| Closing Price ($) | Shares Out (MM) | Market Cap ($MM) |
| $0.00 | 13 | $933 |
| 8-K | 2019-12-02 | Regulation FD, Exhibits |
| 8-K | 2019-10-22 | Shareholder Vote |
| 8-K | 2019-08-26 | Earnings, Exhibits |
| 8-K | 2019-08-23 | Exhibits |
| 8-K | 2019-08-08 | Exhibits |
| 8-K | 2019-04-01 | M&A, Regulation FD, Exhibits |
| 8-K | 2019-03-31 | Earnings, Other Events, Exhibits |
| 8-K | 2019-01-30 | Exhibits |
| 8-K | 2019-01-16 | Other Events, Exhibits |
| 8-K | 2018-12-21 | Enter Agreement, Off-BS Arrangement, Exhibits |
| 8-K | 2018-10-23 | Officers, Shareholder Vote, Exhibits |
| 8-K | 2018-10-05 | Officers |
| 8-K | 2018-09-30 | Earnings, Exhibits |
| 8-K | 2018-09-28 | Other Events, Exhibits |
| 8-K | 2018-06-30 | Earnings, Other Events, Exhibits |
| 8-K | 2018-05-01 | Earnings, Exhibits |
| 8-K | 2017-12-31 | Earnings, Exhibits |
| Part I. Financial Information Item 1 |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
| Item 4.     Controls and Procedures |
| Part II. Other Information |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
| Item 6. Exhibits |
| EX-31.1 | ex_163075.htm |
| EX-31.2 | ex_163077.htm |
| EX-32 | ex_163078.htm |
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
| Comparables ($MM TTM) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Ticker | M Cap | Assets | Liab | Rev | G Profit | Net Inc | EBITDA | EV | G Margin | EV/EBITDA | ROA |
| KAI | 1,022 | 966 | 567 | 678 | 289 | 65 | 123 | 1,310 | 43% | 10.7 | 7% |
| MLAB | 969 | 160 | 41 | 104 | 62 | 1 | 18 | 982 | 59% | 55.2 | 1% |
| SXI | 933 | 922 | 458 | 792 | 268 | 68 | 128 | 1,038 | 34% | 8.1 | 7% |
| MCRN | 932 | 1,731 | 1,199 | 1,140 | 358 | 24 | 45 | 1,606 | 31% | 35.5 | 1% |
| TPIC | 886 | 788 | 576 | 1,176 | 51 | -10 | 45 | 974 | 4% | 21.9 | -1% |
| LNN | 864 | 506 | 236 | 465 | 115 | 6 | 36 | 870 | 25% | 24.2 | 1% |
| RTEC | 861 | 444 | 66 | 246 | 128 | 28 | 41 | 749 | 52% | 18.4 | 6% |
| FARO | 852 | 523 | 149 | 400 | 224 | -3 | 16 | 732 | 56% | 44.9 | -1% |
| THR | 843 | 671 | 316 | 415 | 173 | 21 | 75 | 805 | 42% | 10.8 | 3% |
| SYX | 840 | 390 | 233 | 934 | 322 | 216 | 235 | 749 | 34% | 3.2 | 56% |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number
STANDEX INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| | |
| (State of incorporation) | (IRS Employer Identification No.) |
| | |
| (Address of principal executive offices) | (Zip Code) |
| ( (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Accelerated filer [ ] | ||
| Non-accelerated filer [ ] | Smaller Reporting Company [ ] |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
The number of shares of Registrant's Common Stock outstanding on November 3, 2019 was
STANDEX INTERNATIONAL CORPORATION
INDEX
| Page No. | ||
| PART I. | FINANCIAL INFORMATION: | |
| Item 1. | ||
| Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and June 30, 2019 | 3 | |
| Condensed Consolidated Statements of Operations for the three months ended September 30, 2019 and 2018 (unaudited) | 4 | |
| Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2019 and 2018 (unaudited) | 5 | |
| Condensed Consolidated Statement of Stockholders’ Equity for the three months ended September 30, 2019 and 2018 (unaudited) | 6 | |
| Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2019 and 2018 (unaudited) | 7 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 8 | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 25 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 33 |
|
|
| |
| Item 4. | Controls and Procedures | 34 |
|
|
| |
| PART II. | OTHER INFORMATION: | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 34 |
| Item 6. | Exhibits | 35 |
| PART I. FINANCIAL INFORMATION |
| ITEM 1 |
| STANDEX INTERNATIONAL CORPORATION |
| Condensed Consolidated Balance Sheets |
| (In thousands, except per share data) | September 30, 2019 (unaudited) | June 30, 2019 | ||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of reserve for doubtful accounts of $1,765 and $1,451 at September 30, 2019 and June 30, 2019 | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Income taxes receivable | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Deferred tax asset | ||||||||
| Operating lease right-of-use asset | - | |||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Income taxes payable | ||||||||
| Current liabilities-Discontinued Operations | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Operating lease long-term liabilities | - | |||||||
| Accrued pension and other non-current liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 issued, 12,373,209 and 12,334,607 outstanding at September 30, 2019 and June 30, 2019 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury shares: 15,611,069 shares at September 30, 2019 and 15,649,671 shares at June 30, 2019 | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
