On June 14, 2019, the Company issued a press release announcing the resignation of RSM as the Company’s independent registered public accounting
firm. A copy of the press release is attached as Exhibit 99.1.
Update on Audit Committee Investigation
Background
. As previously announced, the Company is cooperating with an ongoing investigation by the SEC. On April 23, 2018, the SEC issued a
subpoena to the Company focused on revenue recognition practices at its Energy Source division. The Audit Committee, after retaining counsel and forensic accounting consultants, conducted an internal investigation that ultimately led to the
termination of the employment of five Energy Source employees, one which currently serves as an Energy Source consultant. The Company determined that the accounting errors identified through that investigation were immaterial.
On October 11, 2018, the SEC issued a second subpoena related to the Company’s Value Lighting and
All-Around
Lighting divisions. The Audit Committee commenced an investigation to examine certain revenue recognition practices at those divisions, specifically the booking of revenue using “bill and hold” accounting for certain transactions occurring
from 2014 through 2018. Upon satisfaction of specific requirements imposed by accounting principles and interpretations of the SEC staff, bill and hold revenue accounting permits a company to record revenue for products customers have agreed to
purchase that it has segregated for delivery within the company’s own warehouse. Absent satisfaction of these requirements, revenue recognition generally should occur upon delivery of products to customers.
The Audit Committee again retained counsel and forensic accounting consultants in connection with its investigation. The investigation team conducted an
extensive review of emails and other documentation, interviewed current and former employees of the Company and analyzed the documentation underlying a subset of the Company’s bill and hold transactions. The Audit Committee and its advisors met
regularly between November 2018 and May 2019.
As previously disclosed, on December 10, 2018, the Audit Committee, upon the recommendation of the
Company’s management, concluded that, as a result of apparent errors related to revenue recognition associated with bill and hold transactions identified in the course of the Audit Committee investigation, the Company’s consolidated
financial statements as of and for each of the following fiscal periods should no longer be relied upon:
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the fiscal quarters ended March 31, 2018 and June 30, 2018;
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the fiscal year ended December 31, 2017 and each fiscal quarter therein;
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the fiscal year ended December 31, 2016 and each fiscal quarter therein; and
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the fiscal year ended December 31, 2015 and each fiscal quarter therein.
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Additionally, the Company disclosed at that time that the Audit Committee had determined that the related reports of RSM on the consolidated financial
statements and internal control over financial reporting for the fiscal years ended December 31, 2017, 2016 and 2015 should also no longer be relied upon and that it had discussed such matters with RSM.
On May 7, 2019, upon the recommendation of the Company’s management and as a result of additional information regarding errors related to bill and
hold revenue recognition analyzed during the course of its investigation, the Audit Committee concluded that the Company’s consolidated financial statements for the fiscal year ended December 31, 2014 and the related reports of RSM on such
consolidated financial statements and internal control over financial reporting for the fiscal year ended December 31, 2014 should also no longer be relied upon.