Company Quick10K Filing
Quick10K
Standex
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$70.66 13 $894
10-Q 2019-04-29 Quarter: 2019-04-29
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-06-30 Quarter: 2013-06-30
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
T AT&T 221,710
MD Mednax 2,580
NVRO Nevro 1,910
IPOA Social Capital Hedosophia 712
OMP Oasis Midstream Partners 688
MNTX Manitex 151
HX Hexindai 142
DCIX Diana Containerships 30
SXE Southcross Energy Partners 0
ADMT ADM Tronics Unlimited 0
SXI 2019-04-29
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Item 2.
Item 6.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31 f_ex31z1.htm
EX-31 f_ex31z2.htm
EX-32 f_ex32.htm

Standex Earnings 2019-04-29

SXI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 f_10q.htm FORM 10-Q


 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



 

 

FORM 10-Q


[X]

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


For the quarterly period ended March 31, 2019


[  ]

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 [X]     NO [  ]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).             YES [X]     NO [  ]


DELAWARE




31-0596149

(State of incorporation)




(IRS Employer Identification No.)


11 KEEWAYDIN DRIVE, SALEM, NEW HAMPSHIRE


03079

(Address of principal executive offices)


(Zip Code)


(603) 893-9701

(Registrants telephone number, including area code)


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 [ X ]                  

       Accelerated filer [  ]                    

Non-accelerated filer [  ]   (Do not check if a smaller reporting company)      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 April 27, 2019 was 12,651,101.






STANDEX INTERNATIONAL CORPORATION

INDEX

Page No.

PART I.

FINANCIAL INFORMATION:

Item 1.

Condensed Consolidated Balance Sheets as of

March 31, 2019 (unaudited) and June 30, 2018

2

Condensed Consolidated Statements of Operations for the

Three and Nine Months Ended March 31, 2019 and 2018 (unaudited)

3

Condensed Consolidated Statements of Comprehensive Income for the

Three and Nine Months Ended March 31, 2019 and 2018 (unaudited)

4


Condensed Consolidated Statement of Stockholders Equity for the Three

and Nine Months Ended March 31, 2019 and 2018 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the

Nine Months Ended March 31, 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

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

42

Item 4.

Controls and Procedures

43

PART II.

OTHER INFORMATION:

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 6.

Exhibits

44


PART I.  FINANCIAL INFORMATION







ITEM 1














STANDEX INTERNATIONAL CORPORATION

Condensed Consolidated Balance Sheets








(In thousands, except per share data)


March 31, 2019

(unaudited)

June 30,

2018

ASSETS







Current Assets:







Cash and cash equivalents


$

96,041


$

   109,602

Accounts receivable, net of reserve for doubtful accounts of



115,782



   119,783

$1,777 and $2,184 at March 31, 2019 and June 30, 2018







Inventories



103,383



104,300

Prepaid expenses and other current assets



27,115



     10,255

Income taxes receivable



3,320



     2,348

Current assets- Discontinued Operations



106,863



37,671

Total current assets



452,504



   383,959

Property, plant, and equipment, net



139,432



 136,934

Intangible assets, net



111,505



84,938

Goodwill



260,443



211,751

Deferred tax asset



9,645



7,447

Other non-current assets



29,812



     29,749

Long-term assets-Discontinued Operations



-



62,159

Total non-current assets



550,837



532,978

Total assets


$

1,003,341


$

   916,937








LIABILITIES AND STOCKHOLDERS' EQUITY







Current Liabilities:







Accounts payable


$

61,358


$

78,947

Accrued liabilities



61,147



     57,679

Income taxes payable



4,762



6,050

        Current liabilities-Discontinued Operations



2,561



18,665

Total current liabilities



129,828



161,341

Long-term debt



291,725



193,772

Accrued pension and other non-current liabilities



102,171



110,979

Non-current liabilities-Discontinued Operations



-



50

Total non-current liabilities



393,896



304,801

Stockholders' equity:







Common stock, par value $1.50 per share, 60,000,000







shares authorized, 27,984,278 issued, 12,531,735 and







12,705,562 outstanding at March 31, 2019 and June 30, 2018



41,976



41,976

Additional paid-in capital



63,774



61,328

Retained earnings



808,417



761,430

Accumulated other comprehensive loss



(124,417)



(121,859)

Treasury shares: 15,452,543 shares at March 31, 2019







and 15,278,716 shares at June 30, 2018



(310,133)



 (292,080)

Total stockholders' equity



479,617



450,795

Total liabilities and stockholders' equity


$

1,003,341


$

916,937








See notes to unaudited condensed consolidated financial statements








STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Operations
















Three Months Ended


Nine Months Ended



March 31,


March 31,

(In thousands, except per share data)


2019


2018


2019


2018

Net sales


$

193,771


$

192,147


$

582,380


$

566,982

Cost of sales



131,981



126,035



384,402



371,882

     Gross profit



61,790



66,112



197,978



195,100

Selling, general, and administrative expenses



45,390



44,979



136,555



131,830

Acquisition related costs



805



1,254



2,352



2,962

Restructuring costs



549



1,060



1,173



5,792

     Total operating expenses



46,744



47,293



140,080



140,584

Income from operations



15,046



18,819



57,898



54,516

Interest expense



(3,230)



(2,286)



(8,598)



(5,800)

Other non-operating expense, net



(679)



(1,014)



(1,694)



(1,350)

Income from continuing operations before income taxes



11,137



15,519



47,606



47,366

Provision for income taxes



3,833



3,696



13,535



27,312

Net income from continuing operations



7,304



11,823



34,071



20,054

Income (loss) from discontinued operations, net of

    income taxes


18,965



977



21,450



3,940

Net income


$

26,269


$

12,800


$

55,521


$

23,994














Basic earnings per share:













      Continuing operations


$

0.58


$

0.93


$

2.70


$

1.58

      Discontinued operations



1.51



0.08



1.70



0.31

           Total


$

2.09


$

1.01


$

4.40


$

1.89

Diluted earnings per share:













      Continuing operations


$

0.58


$

0.92


$

2.69


$

1.57

      Discontinued operations



1.51



0.08



1.69



0.31

           Total


$

2.09


$

1.00


$

4.38


$

1.88














Cash dividends per share


$

0.20


$

0.18


$

0.58


$

0.52














See notes to unaudited condensed consolidated financial statements



















STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Comprehensive Income














Three Months Ended


Nine Months Ended


March 31,


March 31,

(In thousands)