| See notes to unaudited condensed consolidated financial statements |
| STANDEX INTERNATIONAL CORPORATION |
| Unaudited Condensed Consolidated Statements of Operations |
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (In thousands, except per share data) | 2019 | 2018 | ||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Selling, general, and administrative expenses | ||||||||
| Restructuring costs | ||||||||
| Acquisition related expenses | ||||||||
| Other operating (income) expense, net | ( | ) | ||||||
| Total operating expenses | ||||||||
| Income from operations | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other non-operating income (expense) | ( | ) | ||||||
| Income from continuing operations before income taxes | ||||||||
| Provision for income taxes | ||||||||
| Income from continuing operations | ||||||||
| Income (loss) from discontinued operations, net of income taxes | ( | ) | ||||||
| Net income (loss) | $ | $ | ||||||
| Basic earnings (loss) per share: | ||||||||
| Continuing operations | $ | $ | ||||||
| Discontinued operations | ||||||||
| Total | $ | $ | ||||||
| Diluted earnings (loss) per share: | ||||||||
| Continuing operations | $ | $ | ||||||
| Discontinued operations | ||||||||
| Total | $ | $ | ||||||
| Cash dividends per share | $ | $ | ||||||
| See notes to unaudited condensed consolidated financial statements |
| STANDEX INTERNATIONAL CORPORATION | ||||||||||||||||||||||||||
| Unaudited Condensed Consolidated Statements of Comprehensive Income |
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (In thousands) | 2019 | 2018 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive income (loss): | ||||||||
| Defined benefit pension plans: | ||||||||
| Actuarial gains (losses) and other changes in unrecognized costs | $ | $ | ||||||
| Amortization of unrecognized costs | ||||||||
| Derivative instruments: | ||||||||
| Change in unrealized gains (losses) | ||||||||
| Amortization of unrealized gains (losses) into interest expense | ( | ) | ( | ) | ||||
| Foreign currency translation gains (losses) | ( | ) | ( | ) | ||||
| Other comprehensive income (loss) before tax | $ | ( | ) | $ | ( | ) | ||
| Income tax provision (benefit): | ||||||||
| Defined benefit pension plans: | ||||||||
| Actuarial gains (losses) and other changes in unrecognized costs | $ | ( | ) | $ | ( | ) | ||
| Amortization of unrecognized costs | ( | ) | ( | ) | ||||
| Derivative instruments: | ||||||||
| Change in unrealized gains and (losses) | ( | ) | ( | ) | ||||
| Amortization of unrealized gains and (losses) into interest expense | ||||||||
| Income tax provision (benefit) to other comprehensive income (loss) | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income (loss), net of tax | ( | ) | ( | ) | ||||
| Comprehensive income (loss) | $ | $ | ||||||
| See notes to unaudited condensed consolidated financial statements |
| Consolidated Statements of Stockholders' Equity |
| Standex International Corporation and Subsidiaries |
| Accumulated Other | ||||||||||||||||||||||||||||
| Additional | Comprehensive | Total | ||||||||||||||||||||||||||
| For the Three month period ended September 30, 2019 | Common | Paid-in | Retained | Income | Treasury Stock | Stockholders’ | ||||||||||||||||||||||
| (in thousands, except as specified) | Stock | Capital | Earnings | (Loss) | Shares | Amount | Equity | |||||||||||||||||||||
| Balance, June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Stock issued for employee stock option and purchase plans, including related income tax benefit and other | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Treasury stock acquired | ( | ) | ( | ) | ||||||||||||||||||||||||
| Comprehensive income: | - | |||||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Pension and OPEB adjustments, net of tax of $0.4 million | - | |||||||||||||||||||||||||||
| Change in fair value of derivatives, net of tax of $0.4 million | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Dividends declared ($0.20 per share) | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Balance, September 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| For the Three month period ended September 30, 2018 | ||||||||||||||||||||||||||||
| (in thousands, except as specified) | ||||||||||||||||||||||||||||
| Balance, June 30, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Stock issued for employee stock option and purchase plans, including related income tax benefit and other | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Treasury stock acquired | ( | ) | ( | ) | ||||||||||||||||||||||||
