10-Q 1 sxi20231231_10q.htm FORM 10-Q sxi20231231_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 December 31, 2023

 

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

 

Commission File Number 001-07233

 

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

31-0596149

(State of incorporation)

(IRS Employer Identification No.)

 

23 Keewaydin drive, Salem, New Hampshire

03079

(Address of principal executive offices)

(Zip Code)

 

(603) 893-9701

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $1.50 Per Share

SXI

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

Large accelerated filer ☒

 

 

Accelerated filer ☐

 

Non-accelerated filer ☐  

Smaller reporting company 

 

   

Emerging growth company 

 

 

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

 

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

 

The number of shares of Registrant's Common Stock outstanding on January 31, 2024 was 11,870,622

1

 

 

 

STANDEX INTERNATIONAL CORPORATION

 

 

INDEX

 

 

 

 

Page No.

PART I.  FINANCIAL INFORMATION:

 

 

 

 

Item 1.

 

 

 

 

 

 

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

3

 

 

 

 

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

4

 

 

 

 

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

5

 

 

 

 

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

6

 

 

 

 

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

8

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

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

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

 

 

 

Item 4.

Controls and Procedures

40

 

 

 

PART II.  OTHER INFORMATION:

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

     

Item 5.

Other Information

41
     

Item 6.

Exhibits

42

 

2

 
 

 

PART I. FINANCIAL INFORMATION

ITEM 1

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

 

  December 31,  June 30, 

(In thousands, except per share data)

 

2023

  

2023

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $142,424  $195,706 

Accounts receivable, less allowance for credit losses of $2,753 and $2,788 at December 31, 2023 and June 30, 2023, respectively

  125,575   123,440 

Inventories

  98,592   98,537 

Prepaid expenses and other current assets

  65,572   64,739 

Income taxes receivable

  3,836   831 

Total current assets

  435,999   483,253 
         

Property, plant, and equipment, net

  132,599   130,937 

Intangible assets, net

  82,726   75,651 

Goodwill

  280,337   264,821 

Deferred tax asset

  14,027   14,602 

Operating lease right-of-use asset

  34,026   33,273 

Other non-current assets

  25,347   22,392 

Total non-current assets

  569,062   541,676 
         

Total assets

 $1,005,061  $1,024,929 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Accounts payable

 $63,883  $68,601 

Accrued liabilities

  56,062   62,031 

Income taxes payable

  10,597   10,335 

Total current liabilities

  130,542   140,967 
         

Long-term debt

  148,659   173,441 

Operating lease long-term liabilities

  26,080   25,774 

Accrued pension and other non-current liabilities

  79,209   77,298 

Total non-current liabilities

  253,948   276,513 
         

Contingencies (Note 15)

          
         

Stockholders' equity:

        

Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 shares issued, 11,783,199 and 11,744,991 shares outstanding at December 31, 2023 and June 30, 2023

  41,976   41,976 

Additional paid-in capital

  101,198   100,555 

Retained earnings

  1,058,069   1,027,279 

Accumulated other comprehensive loss

  (155,561)  (158,477)

Treasury shares: 16,201,079 and 16,239,287 shares at December 31, 2023 and June 30, 2023

  (425,111)  (403,884)

Total stockholders' equity

  620,571   607,449 
         

Total liabilities and stockholders' equity

 $1,005,061  $1,024,929 

 

See notes to unaudited condensed consolidated financial statements

 

3

 
 

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

 

   

Three Months Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 

(In thousands, except per share data)

 

2023

   

2022

   

2023

   

2022

 

Net sales

  $ 178,400     $ 187,789     $ 363,174     $ 368,389  

Cost of sales

    106,737       115,469       218,876       227,816  

Gross profit

    71,663       72,320       144,298       140,573  

Selling, general, and administrative expenses

    43,276       43,713       86,861       84,802  

(Gain) loss on sale of business

    -       -       (274 )     -  

Restructuring costs

    1,360       511       3,266       1,093  

Acquisition related costs

    1,195       174       1,696       466  

Other operating (income) expense, net

    -       116       -       116  

Total operating expenses

    45,831       44,514       91,549       86,477  

Income from operations

    25,832       27,806       52,749       54,096  

Interest expense

    1,019       1,566       2,295       2,753  

Other non-operating (income) expense, net

    332       (70 )     1,178       948  

Income from continuing operations before income taxes

    24,481       26,310       49,276       50,395  

Provision for income taxes

    5,409       6,226       11,312       11,995  

Income from continuing operations

    19,072       20,084       37,964       38,400  

Income (loss) from discontinued operations, net of tax

    (201 )     (41 )     (279 )     (87 )

