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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

 

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-07233

 

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

31-0596149

(State of incorporation)

(IRS Employer Identification No.)

 

23 Keewaydin drive, Salem, New Hampshire

03079

(Address of principal executive offices)

(Zip Code)

 

(603) 893-9701

(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

Common Stock, Par Value $1.50 Per Share

SXI

New York Stock Exchange

 

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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☒

 

 

Accelerated filer ☐

 

Non-accelerated filer ☐  

Smaller reporting company 

 

   

Emerging growth company 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No ☒

 

The number of shares of Registrant's Common Stock outstanding on May 3, 2023 was 11,902,676

1

 

 

 

STANDEX INTERNATIONAL CORPORATION

 

 

INDEX

 

 

 

 

Page No.

PART I.  FINANCIAL INFORMATION:

 

 

 

 

Item 1.

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2023 and June 30, 2022 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2023 and 2022 (unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended March 31, 2023 and 2022 (unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 31, 2023 and 2022 (unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2023 and 2022 (unaudited)

8

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

 

 

 

Item 4.

Controls and Procedures

38

 

 

 

PART II.  OTHER INFORMATION:

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

     

Item 6.

Exhibits

40

 

2

 

 

PART I. FINANCIAL INFORMATION

ITEM 1

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

 

  March 31,  June 30, 

(In thousands, except per share data)

 

2023

  

2022

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $175,284  $104,844 

Accounts receivable, less allowance for credit losses of $2,537 and $2,214 at March 31, 2023 and June 30, 2022, respectively

  121,161   117,075 

Inventories

  104,516   105,339 

Prepaid expenses and other current assets

  56,611   45,210 

Income taxes receivable

  3,203   6,530 

Total current assets

  460,775   378,998 
         

Property, plant, and equipment, net

  130,638   128,584 

Intangible assets, net

  79,562   85,770 

Goodwill

  269,463   267,906 

Deferred tax asset

  9,213   8,186 

Operating lease right-of-use asset

  36,069   39,119 

Other non-current assets

  29,368   25,876 

Total non-current assets

  554,313   555,441 
         

Total assets

 $1,015,088  $934,439 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Accounts payable

 $67,512  $74,520 

Accrued liabilities

  55,704   67,773 

Income taxes payable

  7,371   8,475 

Total current liabilities

  130,587   150,768 
         

Long-term debt

  173,333   174,830 

Operating lease long-term liabilities

  28,463   31,357 

Accrued pension and other non-current liabilities

  77,155   78,141 

Total non-current liabilities

  278,951   284,328 
         

Contingencies (Note 15)

          
         

Stockholders' equity:

        

Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 shares issued, 11,791,341 and 11,824,128 shares outstanding at March 31, 2023 and June 30, 2022

  41,976   41,976 

Additional paid-in capital

  97,294   91,200 

Retained earnings

  1,010,395   901,421 

Accumulated other comprehensive loss

  (147,175)  (153,312)

Treasury shares: 16,192,937 and 16,160,150 shares at March 31, 2023 and June 30, 2022

  (396,940)  (381,942)

Total stockholders' equity

  605,550   499,343 
         

Total liabilities and stockholders' equity

 $1,015,088  $934,439 

 

See notes to unaudited condensed consolidated financial statements

 

3

 
 

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31,

   

March 31,

 

(In thousands, except per share data)

 

2023

   

2022

   

2023

   

2022

 

