Company Quick10K Filing
Standex
Price73.84 EPS5
Shares12 P/E14
MCap916 P/FCF15
Net Debt100 EBIT93
TEV1,016 TEV/EBIT11
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-10-30
10-K 2020-06-30 Filed 2020-08-25
10-Q 2020-03-31 Filed 2020-05-08
10-Q 2019-12-31 Filed 2020-02-04
10-Q 2019-09-30 Filed 2019-11-06
10-K 2019-06-30 Filed 2019-08-27
10-Q 2019-04-29 Filed 2019-04-30
10-Q 2018-12-31 Filed 2019-01-31
10-Q 2018-09-30 Filed 2018-10-29
10-K 2018-06-30 Filed 2018-08-28
10-Q 2018-03-31 Filed 2018-05-01
10-Q 2017-12-31 Filed 2018-01-30
10-Q 2017-09-30 Filed 2017-11-01
10-K 2017-06-30 Filed 2017-08-28
10-Q 2017-03-31 Filed 2017-05-02
10-Q 2016-12-31 Filed 2017-02-03
10-Q 2016-09-30 Filed 2016-10-28
10-K 2016-06-30 Filed 2016-08-25
10-Q 2016-03-31 Filed 2016-05-03
10-Q 2015-12-31 Filed 2016-02-02
10-Q 2015-09-30 Filed 2015-10-29
10-K 2015-06-30 Filed 2015-08-27
10-Q 2015-03-31 Filed 2015-05-01
10-Q 2014-12-31 Filed 2015-02-03
10-Q 2014-09-30 Filed 2014-10-31
10-K 2014-06-30 Filed 2014-08-28
10-Q 2014-03-31 Filed 2014-05-02
10-Q 2013-09-30 Filed 2013-11-07
10-K 2013-06-30 Filed 2013-08-27
10-Q 2013-06-30 Filed 2014-02-03
10-Q 2013-03-31 Filed 2013-05-06
10-Q 2012-12-31 Filed 2013-02-01
10-Q 2012-09-30 Filed 2012-11-01
10-K 2012-06-30 Filed 2012-08-28
10-Q 2012-03-31 Filed 2012-05-02
10-Q 2011-12-31 Filed 2012-02-13
10-Q 2011-09-30 Filed 2011-10-27
10-K 2011-06-30 Filed 2011-09-08
10-Q 2011-03-31 Filed 2011-04-29
10-Q 2010-12-31 Filed 2011-01-28
10-Q 2010-09-30 Filed 2010-10-28
10-K 2010-06-30 Filed 2010-08-27
10-Q 2010-03-31 Filed 2010-04-29
10-Q 2009-12-31 Filed 2010-01-28
8-K 2020-10-29
8-K 2020-10-20
8-K 2020-08-26
8-K 2020-08-24
8-K 2020-07-15
8-K 2020-05-07
8-K 2020-04-01
8-K 2020-03-12
8-K 2020-02-03
8-K 2019-12-02
8-K 2019-10-22
8-K 2019-08-26
8-K 2019-08-23
8-K 2019-08-08
8-K 2019-04-01
8-K 2019-03-31
8-K 2019-01-30
8-K 2019-01-16
8-K 2018-12-21
8-K 2018-10-23
8-K 2018-10-05
8-K 2018-09-30
8-K 2018-09-28
8-K 2018-06-30
8-K 2018-05-01
8-K 2017-12-31

SXI 10Q Quarterly Report

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-10.1 ex_208177.htm
EX-10.2 ex_208178.htm
EX-31.1 ex_208179.htm
EX-31.2 ex_208180.htm
EX-32 ex_208181.htm

Standex Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
1.10.90.70.40.20.02012201420172020
Assets, Equity
0.30.20.20.10.10.02012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

sxi20190930_10q.htm
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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 September 30, 2020

 

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

 

Commission File Number 1-7233

 

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.     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 ☐

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 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):

 

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 October 27, 2020 was 12,380,248.

 

 

 

 

1

 

 

 

STANDEX INTERNATIONAL CORPORATION

 

 

INDEX

 

 

    Page No.
PART I. FINANCIAL INFORMATION:  
     

Item 1.

