UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
☐ 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 ☐ |
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| Non-accelerated filer ☐ | Smaller reporting company ☐ |
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Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of Registrant's Common Stock outstanding on May 3, 20222023 was 12,069,658.
11,902,676.
STANDEX INTERNATIONAL CORPORATION
INDEX
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PART I. FINANCIAL INFORMATION: |
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Item 1. |
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| Condensed Consolidated Balance Sheets as of March 31, | |
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| Condensed Consolidated Statements of Operations for the three and nine months ended March 31, | |
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| Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended March 31, | |
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| Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended March 31, | |
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| Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, | |
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| Notes to Unaudited Condensed Consolidated Financial Statements | |
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
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Item 4. | Controls and Procedures | |
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PART II. OTHER INFORMATION: |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | Exhibits | |
PART I. FINANCIAL INFORMATION
ITEM 1
STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
| March 31, | June 30, | March 31, | June 30, | |||||||||||||
(In thousands, except per share data) | 2022 | 2021 | 2023 | 2022 | ||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 133,902 | $ | 136,367 | $ | 175,284 | $ | 104,844 | ||||||||
Accounts receivable, less allowance for credit losses of $1,997 and $1,588 at March 31, 2022 and June 30, 2021, respectively | 115,428 | 109,883 | ||||||||||||||
Accounts receivable, less allowance for credit losses of $2,537 and $2,214 at March 31, 2023 and June 30, 2022, respectively | 121,161 | 117,075 | ||||||||||||||
Inventories | 103,930 | 91,862 | 104,516 | 105,339 | ||||||||||||
Prepaid expenses and other current assets | 41,800 | 23,504 | 56,611 | 45,210 | ||||||||||||
Income taxes receivable | 15,584 | 12,750 | 3,203 | 6,530 | ||||||||||||
Total current assets | 410,644 | 374,366 | 460,775 | 378,998 | ||||||||||||
Property, plant, and equipment, net | 128,181 | 133,373 | 130,638 | 128,584 | ||||||||||||
Intangible assets, net | 91,545 | 98,929 | 79,562 | 85,770 | ||||||||||||
Goodwill | 275,127 | 278,054 | 269,463 | 267,906 | ||||||||||||
Deferred tax asset | 5,369 | 9,566 | 9,213 | 8,186 | ||||||||||||
Operating lease right-of-use asset | 35,558 | 37,276 | 36,069 | 39,119 | ||||||||||||
Other non-current assets | 27,144 | 30,659 | 29,368 | 25,876 | ||||||||||||
Total non-current assets | 562,924 | 587,857 | 554,313 | 555,441 | ||||||||||||
Total assets | $ | 973,568 | $ | 962,223 | $ | 1,015,088 | $ | 934,439 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 75,275 | $ | 74,756 | $ | 67,512 | $ | 74,520 | ||||||||
Accrued liabilities | 57,185 | 61,717 | 55,704 | 67,773 | ||||||||||||
Income taxes payable | 9,279 | 7,236 | 7,371 | 8,475 | ||||||||||||
Total current liabilities | 141,739 | 143,709 | 130,587 | 150,768 | ||||||||||||
Long-term debt | 199,745 | 199,490 | 173,333 | 174,830 | ||||||||||||
Operating lease long-term liabilities | 28,683 | 29,041 | 28,463 | 31,357 | ||||||||||||
Accrued pension and other non-current liabilities | 75,781 | 83,558 | 77,155 | 78,141 | ||||||||||||
Total non-current liabilities | 304,209 | 312,089 | 278,951 | 284,328 | ||||||||||||
Contingencies (Note 15) | ||||||||||||||||
Stockholders' equity: | ||||||||||||||||
Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 shares issued, 11,929,389 and 12,044,405 shares outstanding at March 31, 2022 and June 30, 2021 | 41,976 | 41,976 | ||||||||||||||
Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 shares issued, 11,791,341 and 11,824,128 shares outstanding at March 31, 2023 and June 30, 2022 | 41,976 | 41,976 | ||||||||||||||
Additional paid-in capital | 88,197 | 80,788 | 97,294 | 91,200 | ||||||||||||
Retained earnings | 891,303 | 852,489 | 1,010,395 | 901,421 | ||||||||||||
Accumulated other comprehensive loss | (121,870 | ) | (116,140 | ) | (147,175 | ) | (153,312 | ) | ||||||||
Treasury shares: 16,054,889 and 15,939,873 shares at March 31, 2022 and June 30, 2021 | (371,986 | ) | (352,688 | ) | ||||||||||||
Treasury shares: 16,192,937 and 16,160,150 shares at March 31, 2023 and June 30, 2022 | (396,940 | ) | (381,942 | ) | ||||||||||||
Total stockholders' equity | 527,620 | 506,425 | 605,550 | 499,343 | ||||||||||||
Total liabilities and stockholders' equity | $ | 973,568 | $ | 962,223 | $ | 1,015,088 | $ | 934,439 | ||||||||
See notes to unaudited condensed consolidated financial statements
STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||
(In thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Net sales | $ | 189,281 | $ | 172,216 | $ | 550,600 | $ | 479,797 | $ | 184,332 | $ | 189,281 | $ | 552,721 | $ | 550,600 | ||||||||||||||||
Cost of sales | 120,900 | 109,516 | 347,210 | 304,344 | 113,435 | 120,900 | 341,251 | 347,210 | ||||||||||||||||||||||||
Gross profit | 68,381 | 62,700 | 203,390 | 175,453 | 70,897 | 68,381 | 211,470 | 203,390 | ||||||||||||||||||||||||
Selling, general, and administrative expenses | 42,306 | 41,689 | 128,589 | 120,758 | 42,954 | 42,306 | 127,756 | 128,589 | ||||||||||||||||||||||||
Loss on sale of business | 0 | 14,624 | 0 | 14,624 | ||||||||||||||||||||||||||||
(Gain) loss on sale of business | (62,105 | ) | - | (62,105 | ) | - | ||||||||||||||||||||||||||
Restructuring costs | 1,186 | 482 | 2,469 | 2,478 | 2,237 | 1,186 | 3,330 | 2,469 | ||||||||||||||||||||||||
Acquisition related costs | 419 | 255 | 1,561 | 850 | 21 | 419 | 487 | 1,561 | ||||||||||||||||||||||||
Other operating (income) expense, net | 0 | 0 | 1,700 | 0 | (727 | ) | - | (611 | ) | 1,700 | ||||||||||||||||||||||
Total operating expenses | 43,911 | 57,050 | 134,319 | 138,710 | (17,620 | ) | 43,911 | 68,857 | 134,319 | |||||||||||||||||||||||
Income from operations | 24,470 | 5,650 | 69,071 | 36,743 | 88,517 | 24,470 | 142,613 | 69,071 | ||||||||||||||||||||||||
Interest expense | 1,238 | 1,317 | 4,484 | 4,403 | 1,415 | 1,238 | 4,168 | 4,484 | ||||||||||||||||||||||||
Other non-operating (income) expense, net | 340 | 306 | 651 | 73 | 747 | 340 | 1,695 | 651 | ||||||||||||||||||||||||
Income from continuing operations before income taxes | 22,892 | 4,027 | 63,936 | 32,267 | 86,355 | 22,892 | 136,750 | 63,936 | ||||||||||||||||||||||||
Provision for income taxes | 5,484 | 2,269 | 15,677 | 8,155 | 5,788 | 5,484 | 17,783 | 15,677 | ||||||||||||||||||||||||
Income from continuing operations | 17,408 | 1,758 | 48,259 | 24,112 | 80,567 | 17,408 | 118,967 | 48,259 | ||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | (86 | ) | (331 | ) | (135 | ) | (1,588 | ) | (57 | ) | (86 | ) | (144 | ) | (135 | ) | ||||||||||||||||
Net income | $ | 17,322 | $ | 1,427 | $ | 48,124 | $ | 22,524 | $ | 80,510 | $ | 17,322 | $ | 118,823 | $ | 48,124 | ||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Continuing operations | $ | 1.45 | $ | 0.14 | $ | 4.02 | $ | 1.98 | $ | 6.82 | $ | 1.45 | $ | 10.06 | $ | 4.02 | ||||||||||||||||
Discontinued operations | (0.01 | ) | (0.03 | ) | (0.01 | ) | (0.13 | ) | - | (0.01 | ) | (0.01 | ) | (0.01 | ) | |||||||||||||||||
Total | $ | 1.44 | $ | 0.11 | $ | 4.01 | $ | 1.85 | $ | 6.82 | $ | 1.44 | $ | 10.05 | $ | 4.01 | ||||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||
Continuing operations | $ | 1.44 | $ | 0.14 | $ | 3.98 | $ | 1.97 | $ | 6.77 | $ | 1.44 | $ | 9.98 | $ | 3.98 | ||||||||||||||||
Discontinued operations | (0.01 | ) | (0.03 | ) | (0.01 | ) | (0.13 | ) | - | (0.10 | ) | (0.01 | ) | (0.01 | ) | |||||||||||||||||
Total | $ | 1.43 | $ | 0.11 | $ | 3.97 | $ | 1.84 | $ | 6.77 | $ | 1.34 | $ | 9.97 | $ | 3.97 | ||||||||||||||||
Weighted average number of shares: | ||||||||||||||||||||||||||||||||
Basic | 11,982 | 12,136 | 12,009 | 12,185 | 11,811 | 11,982 | 11,825 | 12,009 | ||||||||||||||||||||||||
Diluted | 12,089 | 12,253 | 12,121 | 12,267 | 11,895 | 12,089 | 11,917 | 12,121 | ||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||
(In thousands) | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Net income | $ | 17,322 | $ | 1,427 | $ | 48,124 | $ | 22,524 | $ | 80,510 | $ | 17,322 | $ | 118,823 | $ | 48,124 | ||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Defined benefit pension plans: | ||||||||||||||||||||||||||||||||
Actuarial gains (losses) and other changes in unrecognized costs, net of tax | $ | 88 | $ | 22 | $ | 189 | $ | (351 | ) | $ | (601 | ) | $ | 88 | $ | (587 | ) | $ | 189 | |||||||||||||
Amortization of unrecognized costs, net of tax | 1,103 | 1,275 | 3,320 | 3,810 | 712 | 1,103 | 2,132 | 3,320 | ||||||||||||||||||||||||
Derivative instruments: | ||||||||||||||||||||||||||||||||
Change in unrealized gains (losses), net of tax | 4,340 | 3,185 | 5,949 | 3,089 | (406 | ) | 4,340 | 2,220 | 5,949 | |||||||||||||||||||||||
Amortization of unrealized gains (losses) into interest expense, net of tax | 627 | (77 | ) | 2,155 | 767 | (1,134 | ) | 627 | (1,212 | ) | 2,155 | |||||||||||||||||||||
Foreign currency translation gains (losses), net of tax | (8,018 | ) | (11,299 | ) | (17,343 | ) | 9,301 | 1,480 | (8,018 | ) | 3,584 | (17,343 | ) | |||||||||||||||||||
Other comprehensive income (loss), net of tax | $ | (1,860 | ) | $ | (6,894 | ) | $ | (5,730 | ) | $ | 16,616 | $ | 51 | $ | (1,860 | ) | $ | 6,137 | $ | (5,730 | ) | |||||||||||
Comprehensive income | $ | 15,462 | $ | (5,467 | ) | $ | 42,394 | $ | 39,140 | $ | 80,561 | $ | 15,462 | $ | 124,960 | $ | 42,394 | |||||||||||||||
See notes to unaudited condensed consolidated financial statements
STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity
Accumulated Other | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the nine month period ended | Additional | Comprehensive | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2022 | Common | Paid-in | Retained | Income | Treasury Stock | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||
For the three month period ended | Additional | Comprehensive | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2023 | Common | Paid-in | Retained | Income | Treasury Stock | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands, except as specified) | Stock | Capital | Earnings | (Loss) | Shares | Amount | Equity | Stock | Capital | Earnings | (Loss) | Shares | Amount | Equity | ||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | 41,976 | $ | 80,788 | $ | 852,489 | $ | (116,140 | ) | 15,940 | $ | (352,688 | ) | $ | 506,425 | |||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | 41,976 | $ | 93,359 | $ | 933,233 | $ | (147,226 | ) | 16,153 | $ | (391,925 | ) | $ | 529,417 | |||||||||||||||||||||||||||||||||||||||||
Stock issued under incentive compensation plans and employee purchase plans | 0 | (804 | ) | 0 | 0 | (94 | ) | 2,122 | 1,318 | - | 126 | - | - | (2 | ) | 50 | 176 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 0 | 8,213 | 0 | 0 | - | 0 | 8,213 | - | 3,809 | - | - | - | - | 3,809 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired | 0 | 0 | 0 | 0 | 209 | (21,420 | ) | (21,420 | ) | - | - | - | - | 42 | (5,065 | ) | (5,065 | ) | ||||||||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 48,124 | 0 | - | 0 | 48,124 | - | - | 80,510 | - | - | - | 80,510 | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 0 | 0 | 0 | (17,343 | ) | - | 0 | (17,343 | ) | - | - | - | 1,480 | - | - | 1,480 | ||||||||||||||||||||||||||||||||||||||||
Pension, net of tax of $1.1 million | 0 | 0 | 0 | 3,509 | - | 0 | 3,509 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of tax of $2.4 million | 0 | 0 | 0 | 8,104 | - | 0 | 8,104 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.76 per share) | 0 | 0 | (9,310 | ) | 0 | - | 0 | (9,310 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | 41,976 | $ | 88,197 | $ | 891,303 | $ | (121,870 | ) | 16,055 | $ | (371,986 | ) | $ | 527,620 | |||||||||||||||||||||||||||||||||||||||||
Pension, net of tax of $0.1 million | - | - | - | 111 | - | - | 111 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of tax of $0.5 million | - | - | - | (1,540 | ) | - | - | (1,540 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.28 per share) | - | - | (3,348 | ) | - | - | - | (3,348 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2023 | $ | 41,976 | $ | 97,294 | $ | 1,010,395 | $ | (147,175 | ) | 16,193 | $ | (396,940 | ) | $ | 605,550 | |||||||||||||||||||||||||||||||||||||||||
For the nine month period ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the three month period ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands, except as specified) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | $ | 41,976 | $ | 72,752 | $ | 827,656 | $ | (147,659 | ) | 15,748 | $ | (333,093 | ) | $ | 461,632 | |||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | 41,976 | $ | 84,560 | $ | 877,158 | $ | (120,010 | ) | 15,948 | $ | (360,234 | ) | $ | 523,450 | |||||||||||||||||||||||||||||||||||||||||
Stock issued under incentive compensation plans and employee purchase plans | 0 | (432 | ) | 0 | 0 | (72 | ) | 1,549 | 1,117 | - | 49 | - | - | (5 | ) | 122 | 171 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 0 | 5,658 | 0 | 0 | - | 0 | 5,658 | - | 3,588 | - | - | - | - | 3,588 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired | 0 | 0 | 0 | 0 | 217 | (16,205 | ) | (16,205 | ) | - | - | - | - | 112 | (11,874 | ) | (11,874 | ) | ||||||||||||||||||||||||||||||||||||||
Comprehensive income: | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 22,524 | 0 | - | 0 | 22,524 | - | - | 17,322 | - | - | - | 17,322 | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 0 | 0 | 0 | 9,301 | - | 0 | 9,301 | - | - | - | (8,018 | ) | - | - | (8,018 | ) | ||||||||||||||||||||||||||||||||||||||||
Pension, net of tax of $1.1 million | 0 | 0 | 0 | 3,459 | - | 0 | 3,459 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of tax of $0.9 million | 0 | 0 | 0 | 3,856 | - | 0 | 3,856 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.70 per share) | 0 | 0 | (8,689 | ) | 0 | - | 0 | (8,689 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | 41,976 | $ | 77,978 | $ | 841,491 | $ | (131,043 | ) | 15,893 | $ | (347,749 | ) | $ | 482,653 | |||||||||||||||||||||||||||||||||||||||||
Pension, net of tax of $0.4 million | - | - | - | 1,191 | - | - | 1,191 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of tax of $1.6 million | - | - | - | 4,967 | - | - | 4,967 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.26 per share) | - | - | (3,177 | ) | - | - | - | (3,177 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | 41,976 | $ | 88,197 | $ | 891,303 | $ | (121,870 | ) | 16,055 | $ | (371,986 | ) | $ | 527,620 | |||||||||||||||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity (Continued)
Accumulated Other | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the three month period ended | Additional | Comprehensive | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2022 | Common | Paid-in | Retained | Income | Treasury Stock | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||
For the nine month period ended | Additional | Comprehensive | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2023 | Common | Paid-in | Retained | Income | Treasury Stock | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands, except as specified) | Stock | Capital | Earnings | (Loss) | Shares | Amount | Equity | Stock | Capital | Earnings | (Loss) | Shares | Amount | Equity | ||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | 41,976 | $ | 84,560 | $ | 877,158 | $ | (120,010 | ) | 15,948 | $ | (360,234 | ) | $ | 523,450 | |||||||||||||||||||||||||||||||||||||||||
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 | 0 | 49 | 0 | 0 | (5 | ) | 122 | 171 | - | (2,414 | ) | - | - | (150 | ) | 3,584 | 1,170 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 0 | 3,588 | 0 | 0 | - | 0 | 3,588 | - | 8,508 | - | - | - | - | 8,508 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired | 0 | 0 | 0 | 0 | 112 | (11,874 | ) | (11,874 | ) | - | - | - | - | 183 | (18,582 | ) | (18,582 | ) | ||||||||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 17,322 | 0 | - | 0 | 17,322 | - | - | 118,823 | - | - | - | 118,823 | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 0 | 0 | 0 | (8,018 | ) | - | 0 | (8,018 | ) | - | - | - | 3,584 | - | - | 3,584 | ||||||||||||||||||||||||||||||||||||||||