Net sales

  $ 184,332     $ 189,281     $ 552,721     $ 550,600  

Cost of sales

    113,435       120,900       341,251       347,210  

Gross profit

    70,897       68,381       211,470       203,390  

Selling, general, and administrative expenses

    42,954       42,306       127,756       128,589  

(Gain) loss on sale of business

    (62,105 )     -       (62,105 )     -  

Restructuring costs

    2,237       1,186       3,330       2,469  

Acquisition related costs

    21       419       487       1,561  

Other operating (income) expense, net

    (727 )     -       (611 )     1,700  

Total operating expenses

    (17,620 )     43,911       68,857       134,319  

Income from operations

    88,517       24,470       142,613       69,071  

Interest expense

    1,415       1,238       4,168       4,484  

Other non-operating (income) expense, net

    747       340       1,695       651  

Income from continuing operations before income taxes

    86,355       22,892       136,750       63,936  

Provision for income taxes

    5,788       5,484       17,783       15,677  

Income from continuing operations

    80,567       17,408       118,967       48,259  

Income (loss) from discontinued operations, net of tax

    (57 )     (86 )     (144 )     (135 )

Net income

  $ 80,510     $ 17,322     $ 118,823     $ 48,124  
                                 

Basic earnings (loss) per share:

                               

Continuing operations

  $ 6.82     $ 1.45     $ 10.06     $ 4.02  

Discontinued operations

    -       (0.01 )     (0.01 )     (0.01 )

Total

  $ 6.82     $ 1.44     $ 10.05     $ 4.01  

Diluted earnings (loss) per share:

                               

Continuing operations

  $ 6.77     $ 1.44     $ 9.98     $ 3.98  

Discontinued operations

    -       (0.10 )     (0.01 )     (0.01 )

Total

  $ 6.77     $ 1.34     $ 9.97     $ 3.97  
                                 

Weighted average number of shares:

                               

Basic

    11,811       11,982       11,825       12,009  

Diluted

    11,895       12,089       11,917       12,121  

 

See notes to unaudited condensed consolidated financial statements

 

4

 
 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31,

   

March 31,

 

(In thousands)

 

2023

   

2022

   

2023

   

2022

 

Net income

  $ 80,510     $ 17,322     $ 118,823     $ 48,124  

Other comprehensive income (loss):

                               

Defined benefit pension plans:

                               

Actuarial gains (losses) and other changes in unrecognized costs, net of tax

  $ (601 )   $ 88     $ (587 )   $ 189  

Amortization of unrecognized costs, net of tax

    712       1,103       2,132       3,320  

Derivative instruments:

                               

Change in unrealized gains (losses), net of tax

    (406 )     4,340       2,220       5,949  

Amortization of unrealized gains (losses) into interest expense, net of tax

    (1,134 )     627       (1,212 )     2,155  

Foreign currency translation gains (losses), net of tax

    1,480       (8,018 )     3,584       (17,343 )

Other comprehensive income (loss), net of tax

  $ 51     $ (1,860 )   $ 6,137     $ (5,730 )

Comprehensive income

  $ 80,561     $ 15,462     $ 124,960     $ 42,394  

 

See notes to unaudited condensed consolidated financial statements

 

5

 
 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Stockholders' Equity 

 

              

Accumulated Other

             

For the three month period ended

    Additional     Comprehensive     Total 

March 31, 2023

 

Common

  

Paid-in

  

Retained

  

Income

  

Treasury Stock

  

Stockholders’

 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, December 31, 2022

 $41,976  $93,359  $933,233  $(147,226)  16,153  $(391,925) $529,417 

Stock issued under incentive compensation plans and employee purchase plans

  -   126   -   -   (2)  50   176 

Stock-based compensation

  -   3,809   -   -   -   -   3,809 

Treasury stock acquired

  -   -   -   -   42   (5,065)  (5,065)

Comprehensive income:

                            

Net income

  -   -   80,510   -   -   -   80,510 

Foreign currency translation adjustment

  -   -   -   1,480   -   -   1,480 

Pension, net of tax of $0.1 million

  -   -   -   111   -   -   111 

Change in fair value of derivatives, net of tax of $0.5 million

  -   -   -   (1,540)  -   -   (1,540)

Dividends declared ($0.28 per share)

  -   -   (3,348)  -   -   -   (3,348)

Balance, March 31, 2023

 $41,976  $97,294  $1,010,395  $(147,175)  16,193  $(396,940) $605,550 
                             

For the three month period ended March 31, 2022

                            