| Adoption of ASU 2018-02 | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Comprehensive income: | - | |||||||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Pension and OPEB adjustments, net of tax of $0.3 million | - | |||||||||||||||||||||||||||
| Change in fair value of derivatives, net of tax of $0.4 million | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Dividends declared ($0.18 per share) | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Balance, September 30, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| STANDEX INTERNATIONAL CORPORATION | |||||||||
| Unaudited Condensed Consolidated Statements of Cash Flows |
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (In thousands) | 2019 | 2018 | ||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | $ | ||||||
| Income from discontinued operations | ( | ) | ||||||
| Income from continuing operations | ||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Non-cash portion of restructuring charge | ( | ) | ||||||
| Life Insurance Benefit | ( | ) | ||||||
| Contributions to defined benefit plans | ( | ) | ( | ) | ||||
| Net changes in operating assets and liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities - continuing operations | ( | ) | ||||||
| Net cash (used in) operating activities - discontinued operations | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities | ||||||||
| Expenditures for property, plant, and equipment | ( | ) | ( | ) | ||||
| Expenditures for acquisitions, net of cash acquired | ( | ) | ||||||
| Proceeds from insurance recovery | ||||||||
| Other investing activity | ||||||||
| Net cash provided by (used in) investing activities- continuing operations | ( | ) | ||||||
| Net cash provided by (used in) investing activities- discontinued operations | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Borrowings on revolving credit facility | ||||||||
| Payments of revolving credit facility | ( | ) | ( | ) | ||||
| Activity under share-based payment plans | ||||||||
| Purchases of treasury stock | ( | ) | ( | ) | ||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of year | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes, net of refunds | $ | $ | ||||||
| See notes to unaudited condensed consolidated financial statements |
STANDEX INTERNATIONAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1) | Management Statement |
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations, cash flows and changes in stockholder’s equity for the three months ended September 30, 2019 and 2018 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at September 30, 2019. The interim results are not necessarily indicative of results for a full year. The following unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 2019. The condensed consolidated balance sheet at June 30, 2019 was derived from audited consolidated financial statements included in the annual report for the fiscal year ended June 30, 2019, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The financial statements contained herein should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K and in particular the audited consolidated financial statements for the year ended June 30, 2019. Certain prior period amounts have been reclassified to conform to the current period presentation. Unless otherwise noted, references to years are to the Company’s fiscal years.
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. We evaluated subsequent events through the date and time our unaudited condensed consolidated financial statements were issued.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity's testing of reporting units for goodwill impairment. It further clarifies that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently assessing the potential impact of the adoption of ASU 2017-04 on our goodwill impairment testing procedures and our consolidated financial statements.
| 2) | Acquisitions |
The Company’s recent acquisitions are strategically significant to the future growth prospects of the Company. At the time of the acquisition and September 30, 2019, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.
GS Engineering
During the fourth quarter of fiscal year 2019, the Company acquired Ohio-based Genius Solutions Engineering Company (d/b/a GS Engineering). The privately held company is a provider of specialized “soft surface” skin texturized tooling. GS Engineering primarily serves the automotive end market and its operating results are included in the Company’s Engraving segment.