2019


2018



2019



2018

Net income

$

26,269


$

12,800


$

55,521


$

23,994

Other comprehensive income (loss):












   Defined benefit pension plans:












      Actuarial gains (losses) and other changes in

          unrecognized costs

 $

(30)


 $


(285)


 $

250


 $


(623)

      Amortization of unrecognized costs


1,116



1,378



3,347



4,114

   Derivative instruments:












      Change in unrealized gains (losses)


1449



(316)



(2,226)



(1,893)

      Amortization of unrealized gains and into

          interest expense


(506)




2,363



1,767



3,427

   Foreign currency translation gains (losses)


410



11,694



(5,252)



14,148

Other comprehensive income (loss) before tax

$

2,439


$

14,834


$

(2,114)


$

19,173













Income tax provision (benefit):












   Defined benefit pension plans:












      Actuarial gains (losses) and other changes in

          unrecognized costs

 $

1


 $


(348)


 $

(25)


 $


129

      Amortization of unrecognized costs


(273)



(329)



(818)



(1,134)

   Derivative instruments:












      Change in unrealized gains and (losses)


172



(127)



338



(231)

      Amortization of unrealized (losses) into

         interest expense


21




(7)



61




(51)

Income tax provision (benefit) to other comprehensive

         income (loss)

 $

(79)


 $


(811)


 $

(444)


 $


(1,287)













Other comprehensive gain (loss), net of tax


2,360



14,023



(2,558)



17,886

Comprehensive income

$

28,629


$

26,823


$

52,963


$

41,880













See notes to unaudited condensed consolidated financial statements


















Consolidated Statements of Stockholders' Equity


























Standex International Corporation and Subsidiaries




Accumulated















Other

Treasury Stock


 

For the Nine month period ended March 31, 2019

(in thousands, except as specified)


Common Stock

 

Additional

Paid-in Capital

 


Retained

Earnings

 

Comprehensive

Income (Loss)



Shares




Amount

Total

Stockholders

Equity

 

Balance, June 30, 2018

$

    41,976

$

61,328

$

   761,430

$

       (121,859)

15,279

$

(292,080)

$

450,795

 

Stock issued for employee stock option and purchase plans, including related income tax benefit and other




(234)





(62)


1,186


952

 

Stock-based compensation




2,680









2,680

 

Treasury stock acquired









236


(19,239)


(19,239)

 

Adoption of ASC 606






(1,106)







(1,106)

 

Comprehensive income:














 

Net Income






55,521







55,521

 

Foreign currency translation adjustment








(5,252)





(5,252)

 

Pension and OPEB adjustments, net of tax of $0.8 million








2,754





2,754

 

Change in fair value of derivatives, net of tax of $0.4 million








(60)





(60)

 

Dividends declared ($0.58 per share)

 





(7,428)







(7,428)

 

Balance, March 31, 2019

$

41,976

$

63,774

$

808,417

$

(124,417)

15,453

$

(310,133)

$

479,617

 



For the Nine month period ended March 31, 2018

(in thousands, except as specified)














 

Balance, June 30, 2017

$

41,976

$

56,783

$

716,605

$

(115,938)

15,322

$

(290,762)

$

408,664

 

Stock issued for employee stock option and purchase plans, including related income tax benefit and other




(533)





(69)


1,301


768

 

Stock-based compensation




3,781









3,781

 

Treasury stock acquired









21


(2,008)


(2,008)

 

Adoption of ASU 2018-02






17,215


(17,215)





-

 

Comprehensive income:














 

Net Income






23,994







23,994

 

Foreign currency translation adjustment








14,148





14,148

 

Pension and OPEB adjustments, net of tax of $0.9 million








2,486





2,486

 

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








1,252





1,252

 

Dividends declared ($0.52 per share)

 


 


 

(6,678)

 



 



(6,678)

 

Balance, March 31, 2018

$

41,976

$

60,031

$

751,136

$

(115,267)

15,274

$

(291,469)

$

446,407

 















 















 















 















 















 















 















 















 















 















 




Consolidated Statements of Stockholders' Equity


























 

Standex International Corporation and Subsidiaries




Accumulated















Other

Treasury Stock


 

For the Three month period ended March 31, 2019

(in thousands, except as specified)


Common Stock

 

Additional

Paid-in Capital

 


Retained

Earnings

 

Comprehensive

Income (Loss)



Shares




Amount

Total

Stockholders

Equity

 

Balance, December 31, 2018

$

    41,976

$

63,024

$

   784,687

$

       (126,777)

15,454

$

(310,084)

$

452,826

 

Stock issued for employee stock option and purchase plans, including related income tax benefit and other




99





(2)


55


154

 

Stock-based compensation




651









651

 

Treasury stock acquired









1


(104)


(104)

 

Adoption of ASC 606














 

Comprehensive income:














 

Net Income






26,269







26,269

 

Foreign currency translation adjustment








410





410

 

Pension and OPEB adjustments, net of tax of $0.3 million








813





813

 

Change in fair value of derivatives, net of tax of $0.2 million








1,137





1,137

 

Dividends declared ($0.20 per share)

 





(2,539)







(2,539)

 

Balance, March 31, 2019

$

41,976

$

63,774

$

808,417

$

(124,417)

15,453

$

(310,133)

$

479,617

 
















 

Balance, December 31, 2017

$

41,976

$

59,016

$

723,435

$

(112,075)

15,275

$

(291,420)

$

420,932

 

Stock issued for employee stock option and purchase plans, including related income tax benefit and other




116





(2)


34


150

 

Stock-based compensation




899









899

 

Treasury stock acquired









1


(83)


(83)

 

Adoption of ASU 2018-02






17,215


(17,215)





-

 

Comprehensive income:














 

Net Income






12,800







12,800

 

Foreign currency translation adjustment








11,694





11,694

 

Pension and OPEB adjustments, net of tax of $0.3 million








416





416

 

Change in fair value of derivatives, net of tax of $0.2 million








1,913





1,913

 

Dividends declared ($0.18 per share)

 


 



(2,314)







(2,314)

 

Balance, March 31, 2018

$

41,976

$

60,031

$

751,136

$

(115,267)