Pension, net of tax of $0.4 million | 0 | 0 | 0 | 1,191 | - | 0 | 1,191 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of tax of $1.6 million | 0 | 0 | 0 | 4,967 | - | 0 | 4,967 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.26 per share) | 0 | 0 | (3,177 | ) | 0 | - | 0 | (3,177 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | 41,976 | $ | 88,197 | $ | 891,303 | $ | (121,870 | ) | 16,055 | $ | (371,986 | ) | $ | 527,620 | |||||||||||||||||||||||||||||||||||||||||
Pension, net of tax of $0.6 million | - | - | - | 1,545 | - | - | 1,545 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of tax of $0.3 million | - | - | - | 1,008 | - | - | 1,008 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.82 per share) | - | - | (9,849 | ) | - | - | - | (9,849 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2023 | $ | 41,976 | $ | 97,294 | $ | 1,010,395 | $ | (147,175 | ) | 16,193 | $ | (396,940 | ) | $ | 605,550 | |||||||||||||||||||||||||||||||||||||||||
For the three month period ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the nine month period ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands, except as specified) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | 41,976 | $ | 76,548 | $ | 843,038 | $ | (124,149 | ) | 15,803 | $ | (339,223 | ) | $ | 498,190 | |||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | 41,976 | $ | 80,788 | $ | 852,489 | $ | (116,140 | ) | 15,940 | $ | (352,688 | ) | $ | 506,425 | |||||||||||||||||||||||||||||||||||||||||
Stock issued under incentive compensation plans and employee purchase plans | 0 | 60 | 0 | 0 | (4 | ) | 86 | 146 | - | (804 | ) | - | - | (94 | ) | 2,122 | 1,318 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 0 | 1,370 | 0 | 0 | - | 0 | 1,370 | - | 8,213 | - | - | - | - | 8,213 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired | 0 | 0 | 0 | 0 | 94 | (8,612 | ) | (8,612 | ) | - | - | - | - | 209 | (21,420 | ) | (21,420 | ) | ||||||||||||||||||||||||||||||||||||||
Comprehensive income: | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 1,427 | 0 | - | 0 | 1,427 | - | - | 48,124 | - | - | - | 48,124 | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 0 | 0 | 0 | (11,299 | ) | - | 0 | (11,299 | ) | - | - | - | (17,343 | ) | - | - | (17,343 | ) | ||||||||||||||||||||||||||||||||||||||
Pension, net of tax of $0.4 million | 0 | 0 | 0 | 1,297 | - | 0 | 1,297 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of tax of $0.7 million | 0 | 0 | 0 | 3,108 | - | 0 | 3,108 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.24 per share) | 0 | 0 | (2,974 | ) | 0 | - | 0 | (2,974 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | 41,976 | $ | 77,978 | $ | 841,491 | $ | (131,043 | ) | 15,893 | $ | (347,749 | ) | $ | 482,653 | |||||||||||||||||||||||||||||||||||||||||
Pension, net of tax of $1.1 million | - | - | - | 3,509 | - | - | 3,509 | |||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of tax of $2.4 million | - | - | - | 8,104 | - | - | 8,104 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.76 per share) | - | - | (9,310 | ) | - | - | - | (9,310 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | 41,976 | $ | 88,197 | $ | 891,303 | $ | (121,870 | ) | 16,055 | $ | (371,986 | ) | $ | 527,620 | |||||||||||||||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(In thousands) | 2022 | 2021 | 2023 | 2022 | ||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income | $ | 48,124 | $ | 22,524 | $ | 118,823 | $ | 48,124 | ||||||||
Income (loss) from discontinued operations | (135 | ) | (1,588 | ) | (144 | ) | (135 | ) | ||||||||
Income from continuing operations | 48,259 | 24,112 | 118,967 | 48,259 | ||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 22,411 | 24,843 | 21,275 | 22,411 | ||||||||||||
Stock-based compensation | 8,213 | 5,658 | 8,508 | 8,213 | ||||||||||||
Non-cash portion of restructuring charge | 595 | (538 | ) | 129 | 595 | |||||||||||
Loss on sale of business | 0 | 14,624 | ||||||||||||||
Gain on sale of business | (62,105 | ) | - | |||||||||||||
Contributions to defined benefit plans | (157 | ) | (7,962 | ) | (151 | ) | (157 | ) | ||||||||
Changes in operating assets and liabilities, net | (30,693 | ) | (11,399 | ) | (36,268 | ) | (30,693 | ) | ||||||||
Net cash provided by operating activities - continuing operations | 48,628 | 49,338 | ||||||||||||||
Net cash provided by (used in) operating activities - continuing operations | 50,355 | 48,628 | ||||||||||||||
Net cash provided by (used in) operating activities - discontinued operations | (375 | ) | 2,225 | (37 | ) | (375 | ) | |||||||||
Net cash provided by operating activities | 48,253 | 51,563 | ||||||||||||||
Net cash provided by (used in) operating activities | 50,318 | 48,253 | ||||||||||||||
Cash flows from investing activities | ||||||||||||||||
Expenditures for property, plant, and equipment | (13,138 | ) | (15,612 | ) | (16,648 | ) | (13,138 | ) | ||||||||
Proceeds from sale of business | 67,023 | - | ||||||||||||||
Expenditures for acquisitions, net of cash acquired | (9,902 | ) | (27,406 | ) | - | (9,902 | ) | |||||||||
Proceeds from sale of business | 0 | 11,678 | ||||||||||||||
Other investing activity | 5,718 | (1,449 | ) | (1,321 | ) | 5,718 | ||||||||||
Net cash provided by (used in) investing activities | (17,322 | ) | (32,789 | ) | 49,054 | (17,322 | ) | |||||||||
Cash flows from financing activities | ||||||||||||||||
Proceeds from borrowings | 0 | 17,000 | 224,500 | - | ||||||||||||
Payments of debt | 0 | (17,000 | ) | (226,200 | ) | - | ||||||||||
Contingent consideration payment | (1,167 | ) | 0 | (1,167 | ) | (1,167 | ) | |||||||||
Activity under share-based payment plans | 1,318 | 1,117 | 1,170 | 1,318 | ||||||||||||
Purchases of treasury stock | (21,420 | ) | (16,205 | ) | (18,582 | ) | (21,420 | ) | ||||||||
Cash dividends paid | (9,148 | ) | (8,547 | ) | (9,699 | ) | (9,148 | ) | ||||||||
Net cash provided by (used in) financing activities | (30,417 | ) | (23,635 | ) | (29,978 | ) | (30,417 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (2,979 | ) | 4,092 | 1,046 | (2,979 | ) | ||||||||||
Net change in cash and cash equivalents | (2,465 | ) | (769 | ) | 70,440 | (2,465 | ) | |||||||||
Cash and cash equivalents at beginning of year | 136,367 | 118,809 | 104,844 | 136,367 | ||||||||||||
Cash and cash equivalents at end of period | $ | 133,902 | $ | 118,040 | $ | 175,284 | $ | 133,902 | ||||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||||||||
Cash paid during the year for: | ||||||||||||||||
Interest | $ | 3,791 | $ | 3,754 | $ | 3,186 | $ | 3,791 | ||||||||
Income taxes, net of refunds | $ | 14,797 | $ | 14,631 | $ | 22,064 | $ | 14,797 | ||||||||
See notes to unaudited condensed consolidated financial statements
STANDEX INTERNATIONAL CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
1) Management Statement
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations for the three and nine months ended March 31, 20222023 and 20212022, the cash flows for the nine months ended March 31, 20222023 and 20212022 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at March 31, 20222023. The interim results are not necessarily indicative of results for a full year. The followingaccompanying 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, 20212022. The condensed consolidated balance sheet at June 30, 20212022 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, 20212022. 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 20222023 includes the twelve-month period from July 1, 20212022 to June 30, 2023.2022.
The estimates and assumptions used in the preparation of the consolidated financial statements have considered the implications on the Company as a result of the COVID-19 pandemic and its related economic impacts. As a result of the COVID-19 pandemic, there is heightened volatility and uncertainty around supply chain performance, labor availability, and customer demand. However, the magnitude of such impact on the Company’s business and its duration is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of March 31, 20222023 and the issuance date of the Quarterly Report on Form 10-Q.
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The Company evaluated subsequent events through the date and time its unaudited condensed consolidated financial statements were issued.
Recently Issued Accounting Pronouncements
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. The guidance in ASU 2021-10 is effective for all entities for fiscal years beginning after December 15, 2021 with early adoption permitted. The Company doesadopted ASU 2021-10 in fiscal year 2023. The adoption did not expect the adoption of this ASU to have a significantmaterial impact on its Consolidated Financial Statements.the consolidated financial statements.
2) Acquisitions
The Company's recent acquisitions are strategically significant to the future growth prospects of the Company. At the time of the acquisition and March 31, 20222023, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.
Sensor Solutions
During the third quarter of fiscal year 2022, the Company acquired Sensor Solutions, a designer and manufacturer of customized standard magnetic sensor products including hall effect switch and latching sensors, linear and rotary sensors, and specialty sensors. Sensor Solutions' customer base in automotive, industrial, medical, aerospace, military and consumer electronics end markets are a strategic fit and expand the Company's presence in these markets. Sensor Solutions operates one light manufacturing facility in Colorado. Sensor Solutions' results are reported within the Company's Electronics segment.
The Company paid $9.9 million in cash for all the issued and outstanding equity interests of Sensor Solutions. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Sensor Solutions' technical and applications expertise in sectors such as electric vehicles, industrial automation and medical end markets, which is highly complementary to the Company's existing business.
Identifiable intangible assets of $2.8 million consist primarily of $0.8 million for indefinite lived tradenames, and $2.0 million of customer relationships to be amortized over 10 years. The goodwill of $6.0$5.8 million created by the transaction is deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.
The components of the fair value of the Sensor Solutions acquisition, including the preliminary allocation of the purchase price at March 31, 2022, are as follows (in thousands):
Preliminary Allocation as of March 31, 2022 | ||||
Fair value of business combination: | ||||
Cash payments | $ | 10,016 | ||
Less cash acquired | (114 | ) | ||
Total | $ | 9,902 | ||
Preliminary Allocation as of March 31, 2022 | ||||
Identifiable assets acquired and liabilities assumed: | ||||
Other acquired assets | $ | 490 | ||
Inventories | 531 | |||
Property, plant, & equipment | 232 | |||
Identifiable intangible assets | 2,800 | |||
Goodwill | 6,001 | |||
Liabilities assumed | (152 | ) | ||
Total | $ | 9,902 | ||
Renco Electronics
During the first quarter of fiscal year 2021, the Company acquired Renco Electronics ("Renco"), a designer and manufacturer of customized standard magnetics components and products including transformers, inductors, chokes and coils for power and RF applications. Renco’s end markets and customer base in areas such as consumer and industrial applications are highly complementary to our existing business with the potential to further expand key account relationships and capitalize on cross selling opportunities between the two companies. Renco operates one manufacturing facility in Florida and is supported by contract manufacturers in Asia. Renco’s results are reported within our Electronics segment.
The Company paid $27.4 million in cash for all of the issued and outstanding equity interests of Renco Electronics. 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 Renco’s significant engineering and technical expertise in end markets supported by strong engineer-to-engineer relationships. In addition, Renco’s end markets and customer base in areas such as consumer and industrial are highly complementary to the Company’s existing business.
Identifiable intangible assets of $10.4 million consist primarily of $3.6 million for indefinite lived tradenames, and $6.8 million of customer relationships to be amortized over 12 years. The goodwill of $14.0 million created by the transaction is deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, 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 Renco Electronics acquisition, including the final allocation of the purchase price are as follows (in thousands):
Final Allocation | Final Allocation | |||||||
Fair value of business combination: | ||||||||
Cash payments | $ | 29,613 | $ | 10,016 | ||||
Less, cash acquired | (2,207 | ) | ||||||
Fair value of contingent consideration | 3,000 | |||||||
Less cash acquired | (114 | ) | ||||||
Total | $ | 30,406 | $ | 9,902 | ||||
Final Allocation Identifiable assets acquired and liabilities assumed: Other acquired assets Inventories Property, plant, & equipment Identifiable intangible assets Goodwill Liabilities assumed Total Other Acquisitions During the fourth quarter of fiscal year 2022, the Company paid $3.1 million in cash for acquired assets and liabilities of a manufacturer of magnetic components. The results are reported within the Company's Electronics segment. The transaction resulted in $2.5 million of goodwill that is deductible for income tax purposes. | |||||||||||||||||||||||||||||||||||||||||||||||||
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Acquisition Related Costs
Acquisition related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation arrangements and (ii) acquisition related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities. These costs do not include purchase accounting expenses, which we define as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets.
Acquisition related costs for the three months ended March 31, 20222023, and 20212022 were $0.4less than $0.1 million and $0.3$0.4 million, respectively. Acquisition related costs for the nine months ended March 31, 20222023, and 20212022 were $0.5 million and $1.6 million, and $0.9 million, respectively.
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 | Three Months Ended | |||||||||||||||
Revenue by Product Line | March 31, 2022 | March 31, 2021 | March 31, 2023 | March 31, 2022 | ||||||||||||
Electronics | $ | 79,889 | $ | 65,085 | $ | 78,211 | $ | 79,889 | ||||||||
Engraving Services | 34,399 | 33,655 | 35,454 | 34,399 | ||||||||||||
Engraving Products | 2,824 | 2,371 | 1,455 | 2,824 | ||||||||||||
Total Engraving | 37,223 | 36,026 | 36,909 | 37,223 | ||||||||||||
Scientific | 18,914 | 24,221 | 18,898 | 18,914 | ||||||||||||
Engineering Technologies | 20,890 | 19,951 | 18,052 | 20,890 | ||||||||||||
Hydraulics Cylinders and Systems | 15,306 | 13,629 | 13,548 | 15,306 | ||||||||||||
Merchandising & Display | 8,438 | 6,276 | 13,203 | 8,438 | ||||||||||||
Pumps | 8,621 | 7,028 | 5,511 | 8,621 | ||||||||||||
Total Specialty Solutions | 32,365 | 26,933 | 32,262 | 32,365 | ||||||||||||
Total revenue by product line | $ | 189,281 | $ | 172,216 | $ | 184,332 | $ | 189,281 | ||||||||
The following table presents revenue disaggregated by product line and segment (in thousands):
Nine Months Ended | Nine Months Ended | |||||||||||||||
Revenue by Product Line | March 31, 2022 | March 31, 2021 | March 31, 2023 | March 31, 2022 | ||||||||||||
Electronics | $ | 232,351 | $ | 180,524 | $ | 225,966 | $ | 232,351 | ||||||||
Engraving Services | 101,637 | 102,950 | 105,259 | 101,637 | ||||||||||||
Engraving Products | 7,400 | 7,427 | 4,363 | 7,400 | ||||||||||||
Total Engraving | 109,037 | 110,377 | 109,622 | 109,037 | ||||||||||||
Scientific | 65,079 | 58,777 | 56,646 | 65,079 | ||||||||||||
Engineering Technologies | 56,558 | 55,091 | 59,244 | 56,558 | ||||||||||||
Hydraulics Cylinders and Systems | 39,207 | 36,583 | 47,823 | 39,207 | ||||||||||||
Merchandising & Display | 23,548 | 19,515 | 32,160 | 23,548 | ||||||||||||
Pumps | 24,820 | 18,930 | 21,260 | 24,820 | ||||||||||||
Total Specialty Solutions | 87,575 | 75,028 | 101,243 | 87,575 | ||||||||||||
Total revenue by product line | $ | 550,600 | $ | 479,797 | $ | 552,721 | $ | 550,600 | ||||||||
The following table presents revenue from continuing operations disaggregated by geography based on company’s locations (in thousands):
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||
Net sales | March 31, 2022 | March 31, 2021 | March 31, 2022 | March 31, 2021 | March 31, 2023 | March 31, 2022 | March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||||
United States | $ | 110,076 | $ | 103,005 | $ | 314,657 | $ | 286,522 | $ | 112,002 | $ | 110,076 | $ | 338,464 | $ | 314,657 | ||||||||||||||||
Asia Pacific | 37,441 | 31,715 | 116,842 | 89,189 | 29,204 | 37,441 | 95,858 | 116,842 | ||||||||||||||||||||||||
EMEA (1) | 37,963 | 34,367 | 108,841 | 93,549 | 38,953 | 37,963 | 106,279 | 108,841 | ||||||||||||||||||||||||
Other Americas | 3,801 | 3,129 | 10,260 | 10,537 | 4,173 | 3,801 | 12,120 | 10,260 | ||||||||||||||||||||||||
Total | $ | 189,281 | $ | 172,216 | $ | 550,600 | $ | 479,797 | $ | 184,332 | $ | 189,281 | $ | 552,721 | $ | 550,600 | ||||||||||||||||
(1) EMEA consists primarily of Europe, Middle East and S. Africa.