(in thousands, except as specified)

                            

Balance, December 31, 2021

 $41,976  $84,560  $877,158  $(120,010)  15,948  $(360,234) $523,450 

Stock issued under incentive compensation plans and employee purchase plans

  -   49   -   -   (5)  122   171 

Stock-based compensation

  -   3,588   -   -   -   -   3,588 

Treasury stock acquired

  -   -   -   -   112   (11,874)  (11,874)

Comprehensive income:

                            

Net income

  -   -   17,322   -   -   -   17,322 

Foreign currency translation adjustment

  -   -   -   (8,018)  -   -   (8,018)

Pension, net of tax of $0.4 million

  -   -   -   1,191   -   -   1,191 

Change in fair value of derivatives, net of tax of $1.6 million

  -   -   -   4,967   -   -   4,967 

Dividends declared ($0.26 per share)

  -   -   (3,177)  -   -   -   (3,177)

Balance, March 31, 2022

 $41,976  $88,197  $891,303  $(121,870)  16,055  $(371,986) $527,620 

 

See notes to unaudited condensed consolidated financial statements

 

6

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Stockholders' Equity (Continued)

 

              

Accumulated Other

             

For the nine month period ended

     

Additional

      

Comprehensive

          

Total

 

March 31, 2023

 

Common

  

Paid-in

  

Retained

  

Income

  

Treasury Stock

  

Stockholders’

 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, June 30, 2022

 $41,976  $91,200  $901,421  $(153,312)  16,160  $(381,942) $499,343 

Stock issued under incentive compensation plans and employee purchase plans

  -   (2,414)  -   -   (150)  3,584   1,170 

Stock-based compensation

  -   8,508   -   -   -   -   8,508 

Treasury stock acquired

  -   -   -   -   183   (18,582)  (18,582)

Comprehensive income:

                            

Net income

  -   -   118,823   -   -   -   118,823 

Foreign currency translation adjustment

  -   -   -   3,584   -   -   3,584 

Pension, net of tax of $0.6 million

  -   -   -   1,545   -   -   1,545 

Change in fair value of derivatives, net of tax of $0.3 million

  -   -   -   1,008   -   -   1,008 

Dividends declared ($0.82 per share)

  -   -   (9,849)  -   -   -   (9,849)

Balance, March 31, 2023

 $41,976  $97,294  $1,010,395  $(147,175)  16,193  $(396,940) $605,550 
                             

For the nine month period ended March 31, 2022

                            

(in thousands, except as specified)

                            

Balance, June 30, 2021

 $41,976  $80,788  $852,489  $(116,140)  15,940  $(352,688) $506,425 

Stock issued under incentive compensation plans and employee purchase plans

  -   (804)  -   -   (94)  2,122   1,318 

Stock-based compensation

  -   8,213   -   -   -   -   8,213 

Treasury stock acquired

  -   -   -   -   209   (21,420)  (21,420)

Comprehensive income:

                          - 

Net income

  -   -   48,124   -   -   -   48,124 

Foreign currency translation adjustment

  -   -   -   (17,343)  -   -   (17,343)

Pension, net of tax of $1.1 million

  -   -   -   3,509   -   -   3,509 

Change in fair value of derivatives, net of tax of $2.4 million

  -   -   -   8,104   -   -   8,104 

Dividends declared ($0.76 per share)

  -   -   (9,310)  -   -   -   (9,310)

Balance, March 31, 2022

 $41,976  $88,197  $891,303  $(121,870)  16,055  $(371,986) $527,620 

 

See notes to unaudited condensed consolidated financial statements

 

7

 
 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

 Unaudited Condensed Consolidated Statements of Cash Flows

 

   

Nine Months Ended

 
   

March 31,

 

(In thousands)

 

2023

   

2022

 

Cash flows from operating activities

               