The Company paid $
Intangible assets of $
The components of the fair value of the GS Engineering acquisition, including the preliminary allocation of the purchase price at September 30 2019, are as follows (in thousands):
| Preliminary Allocation June 30, 2019 | Adjustments | Adjusted Preliminary Allocation September 30, 2019 | ||||||||||
| Fair value of business combination: | ||||||||||||
| Cash payments | $ | $ | - | $ | ||||||||
| Less, cash acquired | ( | ) | - | ( | ) | |||||||
| Total | $ | $ | - | $ | ||||||||
| Preliminary Allocation June 30, 2019 | Adjustments | Adjusted Preliminary Allocation September 30, 2019 | ||||||||||
| Identifiable assets acquired and liabilities assumed: | ||||||||||||
| Other acquired assets | $ | $ | ( | ) | $ | |||||||
| Inventories | ( | ) | ||||||||||
| Customer Backlog | - | |||||||||||
| Property, plant, & equipment | - | |||||||||||
| Identifiable intangible assets | - | |||||||||||
| Goodwill | ||||||||||||
| Liabilities assumed | ( | ) | - | ( | ) | |||||||
| Total | $ | $ | - | $ | ||||||||
Agile Magnetics
On the last business day of the first quarter of fiscal year 2019, the Company acquired Regional Mfg. Specialists, Inc. (now named Agile Magnetics). The New Hampshire based, privately held company is a provider of high-reliability magnetics to customers in the semiconductor, military, aerospace, healthcare, and general industrial industries. The Company has included the results of Agile in its Electronics segment in the consolidated financial statements.
The Company paid $
Intangible assets of $
The components of the fair value of the Agile acquisition, including the final allocation of the purchase price at September 30, 2019, are as follows (in thousands):
| Preliminary Allocation September 30, 2018 | Adjustments | Final Allocation September 30, 2019 | ||||||||||
| Fair value of business combination: | ||||||||||||
| Cash payments | $ | $ | - | $ | ||||||||
| Less, cash acquired | ( | ) | - | ( | ) | |||||||
| Total | $ | $ | - | $ | ||||||||
| Preliminary Allocation September 30, 2018 | Adjustments | Final Allocation September 30, 2019 | ||||||||||
| Identifiable assets acquired and liabilities assumed: | ||||||||||||
| Other acquired assets | $ | $ | ( | ) | $ | |||||||
| Inventories | ||||||||||||
| Customer Backlog | ||||||||||||
| Property, plant, & equipment | ( | ) | ||||||||||
| Identifiable intangible assets | ||||||||||||
| Goodwill | ( | ) | ||||||||||
| Liabilities assumed | ( | ) | ( | ) | ( | ) | ||||||
| Total | $ | $ | - | $ | ||||||||
Tenibac-Graphion Inc.
During August of fiscal year 2019, the Company acquired Tenibac-Graphion Inc. (“Tenibac”). The Michigan based privately held company is a provider of chemical and laser texturing services for the automotive, medical, packaging, and consumer products markets. The Company has included the results of Tenibac in its Engraving segment in the condensed consolidated financial statements.
The Company paid $
Intangible assets of $
The components of the fair value of the Tenibac acquisition, including the final allocation of the purchase price are as follows (in thousands):
| Preliminary Allocation September 30, 2018 | Adjustments | Final Allocation | ||||||||||
| Fair value of business combination: | ||||||||||||
| Cash payments | $ | $ | - | $ | ||||||||
| Less cash acquired | ( | ) | - | ( | ) | |||||||
| Total | $ | $ | - | $ | ||||||||
| Preliminary Allocation September 30, 2018 | Adjustments | Final Allocation | ||||||||||
| Identifiable assets acquired and liabilities assumed: | ||||||||||||
| Other acquired assets | $ | $ | ( | ) | $ | |||||||
| Inventories | ||||||||||||
| Customer backlog | ( | ) | ||||||||||
| Property, plant, & equipment | ( | ) | ||||||||||
| Identifiable intangible assets | ||||||||||||
| Goodwill | ||||||||||||
| Liabilities assumed | ( | ) | ( | ) | ( | ) | ||||||
| Total | $ | $ | - | $ | ||||||||
Acquisition-Related Costs
Acquisition-related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation and (ii) acquisition-related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities. These costs do not include purchase accounting expenses, which we define as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets.
Deferred compensation costs relate to the acquisition of Horizon Scientific on October 16, 2016, for which payments were due to the seller of $
Acquisition related costs consist of miscellaneous professional service fees and expenses for our recent acquisitions.
The components of acquisition-related costs are as follows (in thousands):
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2019 | 2018 | |||||||
| Deferred compensation arrangements | $ | $ | ||||||
| Other acquisition-related costs | ||||||||
| Total | $ | $ | ||||||
| 3) | Revenue From Contracts With Customers |
Effective July 1, 2018, the Company adopted the new accounting standard, ASU No. 2014-09, “Revenue from Contracts with Customers” (ASC 606) using the modified retrospective method to contracts that were not completed as of June 30, 2018. The adoption of ASC 606 represents a change in accounting principle that provides enhanced revenue recognition disclosures.