The following table presents revenue from continuing operations disaggregated by timing of recognition (in thousands) for the three months ended::
Three Months Ended | Three Months Ended | |||||||||||||||
Timing of Revenue Recognition | March 31, 2022 | March 31, 2021 | March 31, 2023 | March 31, 2022 | ||||||||||||
Products and services transferred at a point in time | $ | 170,949 | $ | 163,356 | $ | 169,669 | $ | 170,949 | ||||||||
Products transferred over time | 18,332 | 8,860 | 14,663 | 18,332 | ||||||||||||
Net sales | $ | 189,281 | $ | 172,216 | $ | 184,332 | $ | 189,281 | ||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||
Timing of Revenue Recognition | March 31, 2022 | March 31, 2021 | March 31, 2023 | March 31, 2022 | ||||||||||||
Products and services transferred at a point in time | $ | 510,988 | $ | 454,007 | $ | 501,090 | $ | 510,988 | ||||||||
Products transferred over time | 39,612 | 25,790 | 51,631 | 39,612 | ||||||||||||
Net sales | $ | 550,600 | $ | 479,797 | $ | 552,721 | $ | 550,600 | ||||||||
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 | Amount Recognized | Balance at End of Period | Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||||||||||||||
Nine months ended March 31, 2022 | ||||||||||||||||||||||||||||||||
Nine months ended March 31, 2023 | ||||||||||||||||||||||||||||||||
Contract assets: | ||||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | $ | 15,013 | $ | 35,091 | $ | 25,711 | $ | 24,393 | $ | 24,679 | $ | 49,682 | $ | 43,820 | $ | 30,541 | ||||||||||||||||
Contract liabilities: | ||||||||||||||||||||||||||||||||
Customer deposits | 471 | 10,293 | 10,721 | 43 | 41 | 13,015 | 12,750 | 306 | ||||||||||||||||||||||||
Balance at Beginning of Period | Additions | Amount Recognized | Balance at End of Period | Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||||||||||||||
Nine months ended March 31, 2021 | ||||||||||||||||||||||||||||||||
Nine months ended March 31, 2022 | ||||||||||||||||||||||||||||||||
Contract assets: | ||||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | $ | 9,140 | $ | 21,055 | $ | 18,422 | $ | 11,773 | $ | 15,013 | $ | 35,091 | $ | 25,711 | $ | 24,393 | ||||||||||||||||
Contract liabilities: | ||||||||||||||||||||||||||||||||
Customer deposits | 2,298 | 6,497 | 7,871 | 924 | 471 | 10,293 | 10,721 | 43 | ||||||||||||||||||||||||
We recognized the following revenue which was included in the contract liability beginning balances (in thousands):
March 31, 2023 | ||||||||
Revenue recognized in the period from: | Three months ended | Nine months ended | ||||||
Amounts included in the contract liability balance at the beginning of the period | $ | 38 | $ | 41 | ||||
March 31, 2022 | ||||||||
Revenue recognized in the period from: | Three months ended | Nine months ended | ||||||
Amounts included in the contract liability balance at the beginning of the period | $ | 252 | $ | 471 | ||||
March 31, 2021 | ||||||||
Revenue recognized in the period from: | Three months ended | Nine months ended | ||||||
Amounts included in the contract liability balance at the beginning of the period | $ | 365 | $ | 2,298 | ||||
4) Fair Value Measurements
The financial instruments shown below are presented at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied.
Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and the methodologies used in valuation are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets and liabilities. The Company’s deferred compensation plan assets consist of shares in various mutual funds (investments are participant-directed) which invest in a broad portfolio of debt and equity securities. These assets are valued based on publicly quoted market prices for the funds’ shares as of the balance sheet dates.
Level 2 – Inputs, other than quoted prices in an active market, that are observable either directly or indirectly through correlation with market data. For foreign exchange forward contracts and interest rate swaps, the Company values the instruments based on the market price of instruments with similar terms, which are based on spot and forward rates as of the balance sheet dates. The Company has considered the creditworthiness of counterparties in valuing all assets and liabilities.
Level 3 – Unobservable inputs based upon the Company’s best estimate of what market participants would use in pricing the asset or liability.
There were no transfers of assets or liabilities between any levels of the fair value measurement hierarchy at March 31, 20222023 and June 30, 20212022. The Company’s policy is to recognize transfers between levels as of the date they occur.
Cash and cash equivalents, accounts receivable, accounts payable, and debt are carried at cost, which approximates fair value.
The fair values of financial instruments were as follows (in thousands):
March 31, 2022 | March 31, 2023 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Marketable securities - deferred compensation plan | $ | 3,281 | $ | 3,281 | $ | 0 | $ | 0 | $ | 3,629 | $ | 3,629 | $ | - | $ | - | ||||||||||||||||
Foreign exchange contracts | 169 | 0 | 169 | 0 | ||||||||||||||||||||||||||||
Interest rate swaps | 6,881 | 0 | 6,881 | 0 | 9,539 | - | 9,539 | - | ||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Foreign exchange contracts | $ | 0 | $ | 0 | 0 | $ | 0 | $ | 1,064 | $ | - | 1,064 | $ | - | ||||||||||||||||||
Interest rate swaps | 331 | 0 | 331 | 0 | ||||||||||||||||||||||||||||
Contingent acquisition payments (a) | 2,167 | 0 | 0 | 2,167 | ||||||||||||||||||||||||||||
June 30, 2021 | June 30, 2022 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Marketable securities - deferred compensation plan | $ | 2,988 | $ | 2,988 | $ | 0 | $ | 0 | $ | 3,033 | $ | 3,033 | $ | - | $ | - | ||||||||||||||||
Foreign exchange contracts | 255 | 0 | 255 | 0 | 122 | - | 122 | - | ||||||||||||||||||||||||
Interest rate swaps | 8,420 | - | 8,420 | - | ||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Foreign exchange contracts | $ | 1,222 | $ | 0 | $ | 1,222 | $ | 0 | $ | 711 | $ | - | $ | 711 | $ | - | ||||||||||||||||
Interest rate swaps | 3,096 | 0 | 3,096 | 0 | ||||||||||||||||||||||||||||
Contingent acquisition payments (a) | 3,333 | 0 | 0 | 3,333 | ||||||||||||||||||||||||||||
Contingent consideration (a) | 1,167 | - | - | 1,167 | ||||||||||||||||||||||||||||
(a) The fair value of contingent consideration arrangements is determined based on the Company's evaluation as to the probability and amount of any contingent consideration that has been earned to date.
The financial liabilities based upon Level 3 inputs include contingent consideration arrangements relating to the acquisitionsacquisition of Renco Electronics and GS Engineering.Electronics. The Company is contractually obligated to pay contingent consideration payments to the Sellers of these businessesthis business based on the achievement of certain criteria.
The Company is contractually obligated to pay contingent consideration to the sellers of GS Engineering in the event that certain revenue and gross margin targets are achieved during the five years following acquisition. The targets set in the GS Engineering stock purchase agreement were not met for the first, second, or secondthird year, which concluded in the fourth quarter of fiscal years 2020, 2021and 2021,2022, respectively. As of March 31, 20222023, the Company could be required to pay up to $12.8 million for contingent consideration arrangements if the revenue and gross margin targets are met in fiscal years 20222023 through 2024.
In connection with its acquisition of Renco Electronics, the Company was obligated to pay contingent consideration over a three year period of up to $3.5 million to the sellers of Renco. During the first quarter of fiscal year 2022, the Company paid $1.2 million to the sellers as Renco exceeded the earnings targets during the first year of the measurement period.period. During the third quarter of fiscal year 2022, the parties agreed to reduce and fix the aggregate earnout payments to a total of $3.4 million. The parties also agreed to accelerate the payment of the remaining unpaid amounts as follows:amounts. During the fourth quarter of fiscal year 2022, the Company paid $1.0 million to the sellers of Renco. The remaining unpaid amount of $1.2 million was paid in the April 2022 first quarter of fiscal year 2023and the remaining $1.2 million in August 2022.obligation is considered settled.
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.
The Company will update its assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the agreements expire.
5) Inventories
Inventories from continuing operations are comprised of the following (in thousands):
March 31, 2022 | June 30, 2021 | March 31, 2023 | June 30, 2022 | |||||||||||||
Raw materials | $ | 53,415 | $ | 47,000 | $ | 50,037 | $ | 56,321 | ||||||||
Work in process | 22,740 | 22,539 | 21,092 | 20,592 | ||||||||||||
Finished goods | 27,775 | 22,323 | 33,387 | 28,426 | ||||||||||||
Total | $ | 103,930 | $ | 91,862 | $ | 104,516 | $ | 105,339 | ||||||||
Distribution costs associated with the sale of inventory, which are recorded as a component of selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations were $2.5$3.2 million and $3.0$2.5 million for the three months ended March 31, 20222023 and 20212022, respectively. Distribution costs were $11.1$9.2 million and $8.4$11.1 million for the nine months ended March 31, 20222023 and 20212022, respectively.
6) Goodwill
Changes to goodwill by segment during the period were as follows (in thousands):
June 30, 2021 | Acquisitions | Translation Adjustment | March 31, 2022 | June 30, 2022 | Other | Translation Adjustment | March 31, 2023 | |||||||||||||||||||||||||
Electronics | $ | 144,832 | $ | 6,001 | $ | (7,814 | ) | $ | 143,019 | $ | 136,969 | $ | - | $ | 1,420 | $ | 138,389 | |||||||||||||||
Engraving | 77,378 | 0 | (632 | ) | 76,746 | 76,250 | - | 274 | 76,524 | |||||||||||||||||||||||
Scientific | 15,454 | 0 | 0 | 15,454 | 15,454 | - | - | 15,454 | ||||||||||||||||||||||||
Engineering Technologies | 37,085 | 0 | (482 | ) | 36,603 | 35,928 | - | 109 | 36,037 | |||||||||||||||||||||||
Specialty Solutions | 3,305 | 0 | 0 | 3,305 | 3,305 | (246 | ) | - | 3,059 | |||||||||||||||||||||||
Total | $ | 278,054 | $ | 6,001 | $ | (8,928 | ) | $ | 275,127 | $ | 267,906 | $ | (246 | ) | $ | 1,803 | $ | 269,463 | ||||||||||||||
7) Warranty Reserves
changeschange in warranty reserves from continuing operations, which are recorded as a component of accrued liabilities were as follows (in thousands):
March 31, 2023 | June 30, 2022 | |||||||
Balance at beginning of year | $ | 1,918 | $ | 2,086 | ||||
Acquisitions and other charges | 12 | (29 | ) | |||||
Warranty expense | 1,033 | 1,083 | ||||||
Warranty claims | (1,197 | ) | (1,222 | ) | ||||
Balance at end of period | $ | 1,766 | $ | 1,918 | ||||
March 31, 2022 | June 30, 2021 | |||||||
Balance at beginning of year | $ | 2,086 | $ | 1,781 | ||||
Acquisitions and other charges | (68 | ) | 68 | |||||
Warranty expense | 856 | 2,007 | ||||||
Warranty claims | (960 | ) | (1,770 | ) | ||||
Balance at end of period | $ | 1,914 | $ | 2,086 | ||||
8) Debt
Long-term debt is comprised of the following (in thousands):
March 31, 2022 | June 30, 2021 | March 31, 2023 | June 30, 2022 | |||||||||||||
Bank credit agreements | $ | 200,000 | $ | 200,000 | $ | 175,000 | $ | 175,000 | ||||||||
Total funded debt | 200,000 | 200,000 | 175,000 | 175,000 | ||||||||||||
Issuance cost | (255 | ) | (510 | ) | (1,667 | ) | (170 | ) | ||||||||
Total long-term debt | $ | 199,745 | $ | 199,490 | $ | 173,333 | $ | 174,830 | ||||||||
During the secondthird quarter of fiscal year 2019,2023, the Company entered into a Third Amended & Restated Credit Agreement which renewed the existing Credit Agreement for an additional five-year Amended and Restated Credit Agreementperiod (“Credit Facility”, or “facility”). The facility has a borrowing limit of $500 million, which 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, 20222023, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $6.2$3.0 million and had the ability to borrow $299.5$343.7 million under the facility. Funds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes. The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants which the Company was compliant with as of March 31, 20222023. At March 31, 20222023, the carrying value of the current borrowings approximate fair value.
9) Accrued Liabilities |
|
Accrued liabilities consist of the following (in thousands):
March 31, 2022 | June 30, 2021 | March 31, 2023 | June 30, 2022 | |||||||||||||
Payroll and employee benefits | $ | 27,137 | $ | 32,550 | $ | 25,794 | $ | 31,211 | ||||||||
Workers' compensation | 2,118 | 2,118 | ||||||||||||||
Operating lease current liability | 8,055 | 7,891 | ||||||||||||||
Litigation accrual | - | 5,745 | ||||||||||||||
Warranty reserves | 1,914 | 2,086 | 1,766 | 1,918 | ||||||||||||
Fair value of derivatives | 331 | 4,318 | 1,064 | - | ||||||||||||
Operating lease current liability | 6,820 | 7,933 | ||||||||||||||
Restructuring costs | 1,869 | 1,740 | ||||||||||||||
Workers' compensation | 1,354 | 1,664 | ||||||||||||||
Contingent consideration | - | 1,166 | ||||||||||||||
Other | 18,865 | 12,712 | 15,802 | 16,438 | ||||||||||||
Total | $ | 57,185 | $ | 61,717 | $ | 55,704 | $ | 67,773 | ||||||||
10) Derivative Financial Instruments
The Company is exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency rates. The Company selectively uses derivative financial instruments in order to manage certain of these risks. Information about the Company’s derivative financial instruments is as follows:
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 Company’s 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 may be 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 Company’s effective swap agreements convert the base borrowing rate on $200$175 million of debt due under our revolving credit agreement from a variable rate equal to 1 month LIBORSecured Overnight Financing Rate (SOFR) to a weighted average fixed rate of 1.27%1.14% at March 31, 20222023. The fair value of the swaps, recognized in accrued liabilities or other current assets and in other comprehensive income, is as follows (in thousands, except percentages):
Effective Date | Notional Amount | Fixed Interest Rate | Maturity | March 31, 2022 | June 30, 2021 | ||||||||||
May 24, 2017 | 25,000 | 1.88% | April 24, 2022 | $ | (32 | ) | $ | (374 | ) | ||||||
August 6, 2018 | 25,000 | 2.83% | August 6, 2023 | (299 | ) | (1,401 | ) | ||||||||
March 23, 2020 | 100,000 | 0.91% | March 23, 2025 | 4,540 | (907 | ) | |||||||||
April 24, 2020 | 25,000 | 0.88% | April 24, 2025 | 1,203 | (192 | ) | |||||||||
May 24, 2020 | 25,000 | 0.91% | March 24, 2025 | 1,138 | (222 | ) | |||||||||
| 0 | 0 | $ | 6,550 | $ | (3,096 | ) | |||||||||
Effective Date | Notional Amount | Fixed Interest Rate | Maturity | March 31, 2023 | June 30, 2022 | ||||||||||
February 6, 2023 | 25,000 | 2.80% | August 6, 2023 | $ | 185 | $ | 48 | ||||||||
February 23, 2023 | 100,000 | 0.86% | March 23, 2025 | 6,157 | 5,538 | ||||||||||
April 24, 2020 | 25,000 | 0.88% | April 24, 2025 | 1,654 | 1,447 | ||||||||||
February 24, 2023 | 25,000 | 0.86% | March 24, 2025 | 1,543 | 1,387 | ||||||||||
| $ | 9,539 | $ | 8,420 | ||||||||||||
The Company reported 0no losses for the three and nine months ended March 31, 20222023, 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, 20222023 and June 30, 20212022, the Company had outstanding forward contracts related to hedges of intercompany loans with net unrealized assetslosses of $0.2$1.1 million and losses of $1.0$0.6 million, respectively, which approximate the unrealized gains and losses on the related loans. The contracts have maturity dates ranging from fiscal year 20222024 to 2024,2025, which correspond to the related intercompany loans.