15,274

$

(291,469)

$

446,407

 















 






STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Cash Flows










Nine Months Ended



March 31,

(In thousands)


2019


2018

Cash flows from operating activities







Net income


$

55,521


$

23,994

Income from discontinued operations



21,450



3,940

Income from continuing operations



34,071



20,054

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

Depreciation and amortization



22,794



19,632

Stock-based compensation



2,680



3,775

Non-cash portion of restructuring charge



(81)



(1,187)

       Deferred repatriation tax



-



11,465

Disposal of real estate and equipment



-



(433)

Contributions to defined benefit plans



(751)



(808)

Net changes in operating assets and liabilities



(33,753)



(25,608)

Net cash provided by operating activities - continuing operations

24,960



26,890

Net cash (used in) operating activities - discontinued operations

617



1,829

Net cash provided by operating activities



25,577



28,719

Cash flows from investing activities







Expenditures for property, plant, and equipment



(17,844)



(20,207)

Expenditures for acquisitions, net of cash acquired



(96,768)



(10,397)

Proceeds from life insurance policies



-



2,217

Proceeds from sales of real estate and equipment



2,898



1,949

Other investing activity



(377)



(397)

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



(112,091)



(26,835)

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



2,925



(1,184)

Net cash provided by (used in) investing activities



(109,166)



(28,019)

Cash flows from financing activities







Borrowings on revolving credit facility



206,650



134,500

Payments of revolving credit facility



(107,650)



(124,788)

Contingent consideration payment



(910)



-

Activity under share-based payment plans



952



774

Purchases of treasury stock



(19,239)



(2,007)

Cash dividends paid



(7,331)



(6,600)

Net cash provided by financing activities



72,472



1,879

Effect of exchange rate changes on cash and cash equivalents



(2,444)



5,179

Net change in cash and cash equivalents



(13,561)



7,758

Cash and cash equivalents at beginning of year



109,602



88,566

Cash and cash equivalents at end of period


$

96,041


$

96,324








Supplemental Disclosure of Cash Flow Information:







Cash paid during the year for:







Interest


$

7,574


$

4,518

Income taxes, net of refunds


$

8,027


$

17,720








See notes to unaudited condensed consolidated financial statements







2



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 and changes in stockholders equity for the three and nine months ended March 31, 2019 and 2018, the cash flows for the nine months ended March 31, 2019 and 2018 and the financial position of Standex International Corporation (Standex, the Company, we, us, or our), at March 31, 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, 2018.  The condensed consolidated balance sheet at June 30, 2018 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, 2018.  Certain prior period amounts have been reclassified to conform to the current period presentation.  Unless otherwise noted, references to years are to the Companys 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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements.  In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements.  The updated guidance provides an optional transition method, which allows for the application of the standard as of the adoption date with no restatement of prior period amounts.  We plan to adopt the standard on July 1, 2019 under the optional transition method described above.  We have selected a lease accounting software package and are completing the accumulation of existing lease data as well as assessing the impact that the new standard will have on our Consolidated Financial Statements, which will consist primarily of a balance sheet gross up of our operating leases to show equal and offsetting lease assets and lease liabilities.  Due to the materiality of the underlying leases subject to the new guidance, we anticipate the adoption will have a material impact on the Companys consolidated financial statements, however we are unable to quantify that effect until our analysis is complete.  


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.


In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815), Targeting Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entitys risk management activities in its financial statements and to make certain targeted improvements to simplify the application of hedge accounting guidance.  The new guidance requires additional disclosures including cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items along with providing new alternatives for applying hedge accounting to additional hedging strategies and measuring the hedged item in fair value hedges of interest rate risk.  This guidance is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for the Company), and interim periods within those fiscal years.  The amendment is to be applied prospectively.  Given the improvements made to the application of hedge accounting under the guidance, the Company decided to early adopt the ASU during the second quarter of fiscal year 2019.


2)  

Acquisitions


The Companys recent acquisitions are strategically significant to the future growth prospects of the Company.  At the time of the acquisition and March 31, 2019, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.  


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 condensed consolidated financial statements.


The Company paid $39.2 million in cash for all of the issued and outstanding equity interests of Agile.  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 has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible asset based on the preliminary valuation results.  Goodwill recorded from this transaction is attributable to expanded capabilities of the combined organization which will allow for improved responsiveness to customer demands via a larger pool of engineering resources and local manufacturing.  


Intangible assets of $18.2 million are preliminarily recorded, consisting of $14.3 million of customer relationships, $3.8 million for trademarks, and $0.1 million for a non-compete arrangement.  The goodwill of $15.6 million preliminarily recorded in connection with the transaction is deductible for income tax purposes.  The Companys assigned fair values are preliminary as of March 31, 2019 until such time as the valuation can be finalized.  


The components of the fair value of the Agile acquisition, including the preliminary allocation of the purchase price at March 31, 2019, are as follows (in thousands):






Preliminary Allocation September 30, 2018

Adjustments

Adjusted Allocation March 31, 2019

 

Fair value of business combination:

 

Cash payments


$

39,194

-

39,194

 

Less, cash acquired



(1)

-

(1)

 

Total


$

39,193

-

39,193

 















Preliminary Allocation September 30, 2018

Adjustments

Adjusted Allocation March 31, 2019

 

Identifiable assets acquired and liabilities assumed:



 

Other acquired assets


$

1,928

(35)

1,893

 

Inventories



2,506

268

2,774

 

Customer Backlog



-

220

220

 

Property, plant, & equipment



1,318

(348)

970

 

Identifiable intangible assets



13,718

4,432

18,150

 

Goodwill



20,142

(4,528)

15,614

 

Liabilities assumed



(419)

(9)

(428)

 

Total


$

39,193

-

39,193

 


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 $57.3 million in cash for all of the issued and outstanding equity interests of Tenibac.  The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date.  Goodwill recorded from this transaction is attributable to the complimentary services that the combined business can now offer to our customers, through increased responsiveness to customer demands, and providing innovative approaches to solving customer needs by offering a full line of mold and tool services to customers.  