   
     
 

Condensed Consolidated Balance Sheets as of September 30, 2020 and June 30, 2020 (unaudited)

3

     
 

Condensed Consolidated Statements of Operations for the three months ended September 30, 2020 and 2019 (unaudited)

4

     
 

Condensed Consolidated Statements of Comprehensive Income for the three months ended September 30, 2020 and 2019 (unaudited)

5

     
 

Condensed Consolidated Statement of Stockholders’ Equity for the three months ended September 30, 2020 and 2019 (unaudited)

6

     
 

Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2020 and 2019 (unaudited)

7

     
 

Notes to Unaudited Condensed Consolidated Financial Statements

8

     
Item 2.

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

22

     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk 31
 

 

 

Item 4.

Controls and Procedures 32
 

 

 

PART II.

OTHER INFORMATION:

 
     
Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

     
Item 6.

Exhibits

33

 

 

 

2

 

 

PART I. FINANCIAL INFORMATION

Item 1.

 

 

STANDEX INTERNATIONAL CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands, except per share data)

 September 30, 2020  June 30, 2020 

ASSETS

        

Current Assets:

        
Cash and cash equivalents $93,698  $118,809 
Accounts receivables, less allowance for credit losses of $1,899 and $2,113 at September 30, 2020 and June 30, 2020, respectively  103,031   98,157 
Inventories  92,174   85,031 
Prepaid expenses and other current assets  17,885   18,870 
Income taxes receivable  7,802   8,194 
Current Assets-Discontinued Operations  262   2,936 

Total current assets

  314,852   331,997 
Property, plant, and equipment, net  132,016   132,533 
Intangible assets, net  115,451   106,412 
Goodwill  288,676   271,221 
Deferred tax asset  15,824   17,322 
Operating lease right-of-use asset  47,667   44,788 
Other non-current assets  27,416   26,605 

Total non-current assets

  627,050   598,881 

Total assets

 $941,902  $930,878 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current Liabilities:

        
Accounts payable $50,364  $54,910 
Accrued liabilities  61,144   59,929 
Income taxes payable  2,483   7,428 
Current liabilities-Discontinued Operations  406   610 

Total current liabilities

  114,397   122,877 
Long-term debt  199,947   199,150 
Operating lease long-term liabilities  37,400   36,293 
Accrued pension and other non-current liabilities  113,590   110,926 

Total non-current liabilities

  350,937   346,369 
         
Commitments and Contingencies (Note 16)          
         

Stockholders' equity:

        
Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 issued, 12,203,562 and 12,235,786 outstanding at September 30, 2020 and June 30, 2020  41,976   41,976 
Additional paid-in capital  74,035   72,752 
Retained earnings  834,645   827,656 
Accumulated other comprehensive loss  (137,051)  (147,659)
Treasury shares: 15,780,716 shares at September 30, 2020 and 15,748,492 shares at June 30, 2020  (337,037)  (333,093)

Total stockholders' equity

  476,568   461,632 

Total liabilities and stockholders' equity

 $941,902  $930,878 

 

See notes to unaudited condensed consolidated financial statements

 

 

3

 

 

STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Operations

 

   

Three Months Ended

 
   

September 30,

 

(In thousands, except per share data)

 

2020

   

2019

 
Net sales   $ 151,286     $ 155,978  
Cost of sales     96,550       97,752  

Gross profit

    54,736       58,226  
Selling, general, and administrative expenses     38,869       40,162  
Restructuring costs     1,488       1,479  
Acquisition related expenses     25       734  

Total operating expenses

    40,382       42,375  

Income from operations

    14,354       15,851  
Interest expense     1,484       2,121  
Other non-operating (income) expense     (173 )     (920 )

Income from continuing operations before income taxes

    13,043       14,650  
Provision for income taxes     2,696       4,077  

Income from continuing operations

    10,347       10,573  
Income (loss) from discontinued operations, net of income taxes     (627 )     1,866  

Net income

  $ 9,720     $ 12,439  
                 

Basic earnings (loss) per share:

               
Continuing operations   $ 0.85     $ 0.86  

Discontinued operations

    (0.05 )     0.15  

Total

  $ 0.80     $ 1.01  

Diluted earnings (loss) per share:

               
Continuing operations   $ 0.84     $ 0.85  

Discontinued operations

    (0.05 )     0.15  

Total

  $ 0.79     $ 1.00  
                 
Weighted average number of shares:                
Basic     12,228       12,345  
Diluted     12,281       12,403  

 