Net income

  $ 18,871     $ 20,043     $ 37,685     $ 38,313  
                                 

Basic earnings (loss) per share:

                               

Continuing operations

  $ 1.62     $ 1.69     $ 3.22     $ 3.25  

Discontinued operations

    (0.02 )     -       (0.02 )     (0.01 )

Total

  $ 1.60     $ 1.69     $ 3.20     $ 3.24  

Diluted earnings (loss) per share:

                               

Continuing operations

  $ 1.61     $ 1.69     $ 3.19     $ 3.22  

Discontinued operations

    (0.02 )     -       (0.02 )     (0.01 )

Total

  $ 1.59     $ 1.69     $ 3.17     $ 3.21  
                                 

Weighted average number of shares:

                               

Basic

    11,791       11,852       11,762       11,833  

Diluted

    11,858       11,917       11,891       11,930  

 

See notes to unaudited condensed consolidated financial statements

 

4

 
 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

 

   

Three Months Ended

   

Six Months Ended

 
   

December 31,

   

December 31,

 

(In thousands)

 

2023

   

2022

   

2023

   

2022

 

Net income

  $ 18,871     $ 20,043     $ 37,685     $ 38,313  

Other comprehensive income (loss):

                               

Defined benefit pension plans:

                               

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

  $ (133 )   $ (82 )   $ (12 )   $ 14  

Amortization of unrecognized costs, net of tax

    597       710       1,193       1,420  

Derivative instruments:

                               

Change in unrealized gains (losses), net of tax

    (675 )     (170 )     110       2,627  

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

    (1,280 )     (234 )     (2,781 )     (80 )

Foreign currency translation gains (losses), net of tax

    13,506       23,649       4,406       2,105  

Other comprehensive income (loss), net of tax

  $ 12,015     $ 23,873     $ 2,916     $ 6,086  

Comprehensive income

  $ 30,886     $ 43,916     $ 40,601     $ 44,399  

 

See notes to unaudited condensed consolidated financial statements

 

5

 
 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Stockholders' Equity 

 

              

Accumulated Other

             

For the three month period ended

    Additional     Comprehensive     Total 

December 31, 2023

 

Common

  

Paid-in

  

Retained

  

Income

  

Treasury Stock

  

Stockholders’

 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, September 30, 2023

 $41,976  $98,713  $1,042,695  $(167,576)  16,189  $(421,169) $594,639 

Stock issued under incentive compensation plans and employee purchase plans

  -   (145)  -   -   (22)  567   422 

Stock-based compensation

  -   2,630   -   -   -   -   2,630 

Treasury stock acquired

  -   -   -   -   34   (4,509)  (4,509)

Comprehensive income:

                            

Net income

  -   -   18,871   -   -   -   18,871 

Foreign currency translation adjustment

  -   -   -   13,506   -   -   13,506 

Pension, net of tax of $0.2 million

  -   -   -   464   -   -   464 

Change in fair value of derivatives, net of tax of $0.7 million

  -   -   -   (1,955)  -   -   (1,955)

Dividends declared ($0.30 per share)

  -   -   (3,497)  -   -   -   (3,497)

Balance, December 31, 2023

 $41,976  $101,198  $1,058,069  $(155,561)  16,201  $(425,111) $620,571 
                             

For the three month period ended December 31, 2022

                            

(in thousands, except as specified)

                            

Balance, September 30, 2022

 $41,976  $91,446  $916,549  $(171,099)  16,119  $(387,182) $491,690 

Stock issued under incentive compensation plans and employee purchase plans

  -   (222)  -   -   (16)  380   158 

Stock-based compensation

  -   2,135   -   -   -   -   2,135 

Treasury stock acquired

  -   -   -   -   50   (5,123)  (5,123)

Comprehensive income:

                            

Net income

  -   -   20,043   -   -   -   20,043 

Foreign currency translation adjustment

  -   -      23,649   -   -   23,649 

Pension, net of tax of $0.2 million

  -   -   -   628   -   -   628 

Change in fair value of derivatives, net of tax of $0.1 million

  -   -   -   (404)  -   -   (404)

Dividends declared ($0.28 per share)

  -   -   (3,359)  -   -   -   (3,359)

Balance, December 31, 2022

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

 

See notes to unaudited condensed consolidated financial statements

 

6

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Stockholders' Equity 

 