The notional amounts of the Company’s forward contracts, by currency, are as follows (in thousands):
Currency | March 31, 2022 | June 30, 2021 | March 31, 2023 | June 30, 2022 | ||||||||||||
USD | 0 | 987 | ||||||||||||||
EUR | 5,750 | 5,750 | - | 5,750 | ||||||||||||
SGD | 5,000 | 21,836 | ||||||||||||||
CAD | 16,600 | 20,600 | 16,600 | 16,600 | ||||||||||||
JPY | 2,100,000 | 1,000,000 | ||||||||||||||
Asset Derivatives | Asset Derivatives | |||||||||||||||||||
March 31, 2022 | June 30, 2021 | March 31, 2023 | June 30, 2022 | |||||||||||||||||
Derivative designated | Balance | Balance | Balance | Balance | ||||||||||||||||
as hedging instruments | Sheet | Sheet | Sheet | Sheet | ||||||||||||||||
Line Item | Fair Value | Line Item | Fair Value | Line Item | Fair Value | Line Item | Fair Value | |||||||||||||
Interest rate swaps | Prepaid expenses and other current assets | $ | 6,881 | $ | - | Prepaid expenses and other current assets | $ | 9,539 | Prepaid expenses and other current assets | $ | 8,420 | |||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | 169 | Prepaid expenses and other current assets | 255 | Prepaid expenses and other current assets | - | Prepaid expenses and other current assets | 122 | ||||||||||||
| $ | 7,050 | $ | 255 | $ | 9,539 | $ | 8,542 | |||||||||||||
Liability Derivatives | ||||||||||
March 31, 2023 | June 30, 2022 | |||||||||
Derivative designated | Balance | Balance | ||||||||
as hedging instruments | Sheet | Sheet | ||||||||
Line Item | Fair Value | Line Item | Fair Value | |||||||
Foreign exchange contracts | Accrued liabilities | $ | 823 | Accrued liabilities | $ | - | ||||
| $ | 823 | $ | - | |||||||
Liability Derivatives | ||||||||||
March 31, 2022 | June 30, 2021 | |||||||||
Derivative designated | Balance | Balance | ||||||||
as hedging instruments | Sheet | Sheet | ||||||||
Line Item | Fair Value | Line Item | Fair Value | |||||||
Interest rate swaps | Accrued liabilities | $ | 331 | Accrued liabilities | $ | 3,096 | ||||
Foreign exchange contracts | Accrued liabilities | 0 | Accrued liabilities | 1,222 | ||||||
| $ | 331 | $ | 4,318 | |||||||
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 | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Interest rate swaps | $ | 6,045 | $ | 2,282 | $ | 7,885 | $ | 1,801 | $ | (586 | ) | $ | 6,045 | $ | 4,174 | $ | 7,885 | |||||||||||||||
Foreign exchange contracts | (217 | ) | 1,465 | 5 | 1,731 | 18 | (217 | ) | (945 | ) | 5 | |||||||||||||||||||||
| $ | 5,828 | $ | 3,747 | $ | 7,890 | $ | 3,532 | $ | (568 | ) | $ | 5,828 | $ | 3,229 | $ | 7,890 | ||||||||||||||||
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 | Affected line item | ||||||||||||||||||||||||||||||||
Other Comprehensive | Three Months Ended | Nine Months Ended | in the Unaudited | Three Months Ended | Nine Months Ended | in the Unaudited | ||||||||||||||||||||||||||||
Income (Loss) Components | March 31, | March 31, | Condensed Statements | March 31, | March 31, | Condensed Statements | ||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | of Operations | 2023 | 2022 | 2023 | 2022 | of Operations | |||||||||||||||||||||||||
Interest rate swaps | $ | 557 | $ | 570 | $ | 1,761 | $ | 1,698 | Interest expense | $ | (1,449 | ) | $ | 557 | $ | (3,008 | ) | $ | 1,761 | Interest expense | ||||||||||||||
Foreign exchange contracts | 207 | (506 | ) | 826 | (513 | ) | Other non-operating (income) expense, net | (26 | ) | 207 | 1,069 | 826 | Other non-operating (income) expense, net | |||||||||||||||||||||
| $ | 764 | $ | 64 | $ | 2,587 | $ | 1,185 | $ | (1,475 | ) | $ | 764 | $ | (1,939 | ) | $ | 2,587 | |||||||||||||||||
11) Retirement Benefits
The Company has defined benefit pension plans covering certain current and former employees both inside and outside of the U.S. The Company’s pension plan for U.S. employees is frozen for substantially all participants and has been replaced with a defined contribution benefit plan. Obligations under the Company's defined benefit plan operated in Ireland have been transferred to the buyer of the Procon business as part of the divestiture.
Net periodic benefit cost for the Company’s U.S. and Foreign pension benefit plans for the periods ended consisted of the following components (in thousands):
U.S. Plans | Non-U.S. Plans | U.S. Plans | Non-U.S. Plans | |||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Service cost | $ | 1 | $ | 1 | $ | 58 | $ | 55 | $ | - | $ | 1 | $ | 44 | $ | 58 | ||||||||||||||||
Interest cost | 1,830 | 1,860 | 193 | 185 | 2,397 | 1,830 | 249 | 193 | ||||||||||||||||||||||||
Expected return on plan assets | (3,260 | ) | (3,253 | ) | (215 | ) | (161 | ) | (2,993 | ) | (3,260 | ) | (218 | ) | (215 | ) | ||||||||||||||||
Recognized net actuarial loss | 1,384 | 1,483 | 84 | 193 | 953 | 1,384 | (13 | ) | 84 | |||||||||||||||||||||||
Amortization of prior service cost | 0 | 0 | (1 | ) | (1 | ) | - | - | (1 | ) | (1 | ) | ||||||||||||||||||||
Net periodic benefit cost | $ | (45 | ) | $ | 91 | $ | 119 | $ | 271 | $ | 357 | $ | (45 | ) | $ | 61 | $ | 119 | ||||||||||||||
U.S. Plans | Non-U.S. Plans | |||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Service cost | $ | 3 | $ | 3 | $ | 179 | $ | 164 | ||||||||
Interest cost | 5,490 | 5,579 | 576 | 539 | ||||||||||||
Expected return on plan assets | (9,779 | ) | (9,759 | ) | (641 | ) | (468 | ) | ||||||||
Recognized net actuarial loss | 4,151 | 4,450 | 253 | 562 | ||||||||||||
Amortization of prior service cost | 0 | 0 | (3 | ) | (4 | ) | ||||||||||
Net periodic benefit cost | $ | (135 | ) | $ | 273 | $ | 364 | $ | 793 | |||||||
U.S. Plans | Non-U.S. Plans | |||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Service cost | $ | - | $ | 3 | $ | 131 | $ | 179 | ||||||||
Interest cost | 7,190 | 5,490 | 774 | 576 | ||||||||||||
Expected return on plan assets | (8,980 | ) | (9,779 | ) | (710 | ) | (641 | ) | ||||||||
Recognized net actuarial loss | 2,860 | 4,151 | (44 | ) | 253 | |||||||||||
Amortization of prior service cost | - | - | (3 | ) | (3 | ) | ||||||||||
Net periodic benefit cost | $ | 1,070 | $ | (135 | ) | $ | 148 | $ | 364 | |||||||
The following table sets forth the amounts recognized for the Company's defined benefit pension plans (in thousands):
Amounts recognized in the consolidated balance sheets consist of: | March 31, 2022 | June 30, 2021 | March 31, 2023 | June 30, 2022 | ||||||||||||
Prepaid benefit cost | $ | 5,485 | $ | 5,661 | $ | 4,722 | $ | 6,295 | ||||||||
Current liabilities | (596 | ) | (517 | ) | (529 | ) | (456 | ) | ||||||||
Non-current liabilities | (42,311 | ) | (47,425 | ) | (45,948 | ) | (47,695 | ) | ||||||||
Net amount recognized | $ | (37,422 | ) | $ | (42,281 | ) | $ | (41,755 | ) | $ | (41,856 | ) | ||||
The contributions made to defined benefit plans are presented below along with remaining contributions to be made for fiscal year 20222023 (in thousands):
Fiscal Year 2022 | Fiscal Year 2021 | Remaining | Fiscal Year 2023 | Fiscal Year 2022 | Remaining | |||||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | Contributions | Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | Contributions | |||||||||||||||||||||||||||||||
Contributions to defined benefit plans | March 31, 2022 | March 31, 2022 | March 31, 2021 | March 31, 2021 | FY 2022 | March 31, 2023 | March 31, 2023 | March 31, 2022 | March 31, 2022 | FY 2023 | ||||||||||||||||||||||||||||||
United States, funded plan | $ | 0 | $ | 0 | $ | 3,030 | $ | 7,805 | $ | 0 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
United States, unfunded plan | 52 | 157 | 53 | 157 | 54 | 49 | 151 | 52 | 157 | 49 | ||||||||||||||||||||||||||||||
United Kingdom | 0 | 0 | 0 | 0 | 0 | - | - | - | - | - | ||||||||||||||||||||||||||||||
Germany, unfunded plan | 0 | 0 | 0 | 0 | 280 | - | - | - | - | 239 | ||||||||||||||||||||||||||||||
Ireland | 0 | 0 | 0 | 0 | 65 | |||||||||||||||||||||||||||||||||||
| $ | 52 | $ | 157 | $ | 3,083 | $ | 7,962 | $ | 399 | $ | 49 | $ | 151 | $ | 52 | $ | 157 | $ | 288 | |||||||||||||||||||||
12) Income Taxes
The Company's effective tax rate from continuing operations for the third quarter of fiscal year 20222023 and for the nine months ended March 31, 2023 was 24.0%6.7% and 13.0%, respectively compared with 56.3%24.0% and 24.5% for the prior year quarter. The tax rate was impacted in the currentquarter and prior year period, by the following items: (i) a discrete benefit related to a reduction in an uncertain tax position, (ii) a discrete benefit related to a return to provision adjustment, and (iii) the jurisdictional mix of earnings. The tax rate was impacted in the prior period by the following items: (i) reduction of global intangible low-taxed income, (ii) the jurisdictional mix of earnings and (iii) the establishment of a valuation allowance against our deferred tax asset attributable to the divestiture of Enginetics Corporation during the quarter. The divestiture of the Enginetics business gave rise to a capital loss carryforward, which, if unused, will expire after 5 years. Capital losses are allowed only to the extent of capital gains; however, because the Company did not have capital gains in the prior period or the applicable carryback period, the capital loss was carried forward. The Company believes it is more likely than not that the capital loss carryforward will expire unutilized. Therefore, a full valuation allowance was established, which negatively impacted the effective tax rate. The valuation allowance could be released if it is determined that the Company will have sufficient taxable income of the appropriate character within the carryforward period.respectively.
The Company's effective tax rate from continuing operations for the firstnine months of the fiscal year ending June 30, 2022 was 24.5% compared with 25.3% for the prior year period.
13) 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, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Basic - Average shares outstanding | 11,982 | 12,136 | 12,009 | 12,185 | ||||||||||||
Dilutive effect of unvested, restricted stock awards | 107 | 117 | 112 | 82 | ||||||||||||
Diluted - Average shares outstanding | 12,089 | 12,253 | 12,121 | 12,267 | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Basic - Average shares outstanding | 11,811 | 11,982 | 11,825 | 12,009 | ||||||||||||
Dilutive effect of unvested, restricted stock awards | 84 | 107 | 92 | 112 | ||||||||||||
Diluted - Average shares outstanding | 11,895 | 12,089 | 11,917 | 12,121 | ||||||||||||
Earnings available to common stockholders are the same for computing both basic and diluted earnings per share. There were no outstanding instruments that had an anti-dilutive effect at March 31, 20222023 or 20212022.
Performance stock units of 142,170132,217 and 129,427142,170 for the nine months ended March 31, 20222023 and 20212022,, respectively, are excluded from the diluted earnings per share calculation as the performance criteria have not been met.
14) Accumulated Other Comprehensive Income (Loss)
The components of the Company’s accumulated other comprehensive income (loss) are as follows (in thousands):
March 31, 2022 | June 30, 2021 | March 31, 2023 | June 30, 2022 | |||||||||||||
Foreign currency translation adjustment | $ | (38,587 | ) | $ | (21,244 | ) | $ | (64,095 | ) | $ | (67,679 | ) | ||||
Unrealized pension losses, net of tax | (88,863 | ) | (92,372 | ) | (91,096 | ) | (92,641 | ) | ||||||||
Unrealized gains (losses) on derivative instruments, net of tax | 5,580 | (2,524 | ) | 8,016 | 7,008 | |||||||||||
Total | $ | (121,870 | ) | $ | (116,140 | ) | $ | (147,175 | ) | $ | (153,312 | ) | ||||
15) 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 Company’s management does not believe that the outcome of any of the currently existing legal matters will have a material impact on the Company’s consolidated financial position, results of operations or cash flow. The Company accrues for losses related to a claim or litigation when the Company’s management considers a potential loss probable and can reasonably estimate such potential loss.
Litigation
In the second quarter of fiscal year 2019, a lawsuit was filed against Standex Electronics, Inc. ("Electronics"), a wholly owned subsidiary of the Company, by Miniature Precision Components, Inc. ("MPC"), a customer, seeking damages in connection with allegedly faulty sensors designed and manufactured by Electronics. The subject sensors were incorporated by MPC into a subassembly sold by MPC to its customer, an automotive manufacturer. MPC alleges that the sensors incorrectly activated a diagnostic code in vehicles for which MPC’s customer issued a service bulletin, resulting in significant warranty costs for MPC. In the litigation, which is pendingAs reported in the U.S. District Court forCompany's annual report on Form 10-K file on August 5, 2022, during the Eastern District of Wisconsin, MPC seeks indemnification from Electronics for its costs. Electronics has numerous defenses to MPC’s claims. Trial for this case is currently scheduled for July 2022. During the secondfourth quarter of fiscal year 2022, the Company engaged in unsuccessful mediationagreed to a full and comprehensive settlement of its pending lawsuit with MPC, during which the Company offered to settle the matter in order to avoid the inherent risk of litigationMiniature Precision Components, Inc., and, as well as the cost of diverting internal resources. As a result, the Company has recorded $1.7$5.7 million as accrued liabilities related to this litigation. Based upon developments to date,in the Company believes thatconsolidated balance sheet. During the rangefirst quarter of any reasonably possible loss, in excess of amounts accrued, would be between $0fiscal year 2023, the liability was paid and $6.3 million. The estimated range of reasonably possible lossthe matter is based upon currently available information and is subject to significant judgement and a variety of assumptions and known and unknown uncertainties.considered settled.
16) Industry Segment Information
The Company has five reportable segments organized around the types of products sold:
• | Electronics – manufactures and sells electronic components for applications throughout the end user market spectrum; | |
• | Engraving – provides mold texturizing, slush molding tools, project management and design services, roll engraving, hygiene product tooling, low observation vents for stealth aircraft, and process machinery for a number of industries; | |
• | Scientific – sells specialty temperature-controlled equipment for the medical, scientific, pharmaceutical, biotech and industrial markets; | |
• | 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; | |
• | Specialty Solutions – an aggregation of |
Net sales and income (loss) from continuing operations by segment were as follows (in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
Net Sales | Income from Operations | Net Sales | Income from Operations | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Industry segment: | ||||||||||||||||||||||||||||||||
Electronics | $ | 79,889 | $ | 65,085 | $ | 19,194 | $ | 12,364 | $ | 78,211 | $ | 79,889 | $ | 17,047 | $ | 19,194 | ||||||||||||||||
Engraving | 37,223 | 36,026 | 5,728 | 4,510 | 36,909 | 37,223 | 5,353 | 5,728 | ||||||||||||||||||||||||
Scientific | 18,914 | 24,221 | 4,155 | 5,803 | 18,898 | 18,914 | 4,561 | 4,155 | ||||||||||||||||||||||||
Engineering Technologies | 20,890 | 19,951 | 2,327 | 1,245 | 18,052 | 20,890 | 2,351 | 2,327 | ||||||||||||||||||||||||
Specialty Solutions | 32,365 | 26,933 | 3,632 | 4,251 | 32,262 | 32,365 | 7,151 | 3,632 | ||||||||||||||||||||||||
Corporate | - | - | (8,961 | ) | (7,162 | ) | - | - | (8,520 | ) | (8,961 | ) | ||||||||||||||||||||
Restructuring costs | - | - | (1,186 | ) | (482 | ) | - | - | (2,237 | ) | (1,186 | ) | ||||||||||||||||||||
Loss on sale of business | - | - | 0 | (14,624 | ) | |||||||||||||||||||||||||||
Gain on sale of business | - | - | 62,105 | - | ||||||||||||||||||||||||||||
Acquisition related costs | - | - | (419 | ) | (255 | ) | - | - | (21 | ) | (419 | ) | ||||||||||||||||||||
Other operating income (expense), net | - | - | 0 | 0 | - | - | 727 | - | ||||||||||||||||||||||||
Sub-total | $ | 189,281 | $ | 172,216 | $ | 24,470 | $ | 5,650 | $ | 184,332 | $ | 189,281 | $ | 88,517 | $ | 24,470 | ||||||||||||||||
Interest expense | 1,238 | 1,317 | 1,415 | 1,238 | ||||||||||||||||||||||||||||
Other non-operating (income) expense | 340 | 306 | 747 | 340 | ||||||||||||||||||||||||||||
Income from continuing operations before income taxes | $ | 22,892 | $ | 4,027 | $ | 86,355 | $ | 22,892 | ||||||||||||||||||||||||
Nine Months Ended March 31, | ||||||||||||||||
Net Sales | Income from Operations | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Industry segment: | ||||||||||||||||
Electronics | $ | 232,351 | $ | 180,524 | $ | 54,624 | $ | 30,861 | ||||||||
Engraving | 109,037 | 110,377 | 15,806 | 16,884 | ||||||||||||
Scientific | 65,079 | 58,777 | 14,153 | 14,113 | ||||||||||||
Engineering Technologies | 56,558 | 55,091 | 5,540 | 3,076 | ||||||||||||
Specialty Solutions | 87,575 | 75,028 | 10,185 | 11,368 | ||||||||||||
Corporate | - | - | (25,507 | ) | (21,607 | ) | ||||||||||
Restructuring costs | - | - | (2,469 | ) | (2,478 | ) | ||||||||||
Loss on sale of business | - | - | - | (14,624 | ) | |||||||||||
Acquisition related costs | - | - | (1,561 | ) | (850 | ) | ||||||||||
Other operating income (expense), net | - | - | (1,700 | ) | 0 | |||||||||||
Sub-total | $ | 550,600 | $ | 479,797 | $ | 69,071 | $ | 36,743 | ||||||||
Interest expense | 4,484 | 4,403 | ||||||||||||||
Other non-operating (income) expense | 651 | 73 | ||||||||||||||
Income from continuing operations before income taxes | $ | 63,936 | $ | 32,267 | ||||||||||||
Nine Months Ended March 31, | ||||||||||||||||
Net Sales | Income from Operations | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Industry segment: | ||||||||||||||||
Electronics | $ | 225,966 | $ | 232,351 | $ | 52,160 | $ | 54,624 | ||||||||
Engraving | 109,622 | 109,037 | 17,580 | 15,806 | ||||||||||||
Scientific | 56,646 | 65,079 | 12,449 | 14,153 | ||||||||||||
Engineering Technologies | 59,244 | 56,558 | 7,957 | 5,540 | ||||||||||||
Specialty Solutions | 101,243 | 87,575 | 18,944 | 10,185 | ||||||||||||
Corporate | - | - | (25,376 | ) | (25,507 | ) | ||||||||||
Restructuring costs | - | - | (3,330 | ) | (2,469 | ) | ||||||||||
Gain on sale of business | - | - | 62,105 | - | ||||||||||||
Acquisition related costs | - | - | (487 | ) | (1,561 | ) | ||||||||||
Other operating income (expense), net | - | - | 611 | (1,700 | ) | |||||||||||
Sub-total | $ | 552,721 | $ | 550,600 | $ | 142,613 | $ | 69,071 | ||||||||
Interest expense | 4,168 | 4,484 | ||||||||||||||
Other non-operating (income) expense | 1,695 | 651 | ||||||||||||||
Income from continuing operations before income taxes | $ | 136,750 | $ | 63,936 | ||||||||||||
Net sales include only transactions with unaffiliated customers and include no intersegment sales. Income (loss) from operations by segment excludes interest expense and other non-operating (income) expense.