See notes to unaudited condensed consolidated financial statements

 

 

 

4

 

 

STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

   

Three Months Ended

 
   

September 30,

 

(In thousands)

 

2020

   

2019

 

Net income

  $ 9,720     $ 12,439  

Other comprehensive income (loss):

               

Defined benefit pension plans:

               
Actuarial gains (losses) and other changes in unrecognized costs   $ (215 )   $ 348  
Amortization of unrecognized costs     1,667       1,435  

Derivative instruments:

               
Change in unrealized gains (losses)     (571 )     1,152  
Amortization of unrealized gains (losses) into interest expense     587       (1,201 )
Foreign currency translation gains (losses)     9,518       (5,595 )

Other comprehensive income (loss) before tax

  $ 10,986     $ (3,861 )
                 

Income tax provision (benefit):

               

Defined benefit pension plans:

               
Actuarial gains (losses) and other changes in unrecognized costs   $ 46     $ (47 )
Amortization of unrecognized costs     (400 )     (345 )

Derivative instruments:

               
Change in unrealized gains and (losses)     113       (25 )
Amortization of unrealized gains and (losses) into interest expense     (137 )     7  

Income tax provision (benefit) to other comprehensive income (loss)

  $ (378 )   $ (410 )
                 

Other comprehensive income (loss), net of tax

    10,608       (4,271 )

Comprehensive income

  $ 20,328     $ 8,168  

 

See notes to unaudited condensed consolidated financial statements

 

 

 

5

 

 

Unaudited Consolidated Statements of Stockholders' Equity

Standex International Corporation and Subsidiaries

 

              Accumulated Other        
      

Additional

      

Comprehensive

          

Total

 
For the Three month period ended September 30, 2020  Common   Paid-in   Retained   Income  Treasury Stock   Stockholders’ 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, June 30, 2020

 $41,976  $72,752  $827,656  $(147,659)  15,748  $(333,093) $461,632 
Stock issued for employee stock option and purchase plans, including related income tax benefit  -   (472)  -   -   (55)  1,165   693 
Stock-based compensation  -   1,755   -   -   -   -   1,755 
Treasury stock acquired  -   -   -   -   87   (5,109)  (5,109)
Comprehensive income:                            
Net income  -   -   9,720   -   -   -   9,720 
Foreign currency translation adjustment  -   -   -   9,518   -   -   9,518 
Pension, net of tax of $(0.4) million  -   -   -   1,098   -   -   1,098 
Change in fair value of derivatives, net of tax of $0 million  -   -   -   (8)  -   -   (8)
Dividends declared ($0.22 per share)  -   -   (2,731)  -   -   -   (2,731)

Balance, September 30, 2020

 $41,976  $74,035  $834,645  $(137,051)  15,780  $(337,037) $476,568 
                             

For the Three month period ended September 30, 2019

                            

(in thousands, except as specified)

                            

Balance, June 30, 2019

 $41,976  $65,515  $818,282  $(137,278)  15,650  $(324,182) $464,313 
Stock issued for employee stock option and purchase plans, including related income tax benefit  -   (76)  -   -   (50)  1,025   949 
Stock-based compensation  -   2,757   -   -   -   -   2,757 
Treasury stock acquired  -   -   -   -   11   (771)  (771)
Comprehensive income:                            
Net income  -   -   12,439   -   -   -   12,439 
Foreign currency translation adjustment  -   -   -   (5,595)  -   -   (5,595)
Pension, net of tax of $0.4 million  -   -   -   1,390   -   -   1,390 
Change in fair value of derivatives, net of tax of $0.4 million  -   -   -   (66)  -   -   (66)
Dividends declared ($0.20 per share)  -   -   (2,495)  -   -   -   (2,495)

Balance, September 30, 2019

 $41,976  $68,196  $828,226  $(141,549)  15,611  $(323,928) $472,921 

 

 

 

6

 

 

STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Cash Flows

 

   

Three Months Ended

 
   

September 30,

 

(In thousands)

 

2020

   

2019

 

Cash flows from operating activities

               
Net income   $ 9,720     $ 12,439  
Income (loss) from discontinued operations     (627 )     1,866  