              

Accumulated Other

             

For the six month period ended

     

Additional

      

Comprehensive

          

Total

 

December 31, 2023

 

Common

  

Paid-in

  

Retained

  

Income

  

Treasury Stock

  

Stockholders’

 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, June 30, 2023

 $41,976  $100,555  $1,027,279  $(158,477)  16,239  $(403,884) $607,449 

Stock issued under incentive compensation plans and employee purchase plans

  -   (4,181)  -   -   (210)  5,370   1,189 

Stock-based compensation

  -   4,824   -   -   -   -   4,824 

Treasury stock acquired

  -   -   -   -   172   (26,597)  (26,597)

Comprehensive income:

                            

Net income

  -   -   37,685   -   -   -   37,685 

Foreign currency translation adjustment

  -   -   -   4,406   -   -   4,406 

Pension, net of tax of $0.4 million

  -   -   -   1,181   -   -   1,181 

Change in fair value of derivatives, net of tax of $0.9 million

  -   -   -   (2,671)  -   -   (2,671)

Dividends declared ($0.58 per share)

  -   -   (6,895)  -   -   -   (6,895)

Balance, December 31, 2023

 $41,976  $101,198  $1,058,069  $(155,561)  16,201  $(425,111) $620,571 
                             

For the six month period ended December 31, 2022

                            

(in thousands, except as specified)

                            

Balance, June 30, 2022

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

Stock issued under incentive compensation plans and employee purchase plans

  -   (2,540)  -   -   (147)  3,534   994 

Stock-based compensation

  -   4,699   -   -   -   -   4,699 

Treasury stock acquired

  -   -   -   -   140   (13,517)  (13,517)

Comprehensive income:

                          - 

Net income

  -   -   38,313   -   -   -   38,313 

Foreign currency translation adjustment

  -   -   -   2,105   -   -   2,105 

Pension, net of tax of $0.5 million

  -   -   -   1,434   -   -   1,434 

Change in fair value of derivatives, net of tax of $0.8 million

  -   -   -   2,547   -   -   2,547 

Dividends declared ($0.54 per share)

  -   -   (6,501)  -   -   -   (6,501)

Balance, December 31, 2022

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

 

See notes to unaudited condensed consolidated financial statements

 

7

 
 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

 Unaudited Condensed Consolidated Statements of Cash Flows

 

   

Six Months Ended

 
   

December 31,

 

(In thousands)

 

2023

   

2022

 

Cash flows from operating activities

               

Net income

  $ 37,685     $ 38,313  

Income (loss) from discontinued operations

    (279 )     (87 )

Income from continuing operations

    37,964       38,400  

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

               

Depreciation and amortization

    13,969       13,966  

Stock-based compensation

    4,824       4,699  

Non-cash portion of restructuring charge

    346       (1,183 )

Gain on sale of business

    (274 )     -  

Contributions to defined benefit plans

    (1,541 )     (101 )

Changes in operating assets and liabilities, net

    (15,121 )     (28,690 )

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

    40,167       27,091  

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

    (422 )     (51 )

Net cash provided by (used in) operating activities

    39,745       27,040  

Cash flows from investing activities

               

Expenditures for property, plant, and equipment

    (8,587 )     (11,028 )

Proceeds from sale of business

    274       -  

Expenditures for acquisitions, net of cash acquired

    (29,229 )     -  

Other investing activity

    -       98  

Net cash provided by (used in) investing activities

    (37,542 )     (10,930 )

Cash flows from financing activities

               

Proceeds from borrowings

    -       28,500  

Payments of debt

    (25,000 )     (16,000 )

Contingent consideration payment

    -       (1,167 )

Activity under share-based payment plans

    1,189       994  

Purchases of treasury stock

    (26,650 )     (13,517 )

Cash dividends paid

    (6,840 )     (6,399 )

Net cash provided by (used in) financing activities

    (57,301 )     (7,589 )

Effect of exchange rate changes on cash and cash equivalents

    1,816       129  

Net change in cash and cash equivalents

    (53,282 )     8,650  

Cash and cash equivalents at beginning of year

    195,706       104,844  

Cash and cash equivalents at end of period

  $ 142,424     $ 113,494  
                 

Supplemental Disclosure of Cash Flow Information:

               

Cash paid during the year for:

               

Interest

  $ 2,222     $ 2,225  

Income taxes, net of refunds

  $ 14,010     $ 12,822  

 

See notes to unaudited condensed consolidated financial statements

 

8

 

 

STANDEX INTERNATIONAL CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1)     Management Statement

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations for the three and six months ended December 31, 2023 and 2022, the cash flows for the six months ended December 31, 2023 and 2022 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at December 31, 2023. The interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 2023. The condensed consolidated balance sheet at June 30, 2023 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, 2023. Unless otherwise noted, references to years are to the Company’s fiscal years. Currently our fiscal year end is June 30.  For further clarity, our fiscal year 2024 includes the twelve-month period from July 1, 2023 to June 30, 2024.