Net income

  $ 118,823     $ 48,124  

Income (loss) from discontinued operations

    (144 )     (135 )

Income from continuing operations

    118,967       48,259  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Depreciation and amortization

    21,275       22,411  

Stock-based compensation

    8,508       8,213  

Non-cash portion of restructuring charge

    129       595  

Gain on sale of business

    (62,105 )     -  

Contributions to defined benefit plans

    (151 )     (157 )

Changes in operating assets and liabilities, net

    (36,268 )     (30,693 )

Net cash provided by (used in) operating activities - continuing operations

    50,355       48,628  

Net cash provided by (used in) operating activities - discontinued operations

    (37 )     (375 )

Net cash provided by (used in) operating activities

    50,318       48,253  

Cash flows from investing activities

               

Expenditures for property, plant, and equipment

    (16,648 )     (13,138 )

Proceeds from sale of business

    67,023       -  

Expenditures for acquisitions, net of cash acquired

    -       (9,902 )

Other investing activity

    (1,321 )     5,718  

Net cash provided by (used in) investing activities

    49,054       (17,322 )

Cash flows from financing activities

               

Proceeds from borrowings

    224,500       -  

Payments of debt

    (226,200 )     -  

Contingent consideration payment

    (1,167 )     (1,167 )

Activity under share-based payment plans

    1,170       1,318  

Purchases of treasury stock

    (18,582 )     (21,420 )

Cash dividends paid

    (9,699 )     (9,148 )

Net cash provided by (used in) financing activities

    (29,978 )     (30,417 )

Effect of exchange rate changes on cash and cash equivalents

    1,046       (2,979 )

Net change in cash and cash equivalents

    70,440       (2,465 )

Cash and cash equivalents at beginning of year

    104,844       136,367  

Cash and cash equivalents at end of period

  $ 175,284     $ 133,902  
                 

Supplemental Disclosure of Cash Flow Information:

               

Cash paid during the year for:

               

Interest

  $ 3,186     $ 3,791  

Income taxes, net of refunds

  $ 22,064     $ 14,797  

 

See notes to unaudited condensed consolidated financial statements

 

8

 

 

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 for the three and nine months ended March 31, 2023 and 2022, the cash flows for the nine months ended March 31, 2023 and 2022 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at March 31, 2023. The interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated 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, 2022. The condensed consolidated balance sheet at June 30, 2022 was derived from audited financial statements, 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 Annual Report on Form 10-K and in particular the audited consolidated financial statements for the year ended June 30, 2022. Unless otherwise noted, references to years are to the Company’s fiscal years. Currently our fiscal year end is June 30.  For further clarity, our fiscal year 2023 includes the twelve-month period from July 1, 2022 to June 30, 2023.

 

The estimates and assumptions used in the preparation of the consolidated financial statements have considered the implications on the Company as a result of the COVID-19 pandemic and its related economic impacts. As a result of the COVID-19 pandemic, there is heightened volatility and uncertainty around supply chain performance, labor availability, and customer demand. However, the magnitude of such impact on the Company’s business and its duration is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of  March 31, 2023 and the issuance date of the Quarterly Report on Form 10-Q.

 

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. The Company evaluated subsequent events through the date and time its unaudited condensed consolidated financial statements were issued. 

 

Recently Issued Accounting Pronouncements

 

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. The guidance in ASU 2021-10 is effective for all entities for fiscal years beginning after December 15, 2021 with early adoption permitted. The Company adopted ASU 2021-10 in fiscal year 2023. The adoption did not have a material impact on the consolidated financial statements.

 

 

2)     Acquisitions

 

At the time of the acquisition and March 31, 2023, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.

 

Sensor Solutions

 

During the third quarter of fiscal year 2022, the Company acquired Sensor Solutions, a designer and manufacturer of customized standard magnetic sensor products including hall effect switch and latching sensors, linear and rotary sensors, and specialty sensors. Sensor Solutions' customer base in automotive, industrial, medical, aerospace, military and consumer electronics end markets are a strategic fit and expand the Company's presence in these markets. Sensor Solutions operates one light manufacturing facility in Colorado. Sensor Solutions' results are reported within the Company's Electronics segment.