17) Restructuring
The Company has undertaken a number of initiatives that have resulted in severance, restructuring, and related charges.
20222023 Restructuring Initiatives
The Company continues to focus its efforts to reduce cost and improve productivity across its businesses, particularly through headcount reductions, facility closures, and consolidations. Restructuring expenses primarily related to headcount reductions and other cost saving initiatives. The Company expects the 20222023 restructuring activities to be completed by fiscal year 2023.2024.
Prior Year Restructuring Initiatives
Restructuring expenses primarily related to headcount reductions and facility rationalization within our Specialty Solutions segment. The Company also incurred restructuring expenses related to third party assistance with analysis and implementation of these activities. The Company expects the prior year restructuring activities to be completed by fiscal year 2022.2023.
A summary of charges by initiative is as follows (in thousands):
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, 2022 | March 31, 2022 | March 31, 2023 | March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||
Fiscal Year 2022 | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Fiscal Year 2023 | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Current year initiatives | $ | 966 | $ | 220 | $ | 1,186 | $ | 1,637 | $ | 832 | $ | 2,469 | $ | 1,460 | $ | 68 | $ | 1,528 | $ | 1,671 | $ | 185 | $ | 1,856 | ||||||||||||||||||||||||
Prior year initiatives | 87 | 622 | 709 | 412 | 1,062 | 1,474 | ||||||||||||||||||||||||||||||||||||||||||
| $ | 1,547 | $ | 690 | $ | 2,237 | $ | 2,083 | $ | 1,247 | $ | 3,330 | |||||||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, 2021 | March 31, 2021 | March 31, 2022 | March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||
Fiscal Year 2021 | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Fiscal Year 2022 | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Current year initiatives | $ | 292 | $ | 178 | $ | 470 | $ | 755 | $ | 540 | $ | 1,295 | $ | 966 | $ | 220 | $ | 1,186 | $ | 1,637 | $ | 832 | $ | 2,469 | ||||||||||||||||||||||||
Prior year initiatives | 12 | 0 | 12 | 906 | 277 | 1,183 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| $ | 304 | $ | 178 | $ | 482 | $ | 1,661 | $ | 817 | $ | 2,478 | $ | 966 | $ | 220 | $ | 1,186 | $ | 1,637 | $ | 832 | $ | 2,469 | |||||||||||||||||||||||||
Activity in the reserve related to the initiatives is as follows (in thousands):
Current Year Initiatives | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | ||||||||||||||||||
Restructuring liabilities at June 30, 2021 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
Restructuring liabilities at June 30, 2022 | $ | - | $ | - | $ | - | ||||||||||||||||||
Additions and adjustments | 1,637 | 832 | 2,469 | 1,671 | 185 | 1,856 | ||||||||||||||||||
Payments | (1,060 | ) | (765 | ) | (1,825 | ) | (339 | ) | (185 | ) | (524 | ) | ||||||||||||
Restructuring liabilities at March 31, 2022 | $ | 577 | $ | 67 | $ | 644 | ||||||||||||||||||
Restructuring liabilities at March 31, 2023 | $ | 1,332 | $ | - | $ | 1,332 | ||||||||||||||||||
Prior Year Initiatives | Involuntary Employee Severance and Benefit Costs | Other | Total | |||||||||
Restructuring liabilities at June 30, 2022 | $ | 1,045 | $ | 695 | $ | 1,740 | ||||||
Additions and adjustments | 412 | 1,062 | 1,474 | |||||||||
Payments | (1,210 | ) | (1,467 | ) | (2,677 | ) | ||||||
Restructuring liabilities at March 31, 2023 | $ | 247 | $ | 290 | $ | 537 | ||||||
Prior Year Initiatives | Involuntary Employee Severance and Benefit Costs | Other | Total | |||||||||
Restructuring liabilities at June 30, 2021 | $ | 39 | $ | 10 | $ | 49 | ||||||
Additions and adjustments | 0 | 0 | 0 | |||||||||
Payments | (39 | ) | (10 | ) | (49 | ) | ||||||
Restructuring liabilities at March 31, 2022 | $ | 0 | $ | 0 | $ | 0 | ||||||
Prior Year Initiatives | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | ||||||||||||||||||
Restructuring liabilities at June 30, 2020 | $ | 520 | $ | 18 | $ | 538 | ||||||||||||||||||
Restructuring liabilities at June 30, 2021 | $ | 39 | $ | 10 | $ | 49 | ||||||||||||||||||
Additions and adjustments | 1,661 | 817 | 2,478 | 1,637 | 832 | 2,469 | ||||||||||||||||||
Payments | (2,181 | ) | (835 | ) | (3,016 | ) | (1,099 | ) | (775 | ) | (1,874 | ) | ||||||||||||
Restructuring liabilities at March 31, 2021 | $ | - | $ | - | $ | - | ||||||||||||||||||
Restructuring liabilities at March 31, 2022 | $ | 577 | $ | 67 | $ | 644 | ||||||||||||||||||
The Company’s total restructuring expenses by segment are as follows (in thousands):
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, 2022 | March 31, 2022 | March 31, 2023 | March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||
Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | |||||||||||||||||||||||||||||||||||||
Electronics | $ | 441 | $ | 65 | $ | 506 | $ | 513 | $ | 83 | $ | 596 | $ | 58 | $ | 545 | $ | 603 | $ | 214 | $ | 885 | $ | 1,099 | ||||||||||||||||||||||||
Engraving | 379 | 149 | 528 | 832 | 679 | 1,511 | 157 | 145 | 302 | 537 | 362 | 899 | ||||||||||||||||||||||||||||||||||||
Engineering Technologies | 97 | 6 | 103 | 238 | 6 | 244 | ||||||||||||||||||||||||||||||||||||||||||
Specialty Solutions | 0 | 0 | 0 | 0 | 64 | 64 | ||||||||||||||||||||||||||||||||||||||||||
Corporate | 49 | 0 | 49 | 54 | 0 | 54 | 1,332 | - | 1,332 | 1,332 | - | 1,332 | ||||||||||||||||||||||||||||||||||||
| $ | 966 | $ | 220 | $ | 1,186 | $ | 1,637 | $ | 832 | $ | 2,469 | $ | 1,547 | $ | 690 | $ | 2,237 | $ | 2,083 | $ | 1,247 | $ | 3,330 | |||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, 2021 | March 31, 2021 | March 31, 2022 | March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||
Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | Involuntary Employee Severance and Benefit Costs | Other | Total | |||||||||||||||||||||||||||||||||||||
Electronics | $ | 56 | $ | 16 | $ | 72 | $ | 307 | $ | 21 | $ | 328 | $ | 441 | $ | 65 | $ | 506 | $ | 513 | $ | 83 | $ | 596 | ||||||||||||||||||||||||
Engraving | 248 | 162 | 410 | 528 | 510 | 1,038 | 379 | 149 | 528 | 832 | 679 | 1,511 | ||||||||||||||||||||||||||||||||||||
Engineering Technologies | 0 | 0 | 0 | 37 | 0 | 37 | 97 | 6 | 103 | 238 | 6 | 244 | ||||||||||||||||||||||||||||||||||||
Specialty Solutions | 0 | 0 | 0 | 673 | 286 | 959 | - | - | - | - | 64 | 64 | ||||||||||||||||||||||||||||||||||||
Corporate | 0 | 0 | 0 | 116 | 0 | 116 | 49 | - | 49 | 54 | - | 54 | ||||||||||||||||||||||||||||||||||||
| $ | 304 | $ | 178 | $ | 482 | $ | 1,661 | $ | 817 | $ | 2,478 | $ | 966 | $ | 220 | $ | 1,186 | $ | 1,637 | $ | 832 | $ | 2,469 | |||||||||||||||||||||||||
Restructuring expense is expected to be approximately $1.5$0.8 million for the remainder of fiscal year 2022.2023.
18) Subsequent Events Divestitures
On AprilFebruary 28, 2022,2023, the Company's BoardCompany divested its Procon pumps business (“Procon”) to Investindustrial, a leading European investment and advisory group. Procon generated approximately $21.2 million in revenue in the firsteight months of Directors authorized a new share repurchase program of upfiscal year 2023. Procon which is reported within the Specialty Solutions Group, was divested in order to $100 million followingfocus on the completioncontinued simplification of the $0.6Company’s portfolio and enable greater focus on managing larger platforms and pursuing growth opportunities.
The Company received $67.0 million remaining undercash consideration at closing, which is presented as an investing cash flow for the current share repurchase authorization atnine months ended March 31, 2022.2023. Cash consideration received at closing excludes amounts held in escrow and is net of closing cash. The Company recorded a pre-tax gain on sale of the business of $62.1 million. The operating unit's goodwill balance of $0.2 million was written off as a part of the transaction. The sale transaction and financial results of Procon are classified as continuing operations in the Consolidated Financial Statements.
Management's Discussion and Analysis of Financial Condition and Results of Operations |
Statements contained in this Quarterly Report that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the Company’s business and the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated. These factors include, but are not limited to: the impact of pandemics such as the current coronavirus on employees, our supply chain, and the demand for our products and services around the world; materially adverse or unanticipated legal judgments, fines, penalties or settlements; conditions in the financial and banking markets, including fluctuations in exchange rates and the inability to repatriate foreign cash; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the automotive, construction, aerospace, defense, transportation, food service equipment, consumer appliance, energy, oil and gas and general industrial markets; lower-cost competition; the relative mix of products which impact margins and operating efficiencies in certain of our businesses; the impact of higher raw material and component costs, particularly steel, certain materials used in electronics parts, petroleum based products, and refrigeration components; the impact of higher transportation and logistics costs, especially with respect to transportation of goods from Asia; the impact of inflation on the costs of providing our products and services; an inability to realize the expected cost savings from restructuring activities including effective completion of plant consolidations, cost reduction efforts including procurement savings and productivity enhancements, capital management improvements, strategic capital expenditures, and the implementation of lean enterprise manufacturing techniques; the potential for losses associated with the exit from or divestiture of businesses that are no longer strategic or no longer meet our growth and return expectations; the inability to achieve the savings expected from global sourcing of raw materials and diversification efforts in emerging markets; the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs; the inability to attain expected benefits from acquisitions and the inability to effectively consummate and integrate such acquisitions and achieve synergies envisioned by the Company; market acceptance of our products; our ability to design, introduce and sell new products and related product components; the ability to redesign certain of our products to continue meeting evolving regulatory requirements; the impact of delays initiated by our customers; our ability to increase manufacturing production to meet demand including as a result of labor shortages; and potential changes to future pension funding requirements. In addition, any forward-looking statements represent management's estimates only as of the day made and should not be relied upon as representing management's estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management's estimates change.
Overview
We are a diversified industrial manufacturer with leading positions in a variety of products and services that are used in diverse commercial and industrial markets. WeHeadquartered in Salem, New Hampshire, we have sevensix operating segments aggregated into five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. ThreeTwo operating segments are aggregated into Specialty Solutions. Our segments differentiate themselves by collaboratingbusinesses work in close partnership with our customers in order to develop and deliver custom solutions or engineered components that solve problems for our customers or otherwise meet their unique and specific needs, (a business modelan approach we refer to as “Customer Intimacy”)call "Customer Intimacy". Overall management, strategic development and financial control are led by the executive staff at our corporate headquarters located in Salem, New Hampshire.
Our long-term business strategy is to create, improve, and enhance shareholder value by building larger, more profitable, focused industrial platforms through our Standex Value Creation SystemSystem. This methodology employs four components: Balanced Performance Plan, Growth Disciplines, Operational Excellence, and Talent Management and provides both a company-wide framework and tools used to achieve our goals. We intend to continue investing organically and inorganically in high margin and growth businesses using this balanced and proven approach.
It is our objective to grow larger and more profitable business units through both organic and inorganic initiatives. We have a particular focus on identifying and investing in opportunities that assists management in meeting specific corporatecomplement our products and business unit financialwill increase the overall scale, global presence and strategic performance goals in ordercapabilities of our businesses. We recently established an innovation and technology function focused on accelerating new, longer-term growth opportunities for emerging technologies, including our ongoing development project with a global renewable energy company. We continue to create, improve,execute on acquisitions where strategically aligned with our businesses and enhance shareholder value. In so doing, we expectwhere the opportunity meets our investment metrics. We have divested, and likely will continue to focus our financial assets and managerial resources on our higher growth and operating margin businesses while considering divestiture of thosedivest, businesses that we feel are not strategic or do not meet our growth and return expectations.
The Standex Value Creation System is a methodology which provides standard work and consistent tools used throughout the Company in order to achieve our organization’s goals. The Standex Value Creation System employs four components: Balanced Performance Plan, Growth Disciplines, Operational Excellence, and Talent Management. The Balanced Performance Plan process aligns annual goals throughout the Company and provides a standard reporting, management and review process. It is focused on setting, tracking and reviewing annual and quarterly targets that support our short and long-term goals. The Growth Disciplines use a standard playbook of tools and processes including market maps, market tests and growth laneways to identify, explore and execute on opportunities that expand the business organically and through acquisitions. Operational Excellence also employs a standard playbook of tools and processes, based on Lean, to improve operating execution (effectiveness), eliminate waste (efficiency) and thereby improve profitability, cash flow and customer satisfaction. Finally, Talent Management is an organizational development process that provides recruitment, training, development, and succession planning for employees throughout our worldwide organization. Through the use of our Standex Value Creation System, we have developed a balanced approach to value creation. We intend to continue investing acquisition capital in high margin and growth businesses, and we will continue to support all of our businesses as they enhance value through deployment of the Standex Valuation Creation System.
It is our objective to grow larger and more profitable business units through both organic initiatives and acquisitions. We seek to identify and implement organic growth initiatives such as new product development, geographic expansion, the introduction of products and technologies into new markets, key accounts and strategic sales channel partners, and the introduction of new technologies into existing markets. To advance this strategy, we recently established an innovation and technology function focused on accelerating new growth opportunities for emerging technologies, including our ongoing development project with a global solar energy company. Also, we have a long-term objective to create sizable business platforms by adding strategically aligned or “bolt on” acquisitions to strengthen the individual businesses, create both sales and cost synergies with our core business platforms, and accelerate their growth and margin improvement. We look to create both sales and cost synergies within our core business platforms, accelerate growth and improve margins. We have a particular focus on identifying and investing in opportunities that complement our products and will increase the global presence and capabilities of our businesses. From time to time, we have divested, and likely will continue to divest, businesses that we feel are not strategic or do not meet our growth and return expectations.