 

The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. Estimates are based on historical experience, actuarial estimates, current conditions and various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources. These estimates assist in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies. Actual results  may differ from these estimates under different assumptions or conditions. The estimates and assumptions used in the preparation of the consolidated financial statements have considered the implications on the Company as a result of ongoing global events and related economic impacts. As a result, there is heightened volatility and uncertainty around supply chain performance, labor availability, and customer demand. However, the magnitude of such impact on the Company’s business and its duration is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of  December 31, 2023 and the issuance date of the Quarterly Report on Form 10-Q.

 

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The Company evaluated subsequent events through the date and time its unaudited condensed consolidated financial statements were issued. 

 

Research and development expenditures are expensed as incurred. Total research and development costs, which are classified under selling, general, and administrative expenses, were $5.1 million and $4.1 million for the three months ended December 31, 2023 and 2022, respectively. Research and development expenditures were $10.4 million and $7.3 million for the six months ended  December 31, 2023 and 2022, respectively. 

 

Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards had or  may have a material impact on its condensed consolidated financial statements or disclosures.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) ("ASU 2023-07"). This update provides, among other things, enhanced segment disclosure requirements including disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will review the extent of new disclosures necessary in the coming quarters, prior to implementation during fiscal year 2025. Other than additional disclosure, the Company does not expect a change to its condensed consolidated financial statements upon adoption.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU is expected to enhance the transparency and decision usefulness of income tax disclosures by requiring public business entities on an annual basis to disclose specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold, and certain information about income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024. The amendments in this ASU are required to be applied on a prospective basis and retrospective adoption is permitted. The Company is currently evaluating the effect of adopting this new accounting guidance, which would be applicable to fiscal year 2026.

 

9

 
 

2)     Acquisitions

 

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

 

On November 1, 2023, the Company entered into a definitive agreement, through its subsidiary Standex Electronics Japan Corporation, to acquire privately-held, Japanese-based Sanyu Switch Co., Ltd. Sanyu Switch Co., Ltd. designs and manufactures reed relays, test sockets, testing systems for semi-conductor and other electronics manufacturing, and other switching applications. The transaction is expected to close in the third quarter of fiscal year 2024, subject to required regulatory approvals.  Its results will be reported in the Electronics segment upon closing. 

 

Minntronix

 

On July 31, 2023, the Company paid $29.2 million in cash for the purchase of all the issued and outstanding equity interests of Minntronix, a privately held company. Minntronix designs and manufactures customized as well as standard magnetics components and products including transformers, inductors, current sensors, coils, chokes, and filters. The products are used in applications across cable fiber, smart meters, industrial control and lighting, electric vehicles, and home security markets. Minntronix' results are reported within the Company's Electronics segment.

 

The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Minntronix's technical and applications expertise, which is highly complementary to the Company's existing business.

 

Identifiable intangible assets of $10.7 million consist primarily of $3.2 million for indefinite lived tradenames and $7.5 million of customer relationships to be amortized over 15 years. The goodwill of $13.9 million created by the transaction is not deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. 

 

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

 

  

Preliminary Allocation December 31, 2023

 

Fair value of business combination:

    

Cash payments

 $33,890 

Less, cash acquired

  (4,661)

Total

 $29,229 

 

  

Preliminary Allocation December 31, 2023

 

Identifiable assets acquired and liabilities assumed:

    

Other acquired assets

 $8,282 

Customer backlog

  1,120 

Inventories

  1,780 

Property, plant, & equipment

  1,039 

Identifiable intangible assets

  10,700 

Goodwill

  13,889 

Liabilities assumed

  (7,581)

Total

 $29,229 

 

 

Acquisition Related Costs

 

Acquisition related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation arrangements and (ii) acquisition related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities. These costs do not include purchase accounting expenses, which we define as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets.

 

Acquisition related costs for the three months ended December 31, 2023 and 2022 were $1.2 million and $0.2 million, respectively. Acquisition related costs for the six months ended December 31, 2023 and 2022 were $1.7 million and $0.5 million, respectively.