 

9

 

The Company paid $9.9 million in cash for all the issued and outstanding equity interests of Sensor Solutions. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Sensor Solutions' technical and applications expertise in sectors such as electric vehicles, industrial automation and medical end markets, which is highly complementary to the Company's existing business.

 

Identifiable intangible assets of $2.8 million consist primarily of $0.8 million for indefinite lived tradenames, and $2.0 million of customer relationships to be amortized over 10 years. The goodwill of $5.8 million created by the transaction is deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. 

 

The components of the fair value of the Sensor Solutions acquisition, including the final allocation of the purchase price are as follows (in thousands): 

 

    
  

Final Allocation

 

Fair value of business combination:

    

Cash payments

 $10,016 

Less cash acquired

  (114)

Total

 $9,902 

 

  

Final Allocation

 

Identifiable assets acquired and liabilities assumed:

    

Other acquired assets

 $488 

Inventories

  529 

Property, plant, & equipment

  420 

Identifiable intangible assets

  2,780 

Goodwill

  5,840 

Liabilities assumed

  (155)

Total

 $9,902 

 

Other Acquisitions

 

During the fourth quarter of fiscal year 2022, the Company paid $3.1 million in cash for acquired assets and liabilities of a manufacturer of magnetic components. The results are reported within the Company's Electronics segment. The transaction resulted in $2.5 million of goodwill that is deductible for income tax purposes. 

 

Acquisition Related Costs

 

Acquisition related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation arrangements 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.

 

Acquisition related costs for the three months ended March 31, 2023 and 2022 were less than $0.1 million and $0.4 million, respectively. Acquisition related costs for the nine months ended March 31, 2023 and 2022 were $0.5 million and $1.6 million, respectively.

 

10

 
 

3)     Revenue From Contracts With Customers

 

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 is recognized over time under certain long-term contracts within the Engineering Technologies and Engraving groups 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. 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

 

March 31, 2023

  

March 31, 2022

 
         

Electronics

 $78,211  $79,889 
         

Engraving Services

  35,454   34,399 

Engraving Products

  1,455   2,824 

Total Engraving

  36,909   37,223 
         

Scientific

  18,898   18,914 
         

Engineering Technologies

  18,052   20,890 
         

Hydraulics Cylinders and Systems

  13,548   15,306 

Merchandising & Display

  13,203   8,438 

Pumps

  5,511   8,621 

Total Specialty Solutions

  32,262   32,365 
         

Total revenue by product line

 $184,332  $189,281 

 

11

 
  

Nine Months Ended

 

Revenue by Product Line

 

March 31, 2023

  

March 31, 2022

 
         

Electronics

 $225,966  $232,351 
         

Engraving Services

  105,259   101,637 

Engraving Products

  4,363   7,400 

Total Engraving

  109,622   109,037 
         

Scientific

  56,646   65,079 
         

Engineering Technologies

  59,244   56,558 
         

Hydraulics Cylinders and Systems

  47,823   39,207 

Merchandising & Display

  32,160   23,548 

Pumps

  21,260   24,820 

Total Specialty Solutions

  101,243   87,575 
         

Total revenue by product line

 $552,721  $550,600 

 

The following table presents revenue from continuing operations disaggregated by geography based on company’s locations (in thousands):

 

  

Three Months Ended

  

Three Months Ended

  

Nine Months Ended

  

Nine Months Ended

 

Net sales

 

March 31, 2023

  

March 31, 2022

  

March 31, 2023

  

March 31, 2022

 

United States

 $112,002  $110,076  $338,464  $314,657 

Asia Pacific

  29,204   37,441   95,858   116,842 

EMEA (1)