As part of our ongoing strategy:
● | In the third quarter of fiscal year 2023, we divested our Procon business for $75 million. This transaction reflects the continued simplification of our portfolio and enables greater focus on managing our larger platforms and pursuing growth opportunities. Proceeds will be deployed towards organic and inorganic initiatives and returning capital to shareholders. Its results are reported within our Specialty Solutions segment. |
● | In the third quarter of fiscal year 2022, we acquired Sensor Solutions, a designer and manufacturer of customized standard magnetic sensor products including hall effect switch and latching sensors, linear and rotary sensors, and specialty sensors. Sensor Solutions' customer base in automotive, industrial, medical, aerospace, military and consumer electronics end markets are a strategic fit and expand our presence in these markets. Sensor Solution's operates one light manufacturing facility in Colorado. Its results are reported within our Electronics segment. |
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As a result of our portfolio moves over the past several years, we have transformed Standex to a company with a more focused group of businesses selling customized solutions to high value end markets via a compelling customer value proposition. The narrowing of the portfolio allows for greater management focus on driving operational disciplines and positions us well to continue benefitting from the economic rebound associated with the emergence from the end of the COVID-19 crisis and to use our cash flow from operations to invest selectively in our ongoing pipeline of organic and inorganic opportunities.
We develop “Customer Intimacy” by utilizing the Standex Growth Disciplines to partner with our customers in order to develop and deliver custom solutions or engineered components. By partnering with our customers during long-term product development cycles, we become an extension of their development teams. Through this Partner, Solve, Deliver® approach, we are able to secure our position as a preferred long-term solution provider for our products and components. This strategy results in increased sales and operating margins that enhance shareholder returns.
Standex Operational Excellence drives continuous improvement in the efficiency of our businesses, both on the shop floor and in the office environment. We recognize that our businesses are competing in a global economy that requires us to improve our competitive position. We have deployed a number of management competencies to drive improvements in the cost structure of our business units including operational excellence through lean enterprise, the use of low-cost manufacturing facilities, the consolidation of manufacturing facilities to achieve economies of scale and leveraging of fixed infrastructure costs, alternate sourcing to achieve procurement cost reductions, and capital improvements to increase productivity.
The Company’s strong historical cash flow has been a cornerstone for funding our capital allocation strategy. We use cash flow generated from operations to fund investments in capital assets to upgrade our facilities, improve productivity and lower costs, invest in the strategic growth programs described above, including organic growth and acquisitions, and to return cash to our shareholders through payment of dividends and stock buybacks.
Restructuring expenses reflect costs associated with our efforts of continuously improving operational efficiency and expanding globally in order to remain competitive in our end user markets. We incur costs for actions to size our businesses to a level appropriate for current economic conditions, improve our cost structure, enhance our competitive position and increase operating margins. Such expenses include costs for moving facilities to locations that allow for lower fixed and variable costs, external consultants who provide additional expertise starting up plants after relocation, downsizing operations because of changing economic conditions, and other costs resulting from asset redeployment decisions. Shutdown costs include severance, benefits, stay bonuses, lease and contract terminations, asset write-downs, costs of moving fixed assets, and moving and relocation costs. Vacant facility costs include maintenance, utilities, property taxes and other costs.
Because of the diversity of the Company’s businesses, end user markets and geographic locations, management does not use specific external indices to predict the future performance of the Company, other than general information about broad macroeconomic trends. Each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to its business and which could impact its performance. Those units report pertinent information to senior management, which uses it to the extent relevant to assess the future performance of the Company. A description of any such material trends is described below in the applicable segment analysis.
We monitor a number of key performance indicators (“KPIs”) including net sales, income from operations, backlog, effective income tax rate, gross profit margin, and operating cash flow. A discussion of these KPIs is included below. We may also supplement the discussion of these KPIs by identifying the impact of foreign exchange rates, acquisitions, and other significant items when they have a material impact on a specific KPI.
We believe the discussion of these items provides enhanced information to investors by disclosing their impact on the overall trend which provides a clearer comparative view of the KPI, as applicable. For discussion of the impact of foreign exchange rates on KPIs, we calculate the impact as the difference between the current period KPI calculated at the current period exchange rate as compared to the KPI calculated at the historical exchange rate for the prior period. For discussion of the impact of acquisitions, we isolate the effect on the KPI amount that would have existed regardless of such acquisition. Sales resulting from synergies between the acquisition and existing operations of the Company are considered organic growth for the purposes of our discussion.
Unless otherwise noted, references to years are to fiscal years.
Impact of COVID-19 Pandemic on the Company
Given the global nature of our business and the number of our facilities worldwide, we continue to be impacted globally by COVID-19 related issues. We have taken effective action around the world to protect our health and safety, continue to serve our customers, support our communities and manage our cash flows. Our priority was and remains the health and safety of all of our employees. Each of our facilities is following safe practices as defined in their local jurisdictions as well as sharing experiences and innovative ways of overcoming challenges brought on by the crisis during updates with global site leaders. We are rigorously following health protocols in our plants, including changing work cell configurations and revising shift schedules when appropriate, in order to do our best to maintain operations. Initially, we experienced revenue reductions in many of our businesses due to the impact that the pandemic had on our customers. Conversely, public and private sector responses to COVID-19 vaccine distribution, especially in the United States, have resulted in increased sales of scientific refrigeration equipment to customers within our Scientific reporting segment. While overall customer demand has rebounded from the impact of the pandemic, more recently we have been impacted by (i) supply chain shortages, (ii) increased material costs, and (iii) labor shortages, especially in North America.America, and (iv) lockdowns implemented by the Chinese government in select cities in which we operate. Like other industrial manufacturers, we are impacted by the impact of rising inflation which we attempt to manage through appropriate pricing actions and enhanced production efficiency measures.
We exited the third quarter of fiscal year 20222023 with $133.9$175.3 million in cash and $199.7$175.0 million of borrowings under our revolving credit facility. Our leverage ratio covenant, as defined in our revolving credit agreement, was 1.150.89 to 1 and allowed us the capacity to borrow an additional $299.5$343.7 million at March 31, 2022.2023. We believe that we have sufficient liquidity around the world and access to financing to execute on our short and long-term strategic plans.
Finally, we continue to monitor our ability to participate in any governmental assistance programs available to us in each of our global locations and participate in these programs as available and appropriate.
Results from Continuing Operations
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||
(In thousands, except percentages) | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
Net sales | $ | 189,281 | $ | 172,216 | $ | 550,600 | $ | 479,797 | $ | 184,332 | $ | 189,281 | $ | 552,721 | $ | 550,600 | ||||||||||||||||
Gross profit margin | 36.1 | % | 36.4 | % | 36.9 | % | 36.6 | % | 38.5 | % | 36.1 | % | 38.3 | % | 36.9 | % | ||||||||||||||||
Income from operations | 24,470 | 5,650 | 69,071 | 36,743 | 88,517 | 24,470 | 142,613 | 69,071 | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||
(In thousands) | March 31, 2022 | March 31, 2022 | March 31, 2023 | March 31, 2023 | ||||||||||||
Net sales, prior year period | $ | 172,216 | $ | 479,797 | $ | 189,281 | $ | 550,600 | ||||||||
Components of change in sales: | ||||||||||||||||
Organic sales change | 25,012 | 82,623 | 2,891 | 25,824 | ||||||||||||
Effect of acquisitions | 394 | 394 | - | 1,919 | ||||||||||||
Effect of business divestitures | (3,901 | ) | (9,239 | ) | (3,109 | ) | (3,109 | ) | ||||||||
Effect of exchange rates | (4,440 | ) | (2,975 | ) | (4,731 | ) | (22,513 | ) | ||||||||
Net sales, current period | $ | 189,281 | $ | 550,600 | $ | 184,332 | $ | 552,721 | ||||||||
Net sales increaseddecreased in the third quarter of fiscal year 20222023 by $17.1$4.9 million or 9.9%2.6%, when compared to the prior year quarter. Organic sales increased $25.0$2.9 million, or 14.5%1.5%, primarily due to pricing actions and strong demand in our Electronics segment, whileSpecialty and Engraving segments offset by negative impacts on sales for divestitures of $3.1 million, or 1.6%, and foreign currency had a $4.4of $4.7 million, or 2.6% negative impact on sales. Sales in the prior year quarter included revenue of $3.9 million related to our divested Enginetics business. The Sensor Solutions acquisition in the third quarter of fiscal year 2022 added $0.4 million in sales for the year.2.5%.
Net sales increased in the nine months ended March 31, 20222023 by $70.8$2.1 million, or 14.8%0.4% , when compared to the prior year period. Organic sales increased $82.6by $25.8 million, or 17.2%4.7%, primarily due to pricing actions and strong demand in our ElectronicsETG, Engraving and Scientific segments, whileSpecialty segments. Acquisitions had a $1.9 million, or 0.3%, impact on sales, offset by negatives impacts on sales for divestitures of $3.1 million, or 0.6%, and foreign currency had a $3.0of $22.5 million, or 0.6% negative impact on sales. Sales in the prior year period included revenue of $9.2 million related to our divested Enginetics business. The Sensor Solutions acquisition4.1%.
Gross Profit Margin
Gross profit in the third quarter of fiscal year 2022 added $0.42023 increased to $70.9 million, in sales for the year.
Gross Profit Margin
Ouror a gross margin forof 38.5% as compared to $68.4 million, or a gross margin of 36.1%, in the third quarter of fiscal year 2022 was 36.1%, which declined slightly from the prior year quarter’s2022. The change in gross margin of 36.4%. This declineprofit is primarily thea result of project mix, and raw material and ocean freight cost headwinds, offset by organic sales increases of $2.9 million, productivity improvements and pricetargeted pricing initiatives, which more than offset material and productivity initiatives across our segments.labor inflation during the quarter. The gross profit increase was also partially offset by $1.0 million from divestiture of Procon, which closed during the third quarter of fiscal year 2023.
Our gross marginGross profit for the nine months ended March 31, 2022 was2023 increased to $211.5 million, or a gross margin of 38.3%, as compared to $203.4 million, or a gross margin of 36.9%, which increased fromfor the prior year quarter’speriod. The change in gross margin of 36.6%. This increaseprofit is a result of organic sales increasesincrease of $25.8 million, productivity improvements and pricetargeted pricing initiatives, and productivity initiatives, partially offset by raw material and ocean freight cost headwinds,the absence of a one-time project related charge at Engineering Technologies induring the first quarter along with production decreases due to a temporary work stoppage in our Specialty Solutions segment which was resolved duringof fiscal year 2022, all partially offset by material and labor inflation and the first quarter.impact of the Procon divestiture.
Selling, General, and Administrative Expenses
Selling, General, and Administrative (“SG&A”) expenses for the third quarter of fiscal year 20222023 were $43.0 million, or 23.3% of sales, compared to $42.3 million, or 22.4% of sales, compared to $41.7 million, or 24.2% of sales, during the prior year quarter. SG&A expenses during the quarter were primarily impacted by increased compensation related accruals and research and development costs.spending to drive future product initiatives.
Selling, General, and Administrative (“SG&A”) expenses for the nine months ended March 31, 2023 were $127.8 million, or 23.1% of sales, compared to $128.6 million, or 23.4% of sales, during the prior year period. SG&A expenses during the period were primarily impacted by decreased distribution expenses, partially offset by increased research and development spending to drive future product initiatives.
SG&A expenses for the nine months ended March 31, 2022 were $128.6 million, or 23.4% of sales, compared to $120.8 million, or 25.2% of sales, during the nine months ended March 31, 2021. SG&A expenses during the period were impacted by increases in compensation related accruals, distribution expense of approximately $2.7 million associated with the customer mix and higher organic sales volume and increased research and development costs.
Restructuring Charges
We incurred restructuring expenses of $1.2$2.2 million and $3.3 million in the third quarter of fiscal year 20222023 and $2.5 million for the nine months ended March 31, 2022,2023, respectively primarily related to productivity improvements, facility rationalization activities, and global headcount reductions within our Engraving and Electronics segments.segments as well as Corporate headquarters.
We expect to incur restructuring costs of approximately $1.5$0.8 million throughout the remainder of fiscal year 2022,2023, as we continue to focus our efforts to reduce cost and improve productivity across our businesses, particularly through headcount reductions and productivity initiatives.
Acquisition Related Expenses
We incurred acquisition related expenses of $0.4less than $0.1 million and $0.5 million in the third quarter of fiscal year 20222023 and $1.6 million for the nine months ended March 31, 2022.2023, respectively. Acquisition related expenses typically consist of due diligence, integration, and valuation expenses incurred in connection with recent or pending acquisitions.
Income from Operations
Income from operations for the third quarter of fiscal year 20222023 was $24.5$88.5 million, compared to $5.7$24.5 million during the prior year quarter. The increase of $18.8$64.0 million, or 333.1%261.7%, is primarily due to the impactdivestiture of the loss recognized on the saleProcon business for a gain of our Enginetics business in the third quarter of fiscal year 2021,$62.1 million as well as income from organic sales growth,increases and pricing actions, along with cost reduction activities and productivity and cost savingsimprovement initiatives, partially offset by increases inforeign currency, material inflation, and increased logistics and labor costs.
Income from operations for the nine months ended March 31, 20222023 was $69.1$142.6 million, compared to $36.7$69.1 million during the prior year quarter.period. The increase of $32.3$73.5 million, or 88.0%106.5%, is primarily due to due to the impactdivestiture of the saleProcon business for a gain of our Enginetics business in the third quarter of fiscal year 2021,$62.1 million as well as income from organic sales growth,increases and pricing actions, along with cost reduction activities and productivity and cost savingsimprovement initiatives, partially offset by increases inforeign currency, material inflation, and increased logistics and labor costs.
Interest Expense
Interest expense for the third quarter of fiscal year 20222023 was $1.2$1.4 million, a 6.0% decrease14.3% increase from interest expense of $1.3$1.2 million during the prior year quarter. Interest expense for the nine months ended March 31, 20222023 was $4.5$4.2 million, a 1.8% increase7.0% decrease from interest expense of $4.4$4.5 million during the prior year.year period. Our effective interest rate in the third quarter of fiscal year 2022nine months ended March 31, 2023 was 2.63%2.83%.
Income Taxes
Our effective tax rate from continuing operations for the third quarter of fiscal year 20222023 and for the nine months ended March 31, 2023 was 24.0%6.7% and 13.0%, respectively compared with 56.3%24.0% and 24.5% for the prior year quarter. The tax rate was impacted in the current period by the following items: (i) a discrete benefit related to a reduction in an uncertain tax position, (ii) a discrete benefit related to a return to provision adjustment,quarter and (iii) the jurisdictional mix of earnings. The tax rate was impacted in the prior period by the following items: (i) reduction of global intangible low-taxed income, (ii) the jurisdictional mix of earnings and (iii) the establishment of a valuation allowance against our deferred tax asset attributable to the divestiture of Enginetics Corporation during the quarter. The divestiture of the Enginetics business gave rise to a capital loss carryforward, which, if unused, will expire after 5 years. Capital losses are allowed only to the extent of capital gains; however, because we did not have capital gains in the prior period or the applicable carryback period, the capital loss was carried forward. We believe it is more likely than not that the capital loss carryforward will expire unutilized. Therefore, a full valuation allowance was established, which negatively impacted the effective tax rate. The valuation allowance could be released if it is determined that we will have sufficient taxable income of the appropriate character within the carryforward period.
Our effective tax rate from continuing operations for the first nine months of the fiscal year ending June 30, 2022 was 24.5% compared with 25.3% for the prior year period.period, respectively. The tax rate was impacted in the current period by the following items: (i) a discrete tax benefit related to equity compensation,the partial release of a valuation allowance previously recorded against deferred tax assets and connected to capital loss carryforwards, resulting from the utilization of capital loss carryforward to offset capital gain from the sale of Procon (ii) a discrete tax expense related to provision to return adjustments as a result of a change in tax rate for the Company’s operations within China's tax jurisdiction, (iii) a discrete tax benefit related to a reduction in an uncertainprovision to return adjustments associated with federal and state research and development tax position, (iii) a discrete benefit related to a return to provision adjustment,credits, (iv) the jurisdictional mix of earnings and (v) foreign withholding taxes.
The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases and introduces a 15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income. The income tax provisions are effective for fiscal years beginning after December 31, 2022. The 1% excise tax on share repurchases is effective as of January 1, 2023. We currently do not anticipate the IRA to have a material impact to our financial statements.
Backlog
Backlog includes all active or open orders for goods and services. Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules. Backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems, with the exception of Engineering Technologies. Customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Due to the nature of long-term agreements in the Engineering Technologies segment, the timing of orders and delivery dates can vary considerably resulting in significant backlog changes from one period to another.