Income from continuing operations

    10,347       10,573  

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

               
Depreciation and amortization     8,193       7,980  
Stock-based compensation     1,755       2,757  
Non-cash portion of restructuring charge     (414 )     (122 )
Life Insurance Benefit     -       (1,302 )
Contributions to defined benefit plans     (52 )     (241 )
Net changes in operating assets and liabilities     (10,595 )     (10,204 )

Net cash provided by operating activities - continuing operations

    9,234       9,441  
Net cash provided by (used in) operating activities - discontinued operations     2,190       (1,027 )

Net cash provided by operating activities

    11,424       8,414  

Cash flows from investing activities

               
Expenditures for property, plant, and equipment     (4,820 )     (6,688 )
Expenditures for acquisitions, net of cash acquired     (27,398 )     -  
Other investing activity     199       376  

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

    (32,019 )     (6,312 )

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

    -       8,654  

Net cash provided by (used in) investing activities

    (32,019 )     2,342  

Cash flows from financing activities

               
Borrowings on revolving credit facility     16,500       25,700  
Payments of revolving credit facility     (16,500 )     (34,500 )
Activity under share-based payment plans     693       949  
Purchases of treasury stock     (5,109 )     (771 )
Cash dividends paid     (2,692 )     (2,463 )

Net cash provided by (used in) financing activities

    (7,108 )     (11,085 )
Effect of exchange rate changes on cash and cash equivalents     2,592       (2,572 )

Net change in cash and cash equivalents

    (25,111 )     (2,901 )
Cash and cash equivalents at beginning of year     118,809       93,145  

Cash and cash equivalents at end of period

  $ 93,698     $ 90,244  
                 

Supplemental Disclosure of Cash Flow Information:

               

Cash paid during the year for:

               
Interest   $ 1,225     $ 1,841  
Income taxes, net of refunds   $ 5,753     $ 5,114  

 

See notes to unaudited condensed consolidated financial statements

 

 

 

7

 

 

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 months ended September 30, 2020 and 2019, the cash flows for the three months ended  September 30, 2020 and 2019 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at  September 30, 2020. The interim results are not necessarily indicative of results for a full year. The following 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, 2020The condensed consolidated balance sheet at  June 30, 2020 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, 2020. Unless otherwise noted, references to years are to the Company’s fiscal years.

 

Certain prior period amounts have been reclassified to conform to the current period presentation. In pursuing our business strategy, we have divested certain businesses and recorded activities of these businesses as discontinued operations. During the third quarter of 2020, the Company decided to divest its Refrigerated Solutions Group which consists of two operating segments in order to focus its financial assets and managerial resources on its remaining portfolio of businesses. Results of the Refrigerated Solutions Group in prior periods have been classified as discontinued operations in the Condensed Consolidated Financial Statements and excluded from the results of continuing operations. In the fourth quarter of fiscal year 2020, the Company reviewed the quantitative and qualitative characteristics of its remaining businesses and determined that it has seven operating segments that aggregate to five reportable segments.  Please refer to Note 16 Industry Segment Information for further information reportable segments. All periods presented have been revised to reflect the new reportable segments.

 

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 onset of the COVID-19 pandemic and its related economic impacts. As a result of the COVID-19 pandemic,  there is heightened volatility and uncertainty in customer demand and the worldwide economy. 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  September 30, 2020 and the issuance date of this Annual Report on Form 10-K.

 

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   March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASU 2020-04 is effective for all entities as of   March 12, 2020 through   December 31, 2022The Company adopted ASU 2020-04 in fiscal year 2021.  The adoption did not have a material impact on the consolidated financial statements.

 

In  June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an “incurred loss” method to “an expected loss” method. In   November 2019the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13. This amendment provides clarity and improves the codification to ASU 2016-13. The pronouncements are concurrently effective for fiscal years beginning after   December 15, 2019 and interim periods therein. The Company adopted ASU 2016-13 in fiscal year 2021.  The adoption did not have a material impact on the consolidated financial statements.

 

As a result of the adoption of ASU 2016-13, the Company has updated its critical accounting policy related to trade account receivables and allowances for credit losses as of September 30, 2020 from what was previously disclosed in our audited financial statements for the year ended June 30, 2020 as follows:

 

All trade account receivables are reported net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the credit losses expected from our trade account receivables over the life of the underlying assets. Assets with similar risk characteristics are pooled together for determination of their current expected credit losses. We regularly perform detailed reviews of our pooled assets to evaluate the collectability of receivables based on a combination of past, current, and future financial and qualitative factors that may affect customers’ ability to pay. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected.