Intangible assets of $16.9 million are preliminarily recorded, consisting of $11.3 million of customer relationships to be amortized over a period of nine years, $4.2 million for trademarks, and $1.4 million of other intangibles assets.  The Companys assigned fair values are preliminary as of March 31, 2019 until reviewed closing financial statements, including U.S. 338(h)10 elections, can be prepared by an independent accountant and agreed to by both parties as required by the stock purchase agreement.  The goodwill of $33.8 million created by the transaction is deductible for income tax purposes.


The components of the fair value of the Tenibac acquisition, including the preliminary allocation of the purchase price at March 31, 2019, are as follows (in thousands):






Preliminary Allocation September 30, 2018

Adjustments

Adjusted Allocation

March 31, 2019

 

 

Fair value of business combination:






Cash payments


$

57,284

-

57,284

 

 

 

Less cash acquired



(558)

-

(558)

 

 

 

Total


$

56,726

-

56,726

 

 

 
















 

 

 







Preliminary Allocation September 30, 2018

Adjustments

Adjusted Allocation

March 31, 2019

 

 

 

Identifiable assets acquired and liabilities assumed:



 

 

 

Other acquired assets


$

5,023

(1,245)

3,778

 

 

 

Inventories



324

-

324

 

 

 

Customer backlog



1,000

(800)

200

 

 

 

Property, plant, & equipment



2,490

510

3,000

 

 

 

Identifiable intangible assets



15,960

944

16,904

 

 

 

Goodwill



32,949

830

33,779

 

 

 

Liabilities assumed



(1,020)

(239)

(1,259)

 

 

 

Total


$

56,726

-

56,726

 

 

 



Piazza Rosa Group


During the first quarter of fiscal year 2018, the Company acquired the Piazza Rosa Group.  The Italy-based privately held company is a leading provider of mold and tool treatment and finishing services for the automotive and consumer products markets.  We have included the results of the Piazza Rosa Group in our Engraving segment.


The Company paid $10.1 million in cash for all of the issued and outstanding equity interests of the Piazza Rosa Group and also paid $2.8 million subsequent to closing in order to satisfy assumed debt of the entity at the time of acquisition.  The Company has estimated that total cash consideration will be adjusted by $2.6 million based upon achievement of certain revenue metrics over the three years following acquisition.  The Company made the first payment of $0.9 million during the first quarter of 2019 based on achievement of the revenue metrics during the first year.


The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date.  Goodwill recorded from this transaction is attributable to potential revenue increases from the combined competencies with Standex Engravings worldwide presence and Piazza Rosa Groups texturizing capabilities.  The combined companies create a global tool finishing service leader and open additional opportunities in the broader surface engineering market.


Intangible assets of $4.1 million were preliminarily recorded, consisting of $2.3 million of customer relationships to be amortized over a period of eight years, $1.6 million for trademarks, and $0.2 million of other intangibles assets.  The Company finalized its purchase accounting for this acquisition in the first quarter of fiscal year 2019 and reduced the identifiable intangible asset estimate by $0.6 million at that time.  The goodwill of $7.1 million created by the transaction is not deductible for income tax purposes.


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






Preliminary Allocation









September 30, 2017



Adjustments



Final

Allocation

Fair value of business combination:










   Total cash consideration


$

10,056


$

-


$

10,056

   Fair value of contingent consideration



-



              2,617   



   2,617

Total


$

10,056


$

             2,617  


$

12,673




Preliminary Allocation September 30, 2017


Adjustments



Final

Allocation

Identifiable assets acquired and liabilities assumed:






Other acquired assets


$

2,678


$

1,664   


$

4,342

Inventories



637



(2)



635

Property, plant, and equipment



5,005



                 558  



5,563

Identifiable intangible assets



4,087



(615)      



3,472

Goodwill



6,218



858   



7,076

Liabilities assumed



 (7,387)



           -  



 (7,387)

Deferred taxes



 (1,182)



154



 (1,028)

Total


$

10,056


$

               2,617  


$

12,673











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 payments due to the Horizon Scientific seller of $3.0 million on the second anniversary and $5.6 million on the third anniversary of the closing date of the purchase.  For the three and nine months ended March 31, 2019 we recorded deferred compensation costs of $0.7 million and $2.1 million respectively related to estimated deferred compensation earned by the Horizon Scientific seller to date which are nearly equal to the amounts recorded during the same periods in fiscal year 2018.  The payments are contingent on the seller remaining an employee of the Company, with limited exceptions, at each anniversary date.


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


Nine Months Ended



March 31,


March 31,



2019


2018


2019


2018

Deferred compensation arrangements


$

703


$

702   


$

2,107


$

2,108

Other acquisition-related costs


102



552



245



854

Total

$

805


$

1,254


$

2,352


$

2,962



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.  We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings, whereby the cumulative impact of all prior periods is recorded in retained earnings or other impacted balance sheet line items upon adoption.  The comparative information has not been adjusted and continues to be reported under ASC 605.  The impact on the Companys



3



consolidated income statements, balance sheets, equity or cash flows as of the adoption date as a result of applying ASC 606 have been reflected within those respective financial statements.


Under the Companys historical accounting policies, non-developmental long-term contracts were recognized when the goods were transferred to the customer.  Upon adoption, contracts 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 met the requirements for recognition over time under ASC 606.  Additionally, under the Companys historical accounting policies, the Food Service Equipment segment estimated the rebate accrual based on a volume-related method for rebates.  Under ASC 606, the Company now calculates the rebate accrual on anticipated sales for the rebate period, rather than measurement of actual achievement of specific tiers.



Upon adoption, we recognized a reduction to retained earnings of $1.0 million which is comprised of (i) a net change for Engineering Technologies of $0.7 million in revenues offset by cost of sales increase of $0.6 million; and (ii) a $1.5 million adjustment for accrued rebates in the Food Service Equipment segment.  The details of the adjustments to retained earnings upon adoption on June 30, 2018 as well as the effects on the consolidated balance sheet as of June 30, 2018, as if ASC 606 had been adopted in our 2018 fiscal year are as follows:






Cumulative




(in thousands)



Effect




Net sales


$

(799)





Cost of Sales



(574)





Income tax expense



340





Net Loss



(1,033)






Effective Date


Reported

June 30, 2018


ASC 606

Adjustments


As Adjusted

July 1, 2018



Inventories


$ 127,223

$ (574)

$ 126,649



Accounts receivable


134,228

703

134,931



Accrued liabilities


         65,575

1,502

67,077



Deferred income taxes


     26,816

(340)

26,476



Retained earnings


761,430      

(1,033)

760,397




Note that above amounts as of June 30 are before any restatement of balances to discontinued operations.  