Most of the Company’s contracts have a single performance obligation which represents the product or service being sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation and/or extended warranty. Additionally, most of the Company’s contracts offer assurance type warranties in connection with the sale of a product to customers. Assurance type warranties provide a customer with assurance that the product complies with agreed-upon specifications. Assurance type warranties do not represent a separate performance obligation.
In general, the Company recognizes revenue at the point in time control transfers to its customer based on predetermined shipping terms. Revenue recognized under long-term contracts within the Engineering Technologies group for highly customized customer products that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin are recognized over time. For products manufactured over time, the transfer of control is measured pro rata, based upon current estimates of costs to complete such contracts. Losses on contracts are fully recognized in the period in which the losses become determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known.
Disaggregation of Revenue from Contracts with Customers
The following table presents revenue disaggregated by product line and segment (in thousands):
| Three Months Ended | ||||||||
| Revenue by Product Line | September 30, 2019 | September 30, 2018 | ||||||
| Engraving Services | ||||||||
| Engraving Products | ||||||||
| Total Engraving | ||||||||
| Electronics | ||||||||
| Engineering Technologies Components | ||||||||
| Hydraulics Cylinders and Systems | ||||||||
| Refrigeration | $ | $ | ||||||
| Merchandising & Display | ||||||||
| Pumps | ||||||||
| Total Food Service Equipment | ||||||||
| Total Revenue by Product Line | $ | $ | ||||||
The following table presents revenue from continuing operations disaggregated by geography based on company’s locations (in thousands):
| Three Months Ended | ||||||||
| Net sales | September 30, 2019 | September 30,2018 | ||||||
| United States | $ | $ | ||||||
| Asia Pacific | ||||||||
| EMEA (1) | ||||||||
| Other Americas | ||||||||
| Total | $ | $ | ||||||
(1) EMEA consists primarily of Europe, Middle East and S. Africa.
The following table presents revenue from continuing operations disaggregated by timing of recognition (in thousands):
| Three Months Ended | ||||||||
| Timing of Revenue Recognition | September 30, 2019 | September 30, 2018 | ||||||
| Products and services transferred at a point in time | $ | $ | ||||||
| Products transferred over time | ||||||||
| Net Sales | $ | $ | ||||||
Contract Balances
Contract assets represent sales recognized in excess of billings related to work completed but not yet shipped for which revenue is recognized over time. Contract assets are recorded as prepaid and other current assets. Contract liabilities are customer deposits for which revenue has not been recognized. Current contract liabilities are recorded as accrued expenses.
The following table provides information about contract assets and liability balances as of September 30, 2019 (in thousands):
| Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||
| Three months ended September 30, 2019 | ||||||||||||||||
| Contract assets: | ||||||||||||||||
| Prepaid and other current assets | ||||||||||||||||
| Contract liabilities: | ||||||||||||||||
| Customer deposits | ||||||||||||||||
During the three months ended September 30, 2019, we recognized the following revenue as a result of changes in the contract liability balances (in thousands):
| Three months ended | ||||
| Revenue recognized in the period from: | September 30, 2019 | |||
| Amounts included in the contract liability balance at the beginning of the period | $ | |||
The timing of revenue recognition, invoicing and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheets.When consideration is received from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the goods and services are transferred to the customer and all revenue recognition criteria have been met.
| 4) | Fair Value Measurements |
The financial instruments shown below are presented at fair value. 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. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied.
Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and the methodologies used in valuation are as follows:
Level 1 – Quoted prices in active markets for identical assets and liabilities. The Company’s deferred compensation plan assets consist of shares in various mutual funds (for the deferred compensation plan, investments are participant-directed) which invest in a broad portfolio of debt and equity securities. These assets are valued based on publicly quoted market prices for the funds’ shares as of the balance sheet dates.
Level 2 – Inputs, other than quoted prices in an active market, that are observable either directly or indirectly through correlation with market data. For foreign exchange forward contracts and interest rate swaps, the Company values the instruments based on the market price of instruments with similar terms, which are based on spot and forward rates as of the balance sheet dates. The Company has considered the creditworthiness of counterparties in valuing all assets and liabilities.
