreign Revenues
For years ended December 31, 20102011 and 2009,2010, significant foreign revenues from operations (10% or more of foreign sales) were as follows:
| | Years Ended December 31, | | Years Ended December 31, | |
| | | | | | | | | | | |
| | (in thousands) | | (in thousands) | |
Frequency Control Devices - Significant | | | | | | | | | | | |
Foreign Revenues: | | | | | | | | | | | |
China | | | $ | 7,035 | | | $ | 6,098 | |
Malaysia | | $ | 6,416 | | | $ | 4,415 | | | 5,984 | | | | 6,416 | |
China | | | 6,098 | | | | 3,681 | |
Thailand | | | 2,842 | | | | 1,029 | | | 1,907 | | | | 2,842 | |
Mexico | | | 2,194 | | | | 1,510 | | | 954 | | | | 2,194 | |
All other foreign countries | | | 3,894 | | | | 5,144 | | | 4,157 | | | | 3,894 | |
Total foreign revenues | | $ | 21,444 | | | $ | 15,779 | | $ | 20,037 | | | $ | 21,444 | |
L.N. Subsequent Events
On February 4, 2011,29, 2012, the Company completed a public offering of 350,000 shares ofgranted to its common stock at $20.00 per share. The aggregate number of shares sold reflects and includes the exercise in full by the underwriter of its over-allotment option to purchase 45,652 additional shares of the Company’s common stock. The Company received net proceeds of approximately $6.5 million, after deducting the underwriting discounts and commissions and estimated offering expenses. The offering was made pursuant to a shelf registration statement filed with the SEC on September 23, 2010, and amended on October 25, 2010, which became effective on November 4, 2010 (Registration No. 333-169540), and a prospectus supplement, dated January 31, 2011, filed with the SEC on February 2, 2011. ThinkEquity LLC acted as the sole underwriter with respect to the offering.
On March 14, 2011, the Board of Directors granted a discretionary award of options to purchase a total of 90,000executive officers 3,733 restricted shares of the Company’s common stock to membersperformance under the 2011 Incentive Plan with a grant date fair value of senior management$8.44 per share. The related compensation expense will be recognized over the vesting period. The shares vest as follows: 30% on the first anniversary of the grant date; an additional 30% on the second anniversary of the grant date; and the Company’s Chairmanremaining 40% on the third anniversary of the Board. The stock options vest over three years and have an exercise price of $22.50 per share.
grant date.
EXHIBIT INDEX
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3.1 | Certificate of Incorporation of The LGL Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2007). |
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3.2 | The LGL Group, Inc. By-Laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2007). |
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10.1 | The LGL Group, Inc. 401(k) Savings Plan (incorporated by reference to Exhibit 10(b) to the Company’s Annual Report on Form 10-K forfiled with the period ended December 31, 1995)SEC on April 1, 1996). |
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10.2 | The LGL Group, Inc. 2001 Equity Incentive Plan adopted December 10, 2001 (incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 Registration Statement filed with the SEC on December 29, 2005. |
| 2005). |
10.3 | Amended and Restated Loan Agreement, dated as of June 30, 2010, by and among M-tron Industries, Inc., Piezo Technology, Inc. and First National Bank of Omaha (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 30, 2010). |
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10.4
| First Amendment to Amended and Restated Loan Agreement by and among M-tron Industries, Inc., Piezo Technology, Inc. and First National Bank of Omaha, dated as of June 30, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 5, 2010). |
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10.5 | Form of Amended and Restated Term Note made by M-tron Industries, Inc. and Piezo Technology, Inc. for the benefit of First National Bank of Omaha (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 16, 2009). |
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10.6 | Form of First Amended and Restated Revolving Note made by M-tron Industries, Inc. and Piezo Technology, Inc. for the benefit of First National Bank of Omaha (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 5, 2010). |
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10.7 | Unconditional Guaranty, dated as of August 18, 2009, made by The LGL Group, Inc. for the benefit of First National Bank of Omaha (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated August 25, 2009). |
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10.8 | EmploymentRestricted Stock Agreement dated as of June 29, 2009,(2001 Equity Incentive Plan) by and between The LGL Group, Inc. and Greg Andersoneach of its directors (incorporated herein by reference to Exhibit 10.110.10 to the Company’s CurrentAnnual Report on Form 8-K10-K filed with the SEC on July 8, 2009)March 24, 2011). |
10.4 | Form of Restricted Stock Agreement (2001 Equity Incentive Plan) by and between The LGL Group, Inc. and each of its executive officers (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2011). |
10.910.5 | The LGL Group, Inc. 2011 Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 30, 2011). |
10.6 | Form of Stock Option Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 30, 2011). |
10.7 | Form of Restricted Stock Agreement (2011 Incentive Plan) (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 30, 2011). |
10.8 | Form of Indemnification Agreement by and between The LGL Group, Inc. and its executive officers and directors.*directors (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2011). |
10.9 | |
10.10 | FormEmployment Agreement, dated as of Restricted Stock AgreementNovember 10, 2011, by and between The LGL Group, Inc. and each of its directors.*Gregory P. Anderson (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2011). |
10.10 | Master Loan Agreement, dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and J.P. Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2011). |
10.11 | FormRevolving Promissory Note (Revolving Line), dated as of Restricted Stock AgreementJune 30, 2011, by and between The LGL Group,among M-tron Industries, Inc., Piezo Technology, Inc. and each of its executive officers.*J.P. Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2011). |
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10.12 | Revolving Promissory Note (Line of Credit), dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and J.P. Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2011). |
10.13 | Promissory Note (Term Loan), dated as of June 30, 2011, by and among M-tron Industries, Inc., Piezo Technology, Inc. and J.P. Morgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2011). |
21.1 | Subsidiaries of The LGL Group, Inc.* |
23.1 | Consent of Independent Registered Public Accounting Firm – McGladrey & Pullen, LLP.* |
23.123.2 | Consent of Independent Registered Public Accounting Firm – J.H. Cohn LLP.* |
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31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
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31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
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32.1 | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
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32.2 | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
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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** | *Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed herewithas part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
The exhibits listed above have been filed separately with the Securities and Exchange CommissionSEC in conjunction with this Annual Report on Form 10-K or have been incorporated by reference into this Annual Report on Form 10-K. Upon request, the Company will furnish to each of its stockholders a copy of any such exhibit. Requests should be addressed to the Office of the Secretary, The LGL Group, Inc., 2525 Shader Rd. Orlando, Florida 32804.