The following tables reconcile the balances as presented as of and for the three and nine months ended March 31, 2019 exclusive of the cumulative effect adjustment presented above to the balances prior to the adjustments made to implement the new revenue recognition standard for the same period (in thousands):



Three Months Ended March 31, 2019


As Presented

Impact of

ASC 606

Balances

Without adoption of ASC 606

Net sales

$

193,771

$

(3,324)

$

190,447

Cost of sales


131,981


(2,460)


129,521

   Gross profit


61,790


(864)


60,926

Provision for income taxes


3,833


(250)


3,583

Income from continuing operations


7,304


(614)


6,690

Income (loss) from discontinued operations, net of income taxes


18,965


-


18,965

Net income (loss)

$

26,269

$

(614)

$

25,655



Nine Months Ended March 31, 2019


As Presented

Impact of

ASC 606

Balances

Without adoption of ASC 606

Net sales

$

582,380

$

(9,179)

$

573,201

Cost of sales


384,402


(7,742)


376,660

   Gross profit


197,978


(1,437)


196,541

Provision for income taxes


13,535


(416)


13,119

Income from continuing operations


34,071


(1,021)


33,050

Income (loss) from discontinued operations, net of income taxes


21,450


195


21,645

Net income (loss)

$

55,521

$

(826)

$

54,695
















As of March 31, 2019


As Presented


Impact of

ASC 606


Balances

Without adoption of ASC 606

 

ASSETS







 

Prepaid Expenses

$

27,115

$

(10,407)

$

16,708

 

Inventories


103,383


7,742


111,125

 








 

LIABILITIES







 

Income taxes payable


4,762


84


4,846

 

Retained earnings


808,417


402


808,819

 


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, 2019

March 31, 2018

Refrigeration

$

46,883

$

52,245

Merchandising & Display


7,662


8,814

Pumps


9,321


9,822

Total Food Service Equipment


63,866


70,881






Engraving Services


34,505


30,375

Engraving Products


2,630


3,374

Total Engraving


37,135


33,749






Engineering Technologies Components


27,467


23,426






Electronics


50,197


51,213






Hydraulics Cylinders and System


15,106


12,878






Total Revenue by Product Line

$

193,771

$

192,147













The following table presents revenue disaggregated by product line and segment (in thousands):



Nine Months Ended

Revenue by Product Line

March 31, 2019

March 31, 2018

Refrigeration

$

153,955


168,562

Merchandising & Display


25,638


25,720

Pumps


25,262


27,571

Total Food Service Equipment


204,855


221,853






Engraving Services


104,159


90,499

Engraving Products


7,443


9,958

Total Engraving


111,602


100,457






Engineering Technologies Components


71,818


65,621






Electronics


154,347


144,082






Hydraulics Cylinders and System


39,758


34,969






Total Revenue by Product Line

$

582,380


566,982






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



Three Months Ended

Nine Months

Ended

Net sales


March 31, 2019

March 31, 2019

United States

$

126,910

381,615

Asia Pacific


25,608

81,649

EMEA (1)


37,271

105,775

Other Americas


3,982

13,341

Total

$

193,771

582,380


(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):



Timing of Revenue Recognition

Three Months Ended


March 31, 2019

March 31, 2018

Products and services transferred at a point in time

$

184,950

$

187,970

Products transferred over time


8,821


4,177

Net Sales

$

193,771

$

192,147








Timing of Revenue Recognition

Nine Months Ended


March 31, 2019

March 31, 2018

Products and services transferred at a point in time

$

360,948

$

555,923

Products transferred over time


21,432


11,059

Net Sales

$

582,380

$

566,982






4



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 accounts receivable.

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 March 31, 2019 (in thousands):



Balance at Beginning of Period





Additions





Deductions



Balance at End of Period

Nine months ended March 31, 2019








Contract assets:








Accounts receivable                                  

$          5,655


$      23,500


$        24,844


$        4,311

Unbilled services

5,904


13,708


8,938


10,674

Contract liabilities:








Customer deposits

2,552


4,612


1,881


5,283


During the three and nine months ended March 31, 2019, we recognized the following revenue as a result of changes in the contract liability balances (in thousands):



Revenue recognized in the period from:

March 31, 2019


Three months ended

Nine months ended

 

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

$

1,378

$

1,881

 






 


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 Companys deferred compensation plan assets consist of shares in various mutual funds (for the deferred compensation plan,



5



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 Companys 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, 2019 and June 30, 2018.  The Companys 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 March 31, 2019 and June 30, 2018 consisted of the following (in thousands):




March 31, 2019



Total


Level 1


Level 2


Level 3

Assets













Marketable securities - deferred compensation plan


$

     2,485


$

     2,485


$

            -   


$

            -   

Interest rate swaps



455



-



455



-

Net investment hedge



2,170



-



2,170



-














Liabilities













Foreign exchange contracts


$

3,732


$

           -   


$

3,732


$

            -   

Interest rate swaps



721



-



721



-

Contingent acquisition payments (a)



5,730



-



-



5,730

Net investment hedge



2,264



-



2,264



-

          



June 30, 2018



Total


Level 1


Level 2


Level 3

Assets













Marketable securities - deferred compensation plan


$

     2,362


$

     2,362


$

            -   


$

          -   

Foreign exchange contracts



1,357



           -   



     1,357



           -   

Interest rate swaps



1,325



-



1,325



-














Liabilities













Foreign exchange contracts


$

4,204


$

           -   


$

     4,204


$

           -   

Contingent acquisition payments (a)



7,535



          -   



          -   



7,535



(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 and Piazza Rosa.  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.  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 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 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 March 31, 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 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 three operating segments and a minority interest investment.  In connection with the divestiture, during the second quarter of 2019, the Company sold its minority interest investment to the majority shareholders.  During the third quarter of fiscal 2019, the Company entered into a definitive agreement to sell the three operating segments to the Middleby Corporation for a cash purchase price of $105 million, subject to post-closing adjustments and various transaction fees.  