 

In  August 2018the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20). The amendments in ASU 2018-14 remove, modify and add various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after  December 15, 2020 with early adoption permitted. The amendments must be applied on a retrospective basis for all periods presented. The company is currently evaluating the impacts the adoption of this ASU will have on its Consolidated Financial Statements.

 

8

 

 

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, 2020, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.

 

Renco Electronics

 

During the first quarter of fiscal year 2021, the Company acquired Renco Electronics, a designer and manufacturer of customized standard magnetics components and products including transformers, inductors, chokes and coils for power and RF applications.  Renco’s end markets and customer base in areas such as consumer and industrial applications are highly complementary to our existing business with the potential to further expand key account relationships and capitalize on cross selling opportunities between the two companies.  Renco operates one manufacturing facility in Florida and is supported by contract manufacturers in Asia.  Renco’s results are reported within our Electronics segment. 

 

The Company paid $30.4 million in cash for all of the issued and outstanding equity interests of Renco Electronics. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary estimate of their fair values on the closing date. The Company did acquire property, plant and equipment for which an initial estimate of the fair value remains in-process. The Company has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible assets based on the preliminary valuation results. Goodwill recorded from this transaction is attributable to Renco’s significant engineering and technical expertise in end markets supported by strong engineer-to-engineer relationships. In addition, Renco’s end markets and customer base in areas such as consumer and industrial are highly complementary to the Company’s existing business.

 

Intangible assets of $10.4 million are preliminarily recorded, consisting primarily of $3.6 million for indefinite lived trademarks, and $6.8 million of customer relationships to be amortized over 12 years. The Company’s assigned fair values are preliminary as of September 30, 2020 until such time as the valuation can be finalized. The goodwill of $14.2 million created by the transaction is deductible for income tax purposes.

 

The Company signed a new lease agreement with a related party, an entity in which the Renco Electronics President is a shareholder, on July 15, 2020. The lease is for three years and is subject to renewal, at the Company’s option under similar terms and conditions. The Company recorded a fair value adjustment of $0.4 million in connection with this lease, which is included in other acquired assets in the table below.


At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. As of September 30, 2020, the Company recorded right of use assets of $3.3 million, current lease liabilities of $1.8 million and non-current lease liabilities of $1.5 million, related to two operating leases in connection with the acquisition of Renco. Renco does not have material financing leases.

 

Please refer to Note 4 Fair Value Measurements for further information about the valuation of the $3.0 million contingent consideration liability.

 

9

 

The components of the fair value of the Renco Electronics acquisition, including the preliminary allocation of the purchase price at September 30, 2020, are as follows (in thousands):

 

  

Preliminary Allocation September 30, 2020

  

Adjustments

  

Adjusted Preliminary Allocation September 30, 2020

 

Fair value of business combination:

            

Cash payments

 $29,530  $-  $29,530 

Less, cash acquired

  (2,132)  -   (2,132)

Fair value of contingent consideration

  3,000   -   3,000 

Total

 $30,398  $-  $30,398 

 

  

Preliminary Allocation September 30, 2020

  

Adjustments

  

Adjusted Preliminary Allocation September 30, 2020

 

Identifiable assets acquired and liabilities assumed:

            

Other acquired assets

 $4,762  $-  $4,762 

Inventories

  5,446   -   5,446 

Identifiable intangible assets

  10,400   -   10,400 

Goodwill

  14,153   -   14,153 
Debt assumed  (712)     (712)

Liabilities assumed

  (3,651)  -   (3,651)

Total

 $30,398  $-  $30,398 

 

  

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.


Contingent consideration payable to the Horizon seller is based on continued employment of the seller on the second and third anniversary of the closing date of the acquisition. The Company is 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 and third anniversaries of the closing date and payments were made to the seller in the second quarters of fiscal year 2019 and 2020. This obligation is considered settled as of  June 30, 2020.