As of March 31, 2022 | As of March 31, 2021 | |||||||||||||||
Total Backlog | Backlog under 1 year | Total Backlog | Backlog under 1 year | |||||||||||||
Electronics | $ | 164,786 | $ | 151,033 | $ | 97,241 | $ | 96,331 | ||||||||
Engraving | 26,097 | 19,868 | 20,108 | 13,901 | ||||||||||||
Scientific | 6,542 | 6,542 | 9,344 | 9,344 | ||||||||||||
Engineering Technologies | 55,564 | 41,197 | 67,615 | 39,574 | ||||||||||||
Specialty Solutions | 51,948 | 48,342 | 20,776 | 17,957 | ||||||||||||
Total | $ | 304,937 | $ | 266,982 | $ | 215,084 | $ | 177,107 | ||||||||
As of March 31, 2023 | As of March 31, 2022 | |||||||||||||||
Total Backlog | Backlog under 1 year | Total Backlog | Backlog under 1 year | |||||||||||||
Electronics | $ | 156,806 | $ | 144,741 | $ | 164,786 | $ | 151,033 | ||||||||
Engraving | 39,185 | 33,069 | 26,097 | 19,868 | ||||||||||||
Scientific | 3,078 | 3,078 | 6,542 | 6,542 | ||||||||||||
Engineering Technologies | 64,708 | 57,105 | 55,564 | 41,197 | ||||||||||||
Specialty Solutions | 26,958 | 26,541 | 51,948 | 48,342 | ||||||||||||
Total | $ | 290,735 | $ | 264,534 | $ | 304,937 | $ | 266,982 | ||||||||
Total backlog realizable under one year increased $89.9decreased $2.4 million, or 50.7%0.9%, to $264.5 million at March 31, 2023, from $267.0 million at March 31, 2022 from $177.1 million at March 31, 2021. Electronics total backlog increased 67% in all geographic markets in response to the beginning of the global recovery from the pandemic and new business opportunities, plus an additional $2.4 million due to the acquisition of Sensor Solutions. Backlog declines in the Engineering Technologies segment are primarily due to project related timing, particularly in the space end market.2022.
Changes in backlog under one year are as follows (in thousands):
As of | ||||
(In thousands) | March 31, 2022 | |||
Backlog under 1 year, prior year period | $ | 177,107 | ||
Components of change in backlog: | ||||
Organic change | 87,455 | |||
Effect of acquisitions | 2,420 | |||
Backlog under 1 year, current period | $ | 266,982 | ||
As of | ||||
(In thousands) | March 31, 2023 | |||
Backlog under 1 year, prior year period | $ | 266,982 | ||
Components of change in backlog: | ||||
Organic change | 3,859 | |||
Effect of divestitures | (6,307 | ) | ||
Backlog under 1 year, current period | $ | 264,534 | ||
Segment Analysis
Overall
Looking forward to the remainder of fiscal year 2022,2023, we expect to be well positioned to build on fiscal year 20212022 and the nine months ended March 31, 20222023 momentum, with anticipated year over year improvement in key financial metrics, supported by orders growth and productivity initiatives.
In general, for the fourth quarter of fiscal year 2022,2023, we have experienced and continue to expect:
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Electronics Group
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(In thousands, except percentages) | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 79,889 | $ | 65,085 | 22.7 | % | $ | 232,351 | $ | 180,524 | 28.7 | % | $ | 78,211 | $ | 79,889 | (2.1 | %) | $ | 225,966 | $ | 232,351 | (2.7 | %) | ||||||||||||||||||||||||
Income from operations | 19,194 | 12,364 | 55.2 | % | 54,624 | 30,861 | 77.0 | % | 17,047 | 19,194 | (11.2 | %) | 52,160 | 54,624 | (4.5 | %) | ||||||||||||||||||||||||||||||||
Operating income margin | 24.0 | % | 19.0 | % | 23.5 | % | 17.1 | % | 21.8 | % | 24.0 | % | 23.1 | % | 23.5 | % | ||||||||||||||||||||||||||||||||
Net sales in the third quarter of fiscal year 2022 increased $14.82023 decreased $1.7 million, or 22.7%2.1%, when compared to the prior year quarter. The organic sales increase of $1.0 million, or 1.3%, was offset by foreign currency impacts of $2.7 million, or 3.4%. The segment continues to see positive trends in end markets like industrial applications, power management, renewable energy technologies, and electric vehicle related applications.
Income from operations in the third quarter of fiscal year 2023 decreased by $2.2 million, or 11.2%, when compared to the prior year quarter. The operating income decrease was the result of lower sales and product mix partially offset by pricing and productivity initiatives.
Net sales in the nine months ended March 31, 2023 decreased $6.4 million, or 2.7%, when compared to the prior year period. Organic sales increased by $17.6$4.0 million, or 27.1%1.8%, reflecting a broad-based geographical recovery with continued strong demand for all product groups as well as new business opportunities.positive trends in end markets like industrial applications, power management, renewable energy technologies, and electric vehicle related applications. Sensor Solutions was acquired in the third quarter of fiscal year 2022, adding $0.4$1.9 million, or 0.8%, in sales for the quarter.period. The foreign currency impact decreased sales by $3.2$12.3 million, or 5.0%5.3%.
Income from operations in the third quarter of fiscal year 2022 increased by $6.8 million, or 55.2%, when compared to the prior year quarter. The operating income increase was the result of organic sales growth, various price actions and cost saving initiatives, partially offset by material and freight cost increases.
Net sales in the nine months ended March 31, 2022 increased $51.8 million, or 28.7%, when compared to the prior year period. Organic sales increased by $54.4 million or 30.1%, reflecting a broad-based geographical recovery with a strengthening in demand for all product groups including relays in renewable energy and electric vehicle applications as well as reed switch demand in transportation end markets and the impact of pricing actions. The acquisition of Sensor Solutions during the third quarter of fiscal year 2022 added $0.4 million in sales. The foreign currency impact decreased sales by $2.9 million, or 1.6%.
Income from operations in the nine months ended March 31, 2022 increased2023 decreased by $23.8$2.5 million, or 77.0%4.5% when compared to the prior year period. The operating income increasedecrease was the result of inflationary impacts offset partially by organic sales growth and various price actions and cost saving initiatives, partially offset by material and freight cost increases.initiatives.
Sequentially duringIn the fourth quarter of fiscal year 2022,2023, on a sequential basis, we expect moderate decline insimilar revenue and operating margin mostlyprimarily due to the COVID lockdownincreased sales into fast growth markets, offset by a slower recovery in China partially offset by continued strong global demand across all key markets.and Europe.
Engraving Group
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, | % | March 31, | % | March 31, | % | March 31, | % | |||||||||||||||||||||||||||||||||||||||||
(In thousands, except percentages) | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 37,223 | $ | 36,026 | 3.3 | % | $ | 109,037 | $ | 110,377 | (1.2 | %) | $ | 36,909 | $ | 37,223 | (0.8 | %) | $ | 109,622 | $ | 109,037 | 0.5 | % | ||||||||||||||||||||||||
Income from operations | 5,728 | 4,510 | 27.0 | % | 15,806 | 16,884 | (6.4 | %) | 5,353 | 5,728 | (6.5 | %) | 17,580 | 15,806 | 11.2 | % | ||||||||||||||||||||||||||||||||
Operating income margin | 15.4 | % | 12.5 | % | 14.5 | % | 15.3 | % | 14.5 | % | 15.4 | % | 16.0 | % | 14.5 | % | ||||||||||||||||||||||||||||||||
Net sales in the third quarter of fiscal year 2022 increased2023 decreased by $1.2$0.3 million, or 3.3%0.8%, when compared to the prior year quarter. Organic sales increased by $2.0$1.4 million, or 5.5%3.9%, as a result of timing of projects and geographic mix.improved end market activity. The organic sales increase was offset by foreign exchangecurrency impacts of $0.8$1.7 million, or 2.2%4.7%.
Income from operations in the third quarter of fiscal year 2022 increased2023 decreased by $1.2$0.3 million, or 6.5%, when compared to the prior year quarter. OperatingThe operating income increased during the quarter reflecting timing of projects, geographic mix and productivity initiatives.decrease was driven by unfavorable regional mix.
Net sales in the nine months ended March 31, 2022 decreased2023 increased by $1.3$0.6 million, or 1.2%0.5%, when compared to the prior year period. Organic sales decreasedincreased by $1.7$8.6 million, or 1.5%7.9%, as a result of timing of projects. ForeignThe organic sales increase was offset by foreign exchange impacts increased sales by $0.4of $8.0 million, or 0.3%7.4%.
Income from operations in the nine months ended March 31, 2022 decreased2023 increased by $1.1$1.8 million, or 11.2%, when compared to the prior year period. Operating income decreasedincreased during the period due toreflecting the volume declineorganic sales increase and sales mix, partially offset by productivity initiatives.actions, offsetting the foreign exchange impacts.
Sequentially duringIn the fourth quarter of fiscal year 2022,2023, on a sequential basis, we expect a slight decline insimilar to slightly higher revenue and operating margin due to the timing of projects and geographic mix. In addition, we are implementing new cost savings and margin improvement actions targeting $2 million of annualized savings upon completion.
margin.
Scientific
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, | % | March 31, | % | March 31, | % | March 31, | % | |||||||||||||||||||||||||||||||||||||||||
(In thousands, except percentages) | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 18,914 | $ | 24,221 | (21.9 | %) | $ | 65,079 | $ | 58,777 | 10.7 | % | $ | 18,898 | $ | 18,914 | (0.1 | %) | $ | 56,646 | $ | 65,079 | (13.0 | %) | ||||||||||||||||||||||||
Income from operations | 4,155 | 5,803 | (28.4 | %) | 14,153 | 14,113 | 0.3 | % | 4,561 | 4,155 | 9.8 | % | 12,449 | 14,153 | (12.0 | %) | ||||||||||||||||||||||||||||||||
Operating income margin | 22.0 | % | 24.0 | % | 21.7 | % | 24.0 | % | 24.1 | % | 22.0 | % | 22.0 | % | 21.7 | % | ||||||||||||||||||||||||||||||||
Net sales in the third quarter of fiscal year 2022 decreased by $5.32023 remained flat at $18.9 million or 21.9% when compared to the prior year quarter. The netquarter, reflecting lower demand for COVID vaccine storage units, mostly offset by higher sales decrease reflects ongoing sales in pharmaceutical, clinical laboratories,into research and academic institution end markets, offset by lower demand associated with COVID-19 vaccination storage.markets.
Income from operations in the third quarter of fiscal year 2022 decreased $1.62023 increased $0.4 million, or 28.4% when9.8% ,when compared to the prior year quarter. The decreaseincrease reflects lower volume and higher freight costs, partially offset by pricepricing and productivity actions.actions and lower oceanic freight costs.
Net sales forin the nine months ended March 31, 2022 increased $6.32023 decreased by $8.4 million, or 10.7%,13.0% when compared to the prior year period. The net sales increase reflects overall growth in end markets, suchdecreased as pharmaceutical channels, clinical settings, and academic laboratories, including continued strongexpected due to lower demand for cold storage surrounding COVID-19 vaccine distribution and the general market recovery as well aspartially offset by pricing actions.
Income from operations in the nine months ended March 31, 2022 increased by less than $0.12023 decreased $1.7 million, or 12.0% when compared to the prior year period. ThisThe decrease reflects revenue growth and pricing actions,lower sales volume, partially offset by higherpricing and productivity actions and lower oceanic freight costs and investments in new product development.costs.
Sequentially duringIn the fourth quarter of fiscal year 2022,2023, on a sequential basis, we expect similar revenue and a slight decline inslightly higher operating margin due to product mix. margin.
Engineering Technologies Group
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, | % | March 31, | % | March 31, | % | March 31, | % | |||||||||||||||||||||||||||||||||||||||||
(In thousands, except percentages) | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 20,890 | $ | 19,951 | 4.7 | % | $ | 56,558 | $ | 55,091 | 2.7 | % | $ | 18,052 | $ | 20,890 | (13.6 | %) | $ | 59,244 | $ | 56,558 | 4.7 | % | ||||||||||||||||||||||||
Income from operations | 2,327 | 1,245 | 86.9 | % | 5,540 | 3,076 | 80.1 | % | 2,351 | 2,327 | 1.0 | % | 7,957 | 5,540 | 43.6 | % | ||||||||||||||||||||||||||||||||
Operating income margin | 11.1 | % | 6.2 | % | 9.8 | % | 5.6 | % | 13.0 | % | 11.1 | % | 13.4 | % | 9.8 | % | ||||||||||||||||||||||||||||||||
Net sales in the third quarter of fiscal year 2022 increased2023 decreased by $0.9$2.8 million, or 4.7%13.6%, compared to the prior year quarter. Sales inOrganic sales decreased by $2.5 million, or 12.1%, and foreign currency impacts were $0.3 million, or 1.5%, as compared to the prior year quarter included revenue of $3.9 million related to our divested Enginetics business. Excluding the impact of the divestiture,quarter. The net sales increased $4.9 million or 24.7% primarilydecrease reflects lower volume due to strong demand in the commercial aviation industry, defense and medical end markets.timing of projects, partially offset by higher revenue from new product development.
Income from operations increased $1.1 million, or 86.9%,remained relatively flat in the third quarter of fiscal year 20222023 compared to the prior year quarter primarily due to increased volume, along with the absencesimpact of losses associated withongoing productivity and efficiency initiatives offsetting the Enginetics business.lower volume.
Net sales in the nine months ended March 31, 20222023 increased by $1.5$2.7 million, or 2.7%4.7%, compared to the prior year period. Sales inOrganic sales increased by $3.9 million, or 6.8%, offset by foreign currency impacts of $1.2 million, or 2.1%, as compared to the prior year period included revenue of $9.2 million related to our divested Enginetics business. Excluding the impact of the divestiture,period. Net sales increased $10.7 million primarilychange was due to customer demandincreases in the commercial aviation sector and defense markets, along with an increase in sales into the space end market, particularly related to commercialization of space.for missile production and development programs.
Income from operations increased $2.5$2.4 million, or 80.1%43.6%, in the nine months ended March 31, 20222023 compared to the prior year period primarily due to cost saving measures implemented duringproductivity initiatives, volume increases and the pandemic and maintained as economic activity resumed along with the absencesimpact of losses associated with the Enginetics business, offset by a $1.1 million one-time project-relatedproject related charge during thein first quarter.quarter of fiscal year 2022 that did not repeat.
Sequentially duringIn the fourth quarter of fiscal year 2022,2023, on a sequential basis, we expect a moderate increase in revenue to remain similar or slightly higher due to strengthand operating margin, reflecting more favorable timing of projects in the commercialaviation and space and aviation end markets. Operating margin is expected to increase slightly to moderately due to end market strength particularly in the commercial space end market, combined with productivity initiatives and reduced labor shortages.
Specialty Solutions Group
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, | % | March 31, | % | March 31, | % | March 31, | % | |||||||||||||||||||||||||||||||||||||||||
(In thousands, except percentages) | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 32,365 | $ | 26,933 | 20.2 | % | $ | 87,575 | $ | 75,028 | 16.7 | % | $ | 32,262 | $ | 32,365 | (0.3 | %) | $ | 101,243 | $ | 87,575 | 15.6 | % | ||||||||||||||||||||||||
Income from operations | 3,632 | 4,251 | (14.6 | %) | 10,185 | 11,368 | (10.4 | %) | 7,151 | 3,632 | 96.9 | % | 18,944 | 10,185 | 86.0 | % | ||||||||||||||||||||||||||||||||
Operating income margin | 11.2 | % | 15.8 | % | 11.6 | % | 15.2 | % | 22.2 | % | 11.2 | % | 18.7 | % | 11.6 | % | ||||||||||||||||||||||||||||||||
Net sales in the third quarter of fiscal year 2022 increased $5.4 million or 20.2%2023 remained relatively flat when compared to the prior year quarter. Organic sales for the group increased $5.8$2.9 million, or 21.4%. Increased9.3%, offset by the divestiture impact of $3.1 million, or 9.6%, as compared to the prior year quarter. The net sales volume is primarily due to positive trendschange reflects robust organic growth in food service equipmentthe Display Merchandising business, offset by an organic decline in the Hydraulics business and refuse end markets, as well as various pricing actions.the impact of the Procon divestiture in February 2023.
Income from operations decreased $0.6increased $3.5 million or 14.6%96.9% in the third quarter of fiscal year 20222023 when compared to the prior year quarter, reflecting sales increases in Display Merchandising and realization of productivity actions in the impact of material inflation and increased freight costs primarily in our Hydraulics business partially offset by volume growth and pricing actions.business.
Net sales in the nine months ended March 31, 20222023 increased $12.5$13.7 million, or 16.7%15.6%, when compared to the prior year period. Organic sales increased $13.0$17.8 million, or 17.3%. Increased20.3%, offset by divestiture impact of $3.1 million, or 3.6%, and foreign currency impact of $1.0 million, or 1.1%, as compared to the prior year period. The increased sales volume is primarily due to a continued recoverypricing realization, strong market demand in the PumpsHydraulics business and Merchandising businesses and pricing actions,absence of the labor work stoppage in two plants during the prior year, partially offset by the impact of a temporary work stoppage which was resolved during the first quarter.Procon divestiture.
Income from operations decreased $1.2increased $8.8 million or 10.4%86.0% in the nine months ended March 31, 20222023 when compared to the prior year period primarily as a result of higher costssales increases in Display Merchandising, pricing actions and volume increases, particularly in Hydraulics and the impact of labor, including the temporarylabor work stoppage in two plants during the first quarter and higher raw material and ocean freight costs, partially offset by pricing actions.prior year.
Sequentially duringIn the fourth quarter of fiscal year 2022,2023, on a sequential basis, we expect revenue to increase slightly due to increased production levels at our Hydraulics business, and solid demand in our display merchandising business. We expect a moderate increase to operating marginsignificant decline in revenue primarily due to increased demandthe Procon divestiture and productivity initiatives.lower sales in the Display Merchandising business and slightly lower operating margin.