The transaction closed on March 31, 2019 and resulted in a pre-tax gain of $20.5 million less related transaction expenses of $4.4 million.  The Company reported a tax benefit related to the sale due to the write-off of deferred tax liabilities related to the Cooking Solutions Group.  Because the transaction closed on a non-business day, cash proceeds related to the sale were not received until the next business day which resulted in a receivable of $106.9 million recorded at quarter end.  The receivable from the buyer is recorded as a component of current assets discontinued operations on the Condensed Consolidated Balance Sheet as of March 31, 2019.  The proceeds received were subsequently used to pay down borrowings on our revolving credit facility.


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 and nine months ended March 31, 2019 and 2018 is as follows (in thousands):




Three Months Ended


Nine Months Ended



March 31,


March 31,



2019


2018


2019


2018

Net Sales


$

23,024


$

24,596


$

71,451


$

73,891














Gain on Sale of Business


$

20,539


$

-


$

20,539


$

-

Transaction Fees



(4,397)



-



(4,397)



-

Income from Operations


$

16,214


$

1,089


$

19,824


$

4,847













Profit Before Taxes

$

16,447


$

1,214


$

19,459


$

5,227

Benefit (Provision) for Taxes


2,518



(237)



1,991



(1,287)

Net income from Discontinued Operations

$

18,965


$

977


$

21,450


$

3,940



Assets and liabilities related to our discontinued operations appear in the condensed consolidated balance sheets are as follows (in thousands):


March 31,

 2019

June 30,

 2018

Accounts receivable

$

-

$

14,445

Inventories


-


22,923

Prepaid Expenses


-


303

Due from Buyer


106,863


-

Total current assets


106,863


37,671






Property, plant, equipment, net


-


7,637

Intangible assets, net


-


13,137

Goodwill


-


40,011

Other non-current assets


-


1,374

Total non-current assets


-


62,159

Total Assets


106,863


99,830






Accounts Payable


-


10,759

Accrued Liabilities


2,561


7,897

Income Tax Payable


-


9

Total current liabilities


2,561


18,665






Non-current Liabilities


-


50

Total Liabilities


2,561


18,715






Net Assets

$

104,302

$

81,115


6)

Inventories


Inventories are comprised of the following (in thousands):




March 31, 2019


June 30,

2018

Raw materials


$

47,216


$

46,833

Work in process



31,235



30,526

Finished goods



24,932



26,941

Total


$

103,383


$

104,300


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 $4.7 million and $13.6 million for the three and nine months ended March 31, 2019, respectively, and $5.4 million and $14.1 million for the three and nine months ended March 31, 2018, respectively.












7)

Goodwill



Changes to goodwill during the period ended March 31, 2019 were as follows (in thousands):




June 30,

2018

Discontinued

Operations

Continuing Ops - June 30, 2018

Acquisitions

Translation Adjustment

March 31,  2019

Food Service Equipment

$

63,464

$

 (40,011)

$

23,453

$

-   

$

-   

$

23,453

Engraving


27,194


-   


27,194


34,281


(376)


61,099

Engineering Technologies


44,247


-   


44,247


-   


(119)


44,128

Electronics


113,798


-   


113,798


15,614


(708)


128,704

Hydraulics


3,059


-   


3,059


-   


-   


3,059

Total

$

  251,762

$

(40,011)

$

211,751

$

49,895

$

(1,203)

$

260,443



8)

Intangible Assets


Intangible assets consist of the following (in thousands):






Tradenames












Customer Relationships



(Indefinite-lived)



Developed Technology



Other



Total

March 31, 2019















Cost

$

72,559


$

18,850


$

48,228


$

5,486


$

145,123

Accumulated amortization


(22,712)



-



(7,527)



(3,379)



(33,618)

Balance, March 31, 2019

$

49,847


$

18,850


$

40,701


$

2,107


$

111,505
















June 30, 2018















Cost

$

   48,285


$

        11,102


$

48,281


$

4,025


$

111,693

Accumulated amortization


 (19,134)



                    -   



(4,709)



(2,912)



(26,755)

Balance, June 30, 2018

$

   29,151


$

          11,102


$

43,572


$

 1,113


$

  84,938




Amortization expense from continuing operations for the three months ended March 31, 2019 and 2018 was $2.8 million and $1.9 million, respectively.  Amortization expense from continuing operations for the nine months ended March 31, 2019 and 2018 was $7.6 million and $6.0 million, respectively. At March 31, 2019, amortization expense of intangible assets is estimated to be $2.9 million for the remainder of fiscal year 2019, $11.0 million in 2020, $10.3 million in 2021, $9.7 million in 2022, $8.9 million in 2023 and $50.3 million thereafter.


9)

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 Companys 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.




6



The changes in warranty reserve from continuing operations, which are recorded as a component of accrued liabilities, as of March 31, 2019 and June 30, 2018 were as follows (in thousands):



March 31, 2019


June 30,

 2018

Balance at beginning of year

$

4,966


$

4,667

Acquisitions and other


(139)



(138)

Warranty expense


3,773



6,248

Warranty claims


(3,577)



  (5,811)

Balance at end of period

$

5,023


$

        4,966



10)

Debt


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



March 31, 2019


June 30,

2018

Bank credit agreements

$

293,000


$

     194,000

      Total funded debt


293,000



     194,000

Issuance Cost


(1,275)



        (228)

      Total long-term debt

$

291,725


$

     193,772



The Companys debt payments are due as follows (in thousands):


Fiscal Year


March 31, 2019

2019


$

-

2020



-

2021



-

2022



-

2023



-

Thereafter



293,000

     Total Debt



293,000

Issuance cost



(1,275)

Debt net of issuance cost


$

291,725



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 which is an increase of $100 million from the prior facilitys $400 million limit.  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.  


At March 31, 2019, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $7.4 million and had the ability to borrow $175.9 million under the facility.  At March 31, 2019, the carrying value of the current borrowings under the facility approximates fair value.






11)

Derivative Financial Instruments


In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815); Targeting Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entitys risk management activities in its financial statements and to make certain targeted improvements to simplify the application of hedge accounting guidance.  Given the improvements made to the application of hedge accounting under the guidance, the Company has decided to early adopt the ASU in the second quarter of fiscal 2019, or on December 1, 2018.  As of the adoption date, the Company had both foreign currency swaps and interest rate swaps which are designated and accounted for as cash flow hedges with no hedge ineffectiveness historically recorded.  As the Company had historically determined its foreign currency exchange contracts and interest rate swaps to be perfectly effective it did not record any hedge ineffectiveness in earnings related to the swaps historically or on the initial application date.  Therefore, there is no cumulative-effect adjustment necessary to apply this change in accounting principle.  In addition to the above, the Company reviewed the ASU and identified no other provisions of the standard which would result in a quantitative impact as a result of applying the new guidance.