Level 3 – Unobservable inputs based upon the Company’s best estimate of what market participants would use in pricing the asset or liability.
There were no transfers of assets or liabilities between any levels of the fair value measurement hierarchy at September 30, 2019 and June 30, 2019. The Company’s policy is to recognize transfers between levels as of the date they occur.
Cash and cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates fair value.
Items presented at fair value at September 30, 2019 and June 30, 2019 consisted of the following (in thousands):
| September 30, 2019 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - deferred compensation plan | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Foreign exchange contracts | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Contingent acquisition payments (a) | ||||||||||||||||
| June 30, 2019 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - deferred compensation plan | $ | $ | $ | $ | ||||||||||||
| Foreign exchange contracts | ||||||||||||||||
| Interest rate swaps | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Foreign exchange contracts | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Contingent acquisition payments (a) | ||||||||||||||||
| (a) | The fair value of our contingent consideration arrangement is determined based on our evaluation as to the probability and amount of any deferred compensation that has been earned to date. |
Our financial liabilities based upon Level 3 inputs consist of contingent consideration arrangements relating to our acquisitions of Horizon Scientific, Piazza Rosa, and GS Engineering. We are contractually obligated to pay contingent consideration payments in connection with the Horizon Scientific acquisition based on the criteria of continued employment of the seller on the second and third anniversary of the closing date of the acquisition. The seller of Horizon remained employed on the second anniversary of the closing date and a payment was made to the seller in the second quarter of fiscal 2019. We are contractually obligated to pay contingent consideration payments in connection with the Piazza Rosa acquisition based on the achievement of certain revenue targets during each of the first three years following acquisition. Piazza Rosa exceeded the defined revenue targets during the first year and a payment was made to the Piazza Rosa sellers during the first quarter of fiscal 2019. The Company is currently calculating the achievement of revenue targets of the second year and a payment is expected to be made to the Piazza Rosa sellers during the second quarter of fiscal 2020. The Company is also obligated to pay contingent consideration to the sellers of GS Engineering in the event that certain revenue and gross margin targets are achieved during the five years following acquisition. As of September 30, 2019, the targets set in the GS stock purchase agreement have not yet been met due to the length of time since the acquisition.
We will update our assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the consideration is paid. As of September 30, 2019, neither the range of outcomes nor the assumptions used to develop the estimate had changed.
| 5) | Discontinued Operations |
In pursuing our business strategy, the Company continues to divest certain businesses and record activities of these businesses as discontinued operations.
During the first quarter of fiscal 2019, in order to focus its financial assets and managerial resources on its remaining portfolio of businesses, the Company decided to divest its Cooking Solutions Group, which consisted of
The transaction closed on March 31, 2019 and resulted in a pre-tax gain of $
Results of the Cooking Solutions Group in current and prior periods have been classified as discontinued operations in the Condensed Consolidated Financial Statements and excluded from the results from continuing operations. Activity related to the Cooking Solutions Group and other discontinued operations for the three months ended September 30, 2019 and 2018 is as follows (in thousands):
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2019 | 2018 | |||||||
| Net Sales | $ | $ | ||||||
| Income from Operations | $ | $ | ||||||
| Profit Before Taxes | $ | $ | ||||||
| Benefit (Provision) for Taxes | ( | ) | ( | ) | ||||
| Net income from Discontinued Operations | $ | ( | ) | $ | ||||
| 6) | Inventories |
Inventories are comprised of the following (in thousands):
| September 30, 2019 | June 30, 2019 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
Distribution costs associated with the sale of inventory, which are recorded as a component of selling, general and administrative expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations, were $
| 7) | Goodwill |
Changes to goodwill during the period ended September 30, 2019 were as follows (in thousands):
| June 30, 2019 | Acquisitions | Translation Adjustment | September 30, 2019 | |||||||||||||
| Engraving | $ | $ | $ | ( | ) | $ | ||||||||||
| Electronics | ( | ) | ||||||||||||||
| Engineering Technologies | ( | ) | ||||||||||||||
| Hydraulics | ||||||||||||||||
| Food Service Equipment | ||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| 8) | Intangible Assets |
Intangible assets consist of the following (in thousands):
| Customer Relationships | Tradenames (Indefinite-lived) | Developed Technology | Other | Total | ||||||||||||||||
| September 30, 2019 | ||||||||||||||||||||
| Cost | $ | |||||||||||||||||||