 

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,

 
  

2020

  

2019

 

Deferred compensation arrangements

 $-  $703 

Other acquisition-related costs

  25   31 

Total

 $25  $734 

  

 

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 recognized under 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 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, 2020

  

September 30, 2019

 
         
Electronics $55,271  $46,617 
         
Engraving Services  34,320   36,066 
Engraving Products  2,081   2,365 

Total Engraving

  36,401   38,431 
         
Scientific  16,663   14,750 
         
Engineering Technologies  17,633   24,644 
         
Hydraulics Cylinders and Systems  12,331   13,749 
Merchandising & Display  7,198   9,823 
Pumps  5,789   7,964 

Total Specialty Solutions

  25,318   31,536 
         
         

Total Revenue by Product Line

 $151,286  $155,978 

 

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, 2020

  

September 30,2019

 
United States $92,114  $94,042 
Asia Pacific  26,864   24,352 
EMEA (1)  28,818   34,300 
Other Americas  3,490   3,284 

Total

 $151,286  $155,978 

 

(1) EMEA consists primarily of Europe, Middle East and S. Africa.

 

11

 

The following table presents revenue from continuing operations disaggregated by timing of recognition (in thousands):

 

  

Three Months Ended

 

Timing of Revenue Recognition

 

September 30, 2020

  

September 30, 2019

 
Products and services transferred at a point in time $143,471  $149,494 
Products transferred over time  7,815   6,484 

Net Sales

 $151,286  $155,978 

 

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, 2020 (in thousands):

 

  

Balance at Beginning of Period

  

Additions

  

Recognized

  

Balance at End of Period

 

Three months ended September 30, 2020

                

Contract assets:

                

Prepaid and other current assets

 $9,140   6,054   7,187  $8,007 

Contract liabilities:

                

Customer deposits

 $2,298   1,873   2,753  $1,418 

 

During the three months ended September 30, 2020, 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, 2020

 
Amounts included in the contract liability balance at the beginning of the period $2,298 

 

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 (unadjusted) 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.

 

12

 

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, 2020 and June 30, 2020. 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, 2020 and  June 30, 2020 consisted of the following (in thousands):

 

  

September 30, 2020

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Marketable securities - deferred compensation plan

 $2,415  $2,415  $-  $- 
                 

Liabilities

                

Foreign exchange contracts

 $2,441  $-  $2,441  $- 

Interest rate swaps

  6,569   -   6,569   - 

Contingent acquisition payments (a)

  4,379   -   -   4,379 

 

  

June 30, 2020

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Marketable securities - deferred compensation plan

 $2,065  $2,065  $-  $- 
                 

Liabilities

                

Foreign exchange contracts

 $2,477  $-  $2,477  $- 
Interest rate swaps  6,667      6,667    

Contingent acquisition payments (a)

  1,343   -   -   1,343 

 

 

(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.

 

The financial liabilities based upon Level 3 inputs include contingent consideration arrangements relating to our acquisitions of Renco Electronics, GS Engineering or Piazza Rosa. The Company is contractually obligated to pay contingent consideration payments to the Sellers of these businesses based on the achievement of certain criteria.

 

Contingent consideration payable to the Piazza Rosa sellers is based on the achievement of certain revenue targets of each of the first three years following the acquisition. Contingent acquisition payments are payable in euros and can be paid through fiscal year 2021. As of September 30, 2020, the Company could be required to pay up to $0.9 million for contingent consideration arrangements if the revenue targets are met.

 

Contingent consideration payable to the GS Engineering sellers is based on the achievement of certain revenue and gross margin targets of each of the first five years following the acquisition. Contingent acquisition payments are scheduled to be paid in periods through fiscal year 2024. As of September 30, 2020, 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.

 

Contingent consideration payable to the Renco Electronics sellers is based on the achievement of certain earnings targets of each of the first three years following the acquisition. Contingent acquisition payments are scheduled to be paid in periods through fiscal year 2024. As of September 30, 2020, the Company could be required to pay up to $3.5 million for contingent consideration arrangements if the earnings targets are met.

 

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We have determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future payments was based on several factors, the most significant of which are continued employment of the seller and the risk-adjusted discount rate for the fair value measurement. As of September 30, 2020, the range of outcomes nor the assumptions used to develop the estimates had changed for the Piazza Rosa or GS Engineering arrangements. In connection with the acquisition of Renco Electronics in the first quarter of fiscal year 2021, the Company recorded a $3.0 million contingent consideration in non-current liabilities.

 

The Company will update its 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.