Interest Rate Swaps


From time to time as dictated by market opportunities, the Company enters into interest rate swap agreements designed to manage exposure to interest rates on the Companys variable rate indebtedness.  The Company recognizes all derivatives on its balance sheet at fair value.  The Company has designated its interest rate swap agreements, including those that are forward-dated, as cash flow hedges, and changes in the fair value of the swaps are recognized in other comprehensive income until the hedged items are recognized in earnings.  Hedge ineffectiveness, if any, associated with the swaps will be reported by the Company in interest expense.  


The Companys effective swap agreements convert the base borrowing rate on $85 million of debt due under our revolving credit agreement from a variable rate equal to LIBOR to a weighted average fixed rate of 2.11% at March 31, 2019.  The fair value of the swaps, recognized in accrued expenses and in other comprehensive income, is as follows (in thousands, except percentages):









Effective Date


Notional Amount

Fixed Interest Rate

Maturity


March 31,

2019



June 30,

2018

December 18, 2015


     15,000

1.46%

December 19, 2018


-



55

December 19, 2015


      10,000

2.01%

December 19, 2019


32



74

May 24, 2017


25,000

1.88%

April 24, 2022


220



764

May 24, 2017


25,000

1.67%

May 24, 2020


203



432

August 6, 2018


25,000

2.83%

August 6, 2023


(721)



-






$

(266)


$

1,325


The Company reported no losses for the three and nine months ended March 31, 2019, as a result of hedge ineffectiveness.  Future changes in these swap arrangements, including termination of the agreements, may result in a reclassification of any gain or loss reported in accumulated other comprehensive income (loss) into earnings as an adjustment to interest expense.  Accumulated other comprehensive income (loss) related to these instruments is being amortized into interest expense concurrent with the hedged exposure.


Foreign Exchange Contracts


Forward foreign currency exchange contracts are used to limit the impact of currency fluctuations on certain anticipated foreign cash flows, such as collections from customers and loan payments between subsidiaries.  The Company enters into such contracts for hedging purposes only.  The Company has designated certain of these currency contracts as hedges, and changes in the fair value of these contracts are recognized in other comprehensive income until the hedged items are recognized in earnings.  Hedge ineffectiveness, if any, associated with these contracts will be reported in net income.  At March 31, 2019 and June 30, 2018, the Company



7



had outstanding forward contracts related to hedges of intercompany loans with net unrealized losses of $(3.7) million and $(2.9) million, respectively, which approximate the unrealized gains and losses on the related loans.  The contracts have maturity dates ranging from 2019-2023, which correspond to the related intercompany loans.  


Net Investment Hedges

During the third quarter of 2019, the Company entered into a foreign currency forward contracts to hedge the exposure to a portion of the Companys net investments in certain non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar.  The change in the fair value of the net investment hedges attributable to changes other than those due to fluctuations in the spot rate are excluded from the assessment of hedge effectiveness and that difference is reported directly in earnings.  The interest rate differential of the net investment hedges will be excluded from the assessment of hedge effectiveness and amortized linearly to earnings over the life of the derivative.  Any difference between the change in fair value of the excluded component and amounts recognized in earnings under that systematic and rational method shall be recognized in other comprehensive income.  


For the derivative instruments that are designated and qualify as net investment hedges, gains and losses are reported in other comprehensive loss where they offset gains and losses recorded on the Companys net investments in its non-U.S. subsidiaries.  These hedges are determined to be effective.  During the three and nine months ended March 31, 2019, the Company recognized $0.4 million of gains associated with hedges of a net investment in non-U.S. subsidiaries in currency translation adjustment in other comprehensive loss.  The contractual amount of the Companys foreign currency forward contracts that are designated as net investment hedges is $120.0 million as of March 31, 2019.


The notional amounts of the Companys forward contracts, by currency, are as follows:


Currency


March 31,

 2019


June 30,

2018

USD


175,015


64,558

Euro


12,250


21,300

Pound Sterling


-


       6,826

Peso


-


54,000

Canadian


20,600


20,600


The table below presents the fair value of derivative financial instruments as well as their classification on the balance sheet (in thousands):


Asset Derivatives


March 31, 2019


June 30, 2018

Derivative designated

Balance





Balance




as hedging instruments

Sheet





Sheet





Line Item



Fair Value


Line Item



Fair Value

Interest rate swaps

Other Assets


$

455


Other Assets


$

1,325

Foreign exchange contracts

Other Assets



-


Other Assets



1,357

Net investment hedge

Other Assets



2,170





-




$

2,625




$

2,682












Liability Derivatives

 


March 31, 2019


June 30, 2018

 

Derivative designated

Balance





Balance




 

as hedging instruments

Sheet





Sheet




 


Line Item



Fair Value


Line Item



Fair Value

 

Interest rate swaps

Accrued Liabilities


721


Accrued Liabilities


-

 

Foreign exchange contracts

Accrued Liabilities


3,732


Accrued Liabilities


4,204

 

Net investment hedge

Other non-current liabilities



2,264





-

 




$

6,717




$

         4,204  

 



8



The table below presents the amount of gain (loss) recognized in comprehensive income on our derivative financial instruments (effective portion) designated as hedging instruments and their classification within comprehensive income for the periods ended (in thousands):




Three Months Ended


Nine Months Ended



March 31,


March 31,



2019


2018


2019


2018

Interest rate swaps


$

(693)


$

513


$

(1,365)


$

930

Foreign exchange contracts



2,142



(829)



(861)



(2,823)



$

1,449


$

(316)


$

(2,226)


$

(1,893)


The table below presents the amount reclassified from accumulated other comprehensive income (loss) to Net Income for the periods ended (in thousands):


Details about Accumulated













Affected line item

Other Comprehensive


Three Months Ended



Nine Months Ended


in the Unaudited

Income (Loss) Components

March 31,



March 31,


Condensed Statements



2019


2018



2019


2018


of Operations

Interest rate swaps


$

(84)


$

2,363



$

(246)


$

3,427


Interest expense

Foreign exchange contracts



(422)



-




2,012



-


Interest expense

Net investment hedge



(435)



-




(435)



-


Non-operating income



$

(941)


$

2,363



$

1,331


$

3,427





12)

Retirement Benefits


The Company has defined benefit pension plans covering certain current and former employees both inside and outside of the U.S.  The Companys pension plan for U.S. employees is frozen for substantially all participants and has been replaced with a defined contribution benefit plan.