  38,953   37,963   106,279   108,841 

Other Americas

  4,173   3,801   12,120   10,260 

Total

 $184,332  $189,281  $552,721  $550,600 

 

(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

 

March 31, 2023

  

March 31, 2022

 

Products and services transferred at a point in time

 $169,669  $170,949 

Products transferred over time

  14,663   18,332 

Net sales

 $184,332  $189,281 

 

  

Nine Months Ended

 

Timing of Revenue Recognition

 

March 31, 2023

  

March 31, 2022

 

Products and services transferred at a point in time

 $501,090  $510,988 

Products transferred over time

  51,631   39,612 

Net sales

 $552,721  $550,600 

 

12

 

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 expenses and other current assets. Contract liabilities are customer deposits for which revenue has not been recognized. Current contract liabilities are recorded as accrued liabilities.

 

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.

 

The following table provides information about contract assets and liability balances (in thousands):

 

  

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Nine months ended March 31, 2023

                

Contract assets:

                

Prepaid expenses and other current assets

 $24,679  $49,682  $43,820  $30,541 

Contract liabilities:

                

Customer deposits

  41   13,015   12,750   306 

 

  

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Nine months ended March 31, 2022

                

Contract assets:

                

Prepaid expenses and other current assets

 $15,013  $35,091  $25,711  $24,393 

Contract liabilities:

                

Customer deposits

  471   10,293   10,721   43 

 

We recognized the following revenue which was included in the contract liability beginning balances (in thousands):

 

  

March 31, 2023

 

Revenue recognized in the period from:

 

Three months ended

  

Nine months ended

 

Amounts included in the contract liability balance at the beginning of the period

 $38  $41 

 

  

March 31, 2022

 

Revenue recognized in the period from:

 

Three months ended

  

Nine months ended

 

Amounts included in the contract liability balance at the beginning of the period

 $252  $471 

 

13

 
 

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 (unadjusted) in active markets for identical assets and liabilities. The Company’s deferred compensation plan assets consist of shares in various mutual funds (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 March 31, 2023 and June 30, 2022. The Company’s policy is to recognize transfers between levels as of the date they occur.

 

Cash and cash equivalents, accounts receivable, accounts payable, and debt are carried at cost, which approximates fair value.

 

The fair values of financial instruments were as follows (in thousands):

 

  

March 31, 2023

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Marketable securities - deferred compensation plan

 $3,629  $3,629  $-  $- 

Interest rate swaps

  9,539   -   9,539   - 
                 

Liabilities

                

Foreign exchange contracts

 $1,064  $-   1,064  $- 

 

  

June 30, 2022

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Marketable securities - deferred compensation plan

 $3,033  $3,033  $-  $- 

Foreign exchange contracts

  122   -   122   - 

Interest rate swaps

  8,420   -   8,420   - 
                 

Liabilities

                

Foreign exchange contracts

 $711  $-  $711  $- 

Contingent consideration (a)

  1,167   -   -   1,167 

 

(a) The fair value of contingent consideration arrangements is determined based on the Company's evaluation as to the probability and amount of any contingent consideration that has been earned to date.

 

14

 

The financial liabilities based upon Level 3 inputs include contingent consideration arrangements relating to the acquisition of Renco Electronics. The Company is contractually obligated to pay contingent consideration payments to the Sellers of this business based on the achievement of certain criteria.

 

The Company is contractually 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. The targets set in the GS Engineering stock purchase agreement were not met for the first, second, or third year, which concluded in the fourth quarter of fiscal years 2020, 2021 and 2022, respectively. As of March 31, 2023, the Company could be required to pay up to $12.8 million for contingent consideration arrangements if the revenue and gross margin targets are met in fiscal years 2023 through 2024.

 

In connection with its acquisition of Renco Electronics, the Company was obligated to pay contingent consideration over a three year period of up to $3.5 million to the sellers of Renco. During the first quarter of fiscal year 2022, the Company paid $1.2 million to the sellers as Ren