 

 

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 third quarter of fiscal 2020, in order to focus its financial assets and managerial resources on its remaining portfolio of businesses, the Company entered into a definitive agreement to sell the Refrigerated Solutions Group, consisting of the Master-Bilt and NorLake operating segments, to Ten Oaks Group for a cash purchase price of $10.6 million, subject to post-closing adjustments and various transaction fees. The Refrigerated Solutions Group was a part of the Company's Food Service Equipment segment and manufactured refrigerated cabinets and walk-ins for customers food service and retail end markets.

 

Results of the Refrigerated Solutions Group in current and prior periods have been classified as discontinued operations in the Unaudited Condensed Consolidated Financial Statements and excluded from the results of continuing operations.  Activity related to discontinued operations for the three months ended September 30, 2020 and 2019 is as follows (in thousands):

 

  

Three Months Ended

 
  

September 30,

 
  

2020

  

2019

 

Net Sales

 $-  $40,466 
         

Income (Loss) from Operations

 $(439) $2,784 
         

Profit (Loss) Before Taxes

 $(826) $2,611 

Benefit (Provision) for Taxes

  199   (745)

Net income (loss) from Discontinued Operations

 $(627) $1,866 

 

Net assets (liabilities) were ($0.1) million and $2.3 million as of September 30, 2020 and June 30, 2020, respectively.

 

 

6)

Inventories

 

Inventories are comprised of the following (in thousands):

 

  September 30, 2020  June 30, 2020 
Raw materials $38,364  $37,257 
Work in process  25,755   25,527 
Finished goods  28,055   22,247 

Total

 $92,174  $85,031 

 

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 $2.5 million and $2.5 million for the three months ended September 30, 2020 and 2019, respectively.

 

 

14

 
 

7)

Goodwill

 

Changes to goodwill during the period ended  September 30, 2020 were as follows (in thousands):

 

  June 30, 2020  

Acquisitions

  Translation Adjustment  September 30, 2020 
Electronics $131,582  $14,153  $2,517  $148,252 
Engraving  77,195   -   420   77,615 
Scientific  15,454   -   -   15,454 
Engineering Technologies  43,685   -   365   44,050 
Specialty Solutions  3,305   -   -   3,305 

Total

 $271,221  $14,153  $3,302  $288,676 

 

 

8)

Warranties

 

The expected cost associated with warranty obligations on our products is recorded as a component of cost of sales when the revenue is recognized. The Company’s estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Since warranty estimates are forecasts based on the best available information, claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.

 

The changes in warranty reserve from continuing operations, which are recorded as a component of accrued liabilities, as of  September 30, 2020 and  June 30, 2020 were as follows (in thousands):

 

  September 30, 2020  June 30, 2020 

Balance at beginning of year

 $1,781  $1,911 

Acquisitions and other

  124   (86)

Warranty expense

  710   1,783 

Warranty claims

  (618)  (1,827)

Balance at end of period

 $1,997  $1,781 

 

 

9)

Debt

 

Long-term debt is comprised of the following (in thousands):

 

  September 30, 2020  June 30, 2020 

Bank credit agreements

 $200,712  $200,000 

Total funded debt

  200,712   200,000 

Issuance Cost

  (765)  (850)

Total long-term debt

 $199,947  $199,150 

 

Bank Credit Agreements

 

During the second quarter of fiscal year 2019, the Company entered into a five-year Amended and Restated Credit Agreement (“Credit Facility”, or “facility”). The facility has a borrowing limit of $500 million. The facility can be increased by an amount of up to $250 million, in accordance with specified conditions contained in the agreement. The facility also includes a $10 million sublimit for swing line loans and a $35 million sublimit for letters of credit.

 

In connection with the acquisition of Renco, the company assumed $0.7 million of debt under the Paycheck Protection Program, within the CARES Act. These borrowings mature in April 2022.

 

At September 30, 2020, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $6.0 million and had the ability to borrow $206.4 million under the facility. Funds borrowed under the facility  may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes.  The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants which the Company was compliant with as of  September 30, 2020.  At September 30, 2020, the carrying value of the current borrowings approximate fair value.

 

 

 
10)Accrued Liabilities

 

Accrued expenses from continuing operations recorded in our Consolidated Balance Sheets at September 30, 2020 and   June 30, 2020 consist of the following (in thousands):

 

  

September 30, 2020

  

June 30, 2020

 

Payroll and employee benefits

 $21,854  $24,084 

Workers' compensation

  3,524   2,743 

Warranty