Net Periodic Benefit Cost for the Companys U.S. and Foreign pension benefit plans for the three and nine months ended March 31, 2019 and 2018 consisted of the following components (in thousands):



U.S. Plans


Non-U.S. Plans


Three Months Ended


Three Months Ended


March 31,


March 31,


2019


2018


2019


2018

Service cost

$

1


$

              1


$

9


$

               9

Interest cost


2,586



         2,520



254



           269

Expected return on plan assets


(3,385)



       (3,354)



(229)



         (244)

Recognized net actuarial loss


1,030



       1,145



86



           242

Amortization of prior service cost


-



                 -



-



           (9)

Net periodic benefit cost

$

232


$

            312


$

120


$

            267



U.S. Plans


Non-U.S. Plans


Nine Months Ended


Nine Months Ended


March 31,


March 31,


2019


2018


2019


2018

Service cost

$

3


$

3


$

26


$

27

Interest cost


7,757



7,560



757



783

Expected return on plan assets


(10,156)



(10,061)



(682)



 (710)

Recognized net actuarial loss


3,091



3,435



256



705

Amortization of prior service cost


-



-



-



 (26)

Net periodic benefit cost

$

695


$

937


$

357


$

779


The contributions made to defined benefit plans for the three and nine months ended March 31, 2019 and 2018 are presented below along with remaining contributions to be made for fiscal year 2019 (in thousands):


Contributions to defined benefit plans



Three Months

 Ended

March 31,



Nine Months

Ended

March 31,



Remaining Contributions to be made in Fiscal 2019

 




2019



2018



2019



2018




 

United States, unfunded plan


$

56


$

67


$

169


$

      194

$                        56

United Kingdom



196



210



582



614



184

 

Germany, unfunded plan



-



-



-



-



274

 

Ireland



-



-



-



-



65

 



$

252


$

277


$

751


$

808


$

579

 


13)

Income Taxes


The Company's effective tax rate from continuing operations for the third quarter of 2019 was 34.4% compared with 23.8% for the prior year quarter.  The effective tax rate in 2019 was higher due to both an $0.5 million discrete tax benefit related to the US tax reform recorded in the prior year quarter and not in the current year quarter as well as withholding taxes included in the annual effective tax rate for foreign repatriation in the current quarter that was not included in the rate in the prior year quarter.   

 

The Company's effective tax rate from continuing operations for the nine months ended March 31, 2019 was 28.4% compared with 57.7% for the prior year.  The effective tax rate for prior year to date was higher due to the impact of the Sec. 965 repatriation toll tax that was included in the prior year (recorded in FY18 Q2) and not recorded in the current year.  


The Company increased its uncertain tax position during the quarter due to technical positions taken on the FY18 tax return filed during the quarter concerning the impact of the mandatory repatriation.  The expense related to this position was recorded in the prior year and resulted in a balance sheet reclass only.


14)

Earnings Per Share


The following table sets forth a reconciliation of the number of shares (in thousands) used in the computation of basic and diluted earnings per share:






Three Months Ended




Nine Months Ended





March 31,




March 31,




2019



2018



2019



2018

 

Basic - Average shares outstanding



12,530



12,709



12,626



12,695

 

Dilutive effect of unvested, restricted stock awards



44



      88



61



89

 

Diluted - Average shares outstanding



12,574



12,797



12,687



12,784

 



Earnings available to common stockholders are the same for computing both basic and diluted earnings per share.  There were not any anti-dilutive potential common shares excluded from the calculation above for the three and nine months ended March 31, 2019 and 2018, respectively.


Performance stock units of 68,933 and 51,270 for the nine months ended March 31, 2019 and 2018, respectively, are excluded from the diluted earnings per share calculation as the performance criteria have not been met.






9



15)

Comprehensive Income (Loss)


The components of the Companys accumulated other comprehensive income (loss) are as follows (in thousands):



March 31,

 2019


June 30,

 2018

Foreign currency translation adjustment


$

(30,266)


$

      (25,013)

Unrealized pension losses, net of tax



(92,357)



      (95,112)

Unrealized losses on derivative instruments, net of tax



(1,794)



           (1,734)

Total


$

(124,417)


$

    (121,859)


16)

Contingencies


From time to time, the Company is subject to various claims and legal proceedings, including claims related to environmental remediation, either asserted or unasserted, that arise in the ordinary course of business.  While the outcome of these proceedings and claims cannot be predicted with certainty, the Companys management does not believe that the outcome of any of the currently existing legal matters will have a material impact on the Companys consolidated financial position, results of operations or cash flow.  The Company accrues for losses related to a claim or litigation when the Companys management considers a potential loss probable and can reasonably estimate such potential loss.  


17)

Industry Segment Information


The Company has determined that it has five reportable segments organized around the types of product sold:


Food Service Equipment a manufacturer of commercial food service equipment;

Engraving provides mold texturizing, slush molding tools, tool finishing, project management and design services, hygiene product tooling, low observation vents for stealth aircraft, and process machinery for a number of industries;

Engineering Technologies provides net and near net formed single-source customized solutions in the manufacture of engineered components for the aviation, aerospace, defense, energy, industrial, medical, marine, oil and gas, and manned and unmanned space markets.

Electronics manufacturing of electronic components for applications throughout the end-user market spectrum; and

Hydraulics manufacturing of single and double-acting telescopic and piston rod hydraulic cylinders


Net sales and income (loss) from continuing operations by segment for the three and nine months ended March 31, 2019 and 2018 were as follows (in thousands):




Three Months Ended March 31,



Net Sales


Income from Operations



2019


2018


2019


2018

Segment:













Engraving


$

37,135


$

33,749


$

4,485


$

7,195

Electronics



50,197



51,213



9,418



11,221

Engineering Technologies



27,467



23,426



2,800



1,155

Hydraulics



15,106



12,878