 

10

 

3)     Revenue From Contracts With Customers

 

Most of the Company’s contracts have a single performance obligation which represents the product or service being sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation and/or extended warranty. Additionally, most of the Company’s contracts offer assurance type warranties in connection with the sale of a product to customers. Assurance type warranties provide a customer with assurance that the product complies with agreed-upon specifications. Assurance type warranties do not represent a separate performance obligation.

 

In general, the Company recognizes revenue at the point in time control transfers to its customer based on predetermined shipping terms. Revenue is recognized over time under certain long-term contracts within the Engineering Technologies and Engraving groups for highly customized customer products that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin. For products manufactured over time, the transfer of control is measured pro rata, based upon current estimates of costs to complete such contracts. Losses on contracts are fully recognized in the period in which the losses become determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known.

 

Disaggregation of Revenue from Contracts with Customers

 

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

 

  

Three Months Ended

 

Revenue by Product Line

 

December 31, 2023

  

December 31, 2022

 
         

Electronics

 $79,419  $72,556 
         

Engraving Services

  38,467   36,221 

Engraving Products

  2,378   1,468 

Total Engraving

  40,845   37,689 
         

Scientific

  16,292   19,292 
         

Engineering Technologies

  19,887   24,193 
         

Hydraulics Cylinders and Systems

  11,881   17,538 

Merchandising & Display

  10,076   9,392 

Pumps

  -   7,129 

Total Specialty Solutions

  21,957   34,059 
         

Total revenue by product line

 $178,400  $187,789 

 

  

Six Months Ended

 

Revenue by Product Line

 

December 31, 2023

  

December 31, 2022

 
         

Electronics

 $161,107  $147,755 
         

Engraving Services

  77,203   69,805 

Engraving Products

  4,436   2,908 

Total Engraving

  81,639   72,713 
         

Scientific

  34,485   37,748 
         

Engineering Technologies

  38,107   41,192 
         

Hydraulics Cylinders and Systems

  26,610   34,275 

Merchandising & Display

  21,226   18,957 

Pumps

  -   15,749 

Total Specialty Solutions

  47,836   68,981 
         

Total revenue by product line

 $363,174  $368,389 

 

11

 
 

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

 

  

Three Months Ended

  

Three Months Ended

  

Six Months Ended

  

Six Months Ended

 

Net sales

 

December 31, 2023

  

December 31, 2022

  

December 31, 2023

  

December 31, 2022

 

United States

 $110,167  $116,303  $224,668  $226,462 

Asia Pacific

  32,742   33,861   64,151   66,654 

EMEA (1)

  31,632   33,401   66,100   67,326 

Other Americas

  3,859   4,224   8,255   7,947 

Total

 $178,400  $187,789  $363,174  $368,389 

 

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

 

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

 

  

Three Months Ended

 

Timing of Revenue Recognition

 

December 31, 2023

  

December 31, 2022

 

Products and services transferred at a point in time

 $160,204  $165,728 

Products transferred over time

  18,196   22,061 

Net sales

 $178,400  $187,789 

 

  

Six Months Ended

 

Timing of Revenue Recognition

 

December 31, 2023

  

December 31, 2022

 

Products and services transferred at a point in time

 $327,429  $331,421 

Products transferred over time

  35,745   36,968 

Net sales

 $363,174  $368,389 

 

12

 

Contract Balances

 

Contract assets represent sales recognized in excess of billings related to work completed but not yet shipped for which revenue is recognized over time. Contract assets are recorded as prepaid expenses and other current assets. Contract liabilities are customer deposits for which revenue has not been recognized. Current contract liabilities are recorded as accrued liabilities.

 

The timing of revenue recognition, invoicing and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheets. When consideration is received from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the goods and services are transferred to the customer and all revenue recognition criteria have been met.

 

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

 

  

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Six months ended December 31, 2023

                

Contract assets:

                

Prepaid expenses and other current assets

 $31,138  $33,565  $30,201  $34,502 

 

  

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Six months ended December 31, 2022

                

Contract assets:

                

Prepaid expenses and other current assets

 $24,679  $33,017  $26,681  $31,015 

Contract liabilities:

                

Customer deposits

  41   -   41   - 

 

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

 

There was no liability balance at the beginning of fiscal year 2024.

 

  

December 31, 2022

  

December 31, 2022

 

Revenue recognized in the period from:

 

Three months ended

  

Six months ended

 

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

 $38  $41 

 

13

 
 

4)      Fair Value Measurements

 

The financial instruments shown below are presented at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied.

 

Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and the methodologies used in valuation are as follows:

 

Level 1 – Quoted prices (unadjusted) in active markets for identical assets and liabilities. The Company’s deferred compensation plan assets consist of shares in various mutual funds (investments are participant-directed) which invest in a broad portfolio of debt and equity securities. These assets are valued based on publicly quoted market prices for the funds’ shares as of the balance sheet dates.

 

Level 2 – Inputs, other than quoted prices in an active market, that are observable either directly or indirectly through correlation with market data. For foreign exchange forward contracts and interest rate swaps, the Company values the instruments based on the market price of instruments with similar terms, which are based on spot and forward rates as of the balance sheet dates. The Company has considered the creditworthiness of counterparties in valuing all assets and liabilities.

 

Level 3 – Unobservable inputs based upon the Company’s best estimate of what market participants would use in pricing the asset or liability.

 

There were no transfers of assets or liabilities between any levels of the fair value measurement hierarchy at December 31, 2023 and June 30, 2023. The Company’s policy is to recognize transfers between levels as of the date they occur.

 

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

 

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

 

  

December 31, 2023

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Marketable securities - deferred compensation plan

 $4,431  $4,431  $-  $- 

Foreign exchange contracts

  601   -   601   - 

Interest rate swaps

  6,677   -   6,677   - 

Debt securities

  2,760   -   -   2,760 

Equity securities

  2,070   -   -   2,070 
                 

Liabilities

                

Foreign exchange contracts

 $-  $-  $-  $- 

 

  

June 30, 2023

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Marketable securities - deferred compensation plan

 $3,720  $3,720  $-  $- 

Interest rate swaps

  10,235   -   10,235   - 

Debt securities

  2,729   -   -   2,729 

Equity securities

  2,046   -   -   2,046 
                 

Liabilities

                

Foreign exchange contracts

 $1,722  $-  $1,722  $- 

 

 

14

 

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

 

The Company has 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 the financial performance of the acquired businesses and the risk-adjusted discount rate for the fair value measurement.

 

Additionally, the Company has financial assets based upon Level 3 inputs, which represent investments in a privately held company.

 

The Company invested $2.1 million for equity securities of a company whose securities are not publicly traded and where fair value is not readily available. This was recorded as an investment within other non-current assets in the consolidated balance sheets to reflect the initial fair value of the stock acquired. These investments are recorded using either the equity method of accounting or the cost minus impairment adjusted for observable price changes, depending on ownership percentage and other factors that suggest significant influence. The Company concluded it does not have a significant ownership percentage or influence. The Company monitors this investment to evaluate whether any increase or decline in the value has occurred, based on the implied value of recent company financings, public market prices of comparable companies and general market conditions.

 

The Company also purchased $2.8 million of debt securities from the same privately held company. The available for sale asset was recorded as a current asset in the prepaid expenses and other current assets line of the consolidated balance sheet to reflect the initial fair value of the instrument acquired. This asset will mature one year from the date of issuance. Available-for-sale debt securities are recorded at fair market value and unrealized gains and losses are included in accumulated other comprehensive income (loss) in equity, net of related tax effects. Realized gains and losses are reported in other non-operating (income) expense, net.

 

There have been no changes in the fair value of the estimates for the Level 3 assets in fiscal year 2024 other than the impact of foreign exchange, which represents the increase in the fair values from the prior year. 

 

The Company updates its assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the agreements expire.

 

 

5)     Inventories

 

Inventories from continuing operations are comprised of the following (in thousands):

 

   

December 31, 2023

   

June 30, 2023

 

Raw materials

  $ 47,521     $ 45,268  

Work in process

    18,065       20,389  

Finished goods

    33,006       32,880  

Total

  $ 98,592     $ 98,537  

 

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 $2.9 million and $3.1 million for the three months ended  December 31, 2023 and 2022, respectively. Distribution costs were $6.1 million and $6.0 million for the six months ended  December 31, 2023 and 2022, respectively.

 

15

 
 

6)     Goodwill

 

Changes to goodwill by segment during the period were as follows (in thousands):

 

   

June 30, 2023

   

Acquisitions

   

Translation Adjustment

   

December 31, 2023

 

Electronics

  $ 133,432     $ 13,889     $ 1,504     $ 148,825  

Engraving

    76,583       -       100       76,683  

Scientific

    15,454       -