Corporate and Other
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
March 31, | % | March 31, | % | March 31, | % | March 31, | % | |||||||||||||||||||||||||||||||||||||||||
(In thousands, except percentages) | 2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||
Income (loss) from operations: | ||||||||||||||||||||||||||||||||||||||||||||||||
Corporate | $ | (8,961 | ) | $ | (7,162 | ) | 25.1 | % | $ | (25,507 | ) | $ | (21,607 | ) | 18.0 | % | $ | (8,520 | ) | $ | (8,961 | ) | (4.9 | %) | $ | (25,376 | ) | $ | (25,507 | ) | (0.5 | %) | ||||||||||||||||
Loss on sale of business | - | (14,624 | ) | (100 | %) | - | (14,624 | ) | (100.0 | %) | ||||||||||||||||||||||||||||||||||||||
Restructuring | (1,186 | ) | (482 | ) | 146.1 | % | (2,469 | ) | (2,478 | ) | (0.4 | %) | (2,237 | ) | (1,186 | ) | 88.6 | % | (3,330 | ) | (2,469 | ) | 34.9 | % | ||||||||||||||||||||||||
Gain on sale of business | 62,105 | - | 0.0 | % | 62,105 | - | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||
Acquisition related costs | (419 | ) | (255 | ) | 64.3 | % | (1,561 | ) | (850 | ) | 83.6 | % | (21 | ) | (419 | ) | (95.0 | %) | (487 | ) | (1,561 | ) | (68.8 | %) | ||||||||||||||||||||||||
Other income (expense), net | - | - | 0.0 | % | (1,700 | ) | - | 100.0 | % | |||||||||||||||||||||||||||||||||||||||
Other operating income (expense), net | 727 | - | 0.0 | % | 611 | (1,700 | ) | (135.9 | %) | |||||||||||||||||||||||||||||||||||||||
Corporate expenses in the third quarter of fiscal year 20222023 decreased by $0.4 million, or 4.9%, when compared to the prior year quarter. The decrease is related to employee related compensation and insurance related accruals. Corporate expenses in the nine months ended March 31, 2022 increased by 25.1%, and 18.0%, respectively,2023 remained flat when compared to the prior year period. The increase is related to employee related compensation accruals and research and development costs.
The restructuring, gain on sale of business and acquisition related costs have been discussed above in the Company Overview. The increase in otherOther operating expenses in the nine months ended March 31, 2022 reflectsare primarily driven by a $1.7 million litigation accrual in the second quarter of fiscal year 2022.2022 that was settled in the first quarter of fiscal year 2023. In the third quarter of fiscal year 2023, we received $1.0 million from our insurance provider as recoupment related to this litigation matter.
Discontinued Operations
In pursuing our business strategy, the Company may divest certain businesses. Future divestitures may be classified as discontinued operations based on their strategic significance to the Company. Net loss from discontinued operations was $0.1 million and $0.3 million for the three months ended March 31, 2022 and 2021, respectively. Net loss from discontinued operations was $0.1 million and $1.6 million for the nine months ended March 31, 2023 and 2022, and 2021, respectively.
Liquidity and Capital Resources
At March 31, 2022,2023, our total cash balance was $133.9$175.3 million, of which $100.6$98.8 million was held by foreign subsidiaries. During the third quarter and in the first nine months of fiscal year 2022,2023, we repatriated $4.5$9.3 million and $20.4 million, respectivelyof cash to the United States from our foreign subsidiaries. We expect to repatriate between $10.0$30.0 million and $15.0$35.0 million during the fourth quarter of fiscal year 2022, however, the amount and timing of cash repatriation during the fiscal year will be dependent upon each business unit’s operational needs including requirements to fund working capital, capital expenditures, and jurisdictional tax payments.2023. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to capital controls; however, those balances are generally available without legal restrictions to fund ordinary business operations.
Net cash provided by continuing operating activities for the nine months ended March 31, 2022,2023, was $48.6$50.4 million compared to net cash provided by continuing operating activities of $49.3$48.6 million in the prior year. We generated $31.2$86.8 million from income statement activities and used $30.9$36.3 million of cash to fund working capital and other balance sheet increases. Cash flow used inprovided by investing activities for the nine months ended March 31, 20222023 totaled $17.3$49.1 million and primarily consisted of $13.1$67.0 million proceeds from the divestiture of the Procon business and $16.6 million used for capital expenditures, $9.9 millionexpenditures. Cash used for the acquisition of Sensor Solutions, $5.0 million generated by proceeds from a life insurance policy related to the death of a retired Company executive, $1.7 million generated by sales of property, plant, and equipment, and $1.0 million used in other investing activities. Cash used by financing activities for the nine months ended March 31, 20222023 was $30.4$30.0 million and consisted primarily of debt modification costs of $1.7 million offset by purchases of stock of $21.4$18.6 million, cash paid for dividends of $9.1$9.7 million, and $1.2 million of contingent consideration payments due to the sellersellers of the Renco business of $1.2 million.business.
During the secondthird quarter of fiscal year 2019, we2023, the Company entered into a five-yearThird Amended and& Restated Credit Agreement which renewed the existing Credit Agreement for an additional five-year period (“credit agreement”, or “facility”) with a borrowing limit of $500 million. The facility can be increased by an amount of up to $250 million, in accordance with specified conditions contained in the agreement. The facility also includes a $10 million sublimit for swing line loans and a $35 million sublimit for letters of credit.
Under the terms of the Credit Facility, we pay a variable rate of interest and a commitment fee on borrowed amounts as well as a commitment fee on unused amounts under the facility. The amount of the commitment fee depends upon both the undrawn amount remaining available under the facility and the Company’s funded debt to EBITDA (as defined in the agreement) ratio at the last day of each quarter. As our funded debt to EBITDA ratio increases, the commitment fee increases.
Funds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes. As of March 31, 2022,2023, the Company used $6.2$3.0 million against the letter of credit sub-facility and had the ability to borrow $299.5$343.7 million under the facility based on our current trailing twelve-month EBITDA. The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants. The Company’s current financial covenants under the facility are as follows:
Interest Coverage Ratio - The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Facility”), to interest expense for the trailing twelve months of at least 2.75:1. Adjusted EBIT per the Credit Facility specifically excludes extraordinary and certain other defined items such as cash restructuring and acquisition related charges up to the lower of $20.0 million or 10% of EBITDA. The facility also allows for unlimited non-cash charges including purchase accounting and goodwill adjustments. At March 31, 2022,2023, the Company’s Interest Coverage Ratio was 15.9.18.59.
Leverage Ratio - The Company’s ratio of funded debt to trailing twelve month Adjusted EBITDA per the Credit Facility, calculated as Adjusted EBIT per the Credit Facility plus depreciation and amortization, may not exceed 3.5:1. Under certain circumstances in connection with a Material Acquisition (as defined in the Facility), the Facility allows for the leverage ratio to go as high as 4.0:1 for a four-fiscal quarter period. At March 31, 2022,2023, the Company’s Leverage Ratioleverage ratio was 1.15.0.89.
As of March 31, 2022,2023, we had borrowings under our facility of $200.0$175.0 million. In order to manage our interest rate exposure on these borrowings, we are party to $200.0$175.0 million of active floating to fixed rate swaps. These swaps convert our interest payments from LIBORSOFR to a weighted average fixed rate of 1.27%1.14%. The effective rate of interest for our outstanding borrowings, including the impact of the interest rate swaps, was 2.63%2.83%.
Our primary cash requirements in addition to day-to-day operating needs include interest payments, capital expenditures, acquisitions, share repurchases, and dividends. Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility. We expect fiscal year 20222023 capital spending to be approximately $25.0 million and $30.0 million which includes amounts not spent in fiscal year 2021.2022. We also expect that fiscal year 20222023 depreciation and amortization expense will be an estimatedbetween $20.0 and $21.0 million and $12.0$7.0 and $9.0 million, respectively.
The following table sets forth our capitalization:
(In thousands) | March 31, 2022 | June 30, 2021 | March 31, 2023 | June 30, 2022 | ||||||||||||
Long-term debt | $ | 199,745 | $ | 199,490 | $ | 173,333 | $ | 174,830 | ||||||||
Less cash and cash equivalents | (133,902 | ) | (136,367 | ) | (175,284 | ) | (104,844 | ) | ||||||||
Net debt | 65,843 | 63,123 | ||||||||||||||
Net (cash) debt | (1,951 | ) | 69,986 | |||||||||||||
Stockholders' equity | 527,620 | 506,425 | 605,550 | 499,343 | ||||||||||||
Total capitalization | $ | 593,463 | $ | 569,548 | $ | 603,599 | $ | 569,329 | ||||||||
We sponsor a number of defined benefit and defined contribution retirement plans. The U.S. pension plan is frozen for substantially all participants. We have evaluated the current and long-term cash requirements of these plans, and our existing sources of liquidity are expected to be sufficient to cover required contributions under ERISA and other governing regulations.
The fair value of the Company's U.S. defined benefit pension plan assets was $186.9$146.2 million at March 31, 2022,2023, as compared to $212.6$157.9 million at the most recent measurement date, which occurred as of June 30, 2021.2022. The next measurement date to determine plan assets and benefit obligations will be on June 30, 2022.2023.
The Company expects to pay $0.4$0.3 million in contributions to its defined benefit plans during the remainder of fiscal year 2022.2023. Contributions of less than $0.1 million and $0.2 million were made during the three and nine months ended March 31, 2023 and 2022, comparedrespectively. There are no required contributions to $3.1 million and $8.0 million during the three and nine months ended March 31, 2021, respectively. The Company does not expect to make additional contributions duringUnited States funded pension plan for fiscal year 2022 to its U.S. defined benefit plan.2023. The Company expects to make contributions during the remainder of fiscal year 20222023 of less than $0.1 million and $0.3$0.2 million to its unfunded defined benefit plans in the U.S. and Germany, respectively. Obligations under our defined benefit plan operated in Ireland have been transferred to the buyer of the Procon business as part of the divestiture. Any subsequent plan contributions will depend on the results of future actuarial valuations. The Company expects to make contributions during fiscal year 2024 of an estimated $7.4 million to its U.S. funded defined benefit plan.
We have an insurance program in place to fund supplemental retirement income benefits for fourthree retired executives. Current executives and new hires are not eligible for this program. At March 31, 2022,2023, the underlying policies had a cash surrender value of $6.0$11.7 million and are reported net of loans of $5.1$5.0 million for which we have the legal right of offset, these amounts are reported net on our balance sheet.
Inflation – Certain of our expenses, such as wages and benefits, occupancy costs, freight and equipment repair and replacement, are subject to normal inflationary pressures. Inflation for medical costs can impact both our employee benefit costs as well as our reserves for workers' compensation claims. We monitor the inflationary rate and make adjustments to reserves whenever it is deemed necessary. Our ability to control worker compensation insurance medical cost inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit the maximum exposure for us. Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements. We have experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities. These materials are some of the key elements in the products manufactured in these segments. Wherever possible, we will implement price increases to offset the impact of changing prices. The ultimate acceptance of these price increases will be impacted by our affected divisions’ respective competitors and the timing of their price increases. In general, we do not enter into purchase contracts that extend beyond one operating cycle. While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.
Foreign Currency Translation – Our primary functional currencies used by our non-U.S. subsidiaries are the Euro, British Pound Sterling (Pound), Japanese (Yen), and Chinese (Yuan).
Defined Benefit Pension Plans – We record expenses related to these plans based upon various actuarial assumptions such as discount rates, mortality rates, and assumed rates of returns. The Company’s pension plan is frozen for substantially all eligible U.S. employees and participants in the plan ceased accruing future benefits.
Environmental Matters – To the best of our knowledge, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position.
Seasonality – We are a diversified business with generally low levels of seasonality.
Employee Relations – The Company has labor agreements with several union locals in the United States and several European employees belong to European trade unions.
Critical Accounting Policies
The condensed consolidated financial statements include the accounts of Standex International Corporation and all of its subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying condensed consolidated financial statements. Although we believe that materially different amounts would not be reported due to the accounting policies adopted, the application of certain accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our Annual Report on Form 10-K for the year ended June 30, 20212022 lists a number of accounting policies which we believe to be the most critical.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management
We are exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency exchange. To reduce these risks, we selectively use, from time to time, financial instruments and other proactive management techniques. We have internal policies and procedures that place financial instruments under the direction of the Treasurer and restrict all derivative transactions to those intended for hedging purposes only. The use of financial instruments for trading purposes (except for certain investments in connection with the non-qualified defined contribution plan) or speculation is strictly prohibited. The Company has no majority-owned subsidiaries that are excluded from the consolidated financial statements. Further, we have no interests in or relationships with any special purpose entities.
Exchange Rate Risk
We are exposed to both transactional risk and translation risk associated with exchange rates. The transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts. We also mitigate certain of our foreign currency exchange rate risks by entering into forward foreign currency contracts from time to time. The contracts are used as a hedge against anticipated foreign cash flows, such as loan payments, customer remittances, and materials purchases, and are not used for trading or speculative purposes. The fair values of the forward foreign currency exchange contracts are sensitive to changes in foreign currency exchange rates, as an adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts. However, any such losses or gains would generally be offset by corresponding gains and losses, respectively, on the related hedged asset or liability. At March 31, 20222023 the fair value, in the aggregate, of the Company’s open foreign exchange contracts was an asseta liability of $0.2$1.1 million.
Our primary translation risk is with the Euro, British Pound Sterling, Peso, Japanese Yen and Chinese Yuan. A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at March 31, 2022,2023, would not result in a material change in our operations, financial position, or cash flows. We hedge our most significant foreign currency translation risks primarily through cross currency swaps and other instruments, as appropriate.
Interest Rate Risk
The Company’s effective interest rate on borrowings was 2.63%2.83% at March 31, 2022.2023. Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings and is mitigated by our use of interest rate swap agreements to modify our exposure to interest rate movements. At March 31, 2022,2023, we have $200.0$175.0 million of active floating to fixed rate swaps with terms ranging from one to four years. These swaps convert our interest payments from LIBORSOFR to a weighted average rate of 1.27%1.14%. At March 31, 20222023 the fair value, in the aggregate, of the Company’s interest rate swaps was assets of $6.6$9.5 million. A 25-basis point increase in interest rates would not materially change our annual interest expense as allmost of our outstanding debt is currently converted to fixed rate debts by means of interest rate swaps.
Concentration of Credit Risk
We have a diversified customer base. As such, the risk associated with concentration of credit risk is inherently minimized. As of March 31, 2022,2023, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.
Commodity Prices
The Company is exposed to fluctuating market prices for all commodities used in its manufacturing processes. Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements. In general, we do not enter into purchase contracts that extend beyond one operating cycle. While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.
The Engineering Technologies, Specialty Solutions, and Electronics segments are all sensitive to price increases for steel and aluminum products, other metal commodities such as rhodium and copper, and petroleum-based products. We have experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities. These materials are some of the key elements in the products manufactured in these segments. Wherever possible, we will implement price increases to offset the impact of changing prices. The ultimate acceptance of these price increases, if implemented, will be impacted by our affected divisions’ respective competitors and the timing of their price increases.
ITEM 4. CONTROLS AND PROCEDURES
At the end of the period covered by this Report, the management of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 20222023 in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There was no change in the Company's internal control over financial reporting during the quarterly period ended March 31, 20222023 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Unregistered Sales of Equity Securities and Use of Proceeds
(c) | The following table provides information about purchases by the Company of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act: |
Issuer Purchases of Equity Securities(1) |
Quarter Ended March 31, |
Period | (a) Total number of shares (or units) purchased | (b) Average price paid per share (or unit) | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | (d) Maximum number (or appropriate dollar value) of shares (or units) that may yet be purchased under the plans or programs | ||||||||||||
January 1 - January 31, 2022 | - | $ | - | - | $ | 12,522 | ||||||||||
February 1 - February 28, 2022 | 112,008 | 105.91 | 112,008 | 659 | ||||||||||||
March 1 - March 31, 2022 | 108 | 103.06 | 108 | 648 | ||||||||||||
Total | 112,116 | $ | 105.91 | 112,116 | $ | 648 | ||||||||||
Period | (a) Total number of shares (or units) purchased | (b) Average price paid per share (or unit) | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | (d) Maximum number (or appropriate dollar value) of shares (or units) that may yet be purchased under the plans or programs | ||||||||||||
January 1, 2023 - January 31, 2023 | 114 | $ | 107.01 | 114 | $ | 77,123 | ||||||||||
February 1, 2023 - February 28, 2023 | 42,289 | 118.23 | 42,289 | 72,123 | ||||||||||||
March 1, 2023 - March 31, 2023 | 54 | 117.52 | 54 | 72,116 | ||||||||||||
Total | 42,457 | $ | 118.20 | 42,457 | $ | 72,116 | ||||||||||
(1) | The Company has a Stock Buyback Program (the “Program”) which was originally announced on January 30, 1985 and most recently amended on April |
(a) | Exhibits |
| 31.1 | |
31.2 | ||
32 | ||
101 | The following materials from this Quarterly Report on Form 10-Q, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
ALL OTHER ITEMS ARE INAPPLICABLE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| STANDEX INTERNATIONAL CORPORATION |
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Date: | May | /s/ ADEMIR SARCEVIC |
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| Ademir Sarcevic |
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| Vice President/Chief Financial Officer |
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| (Principal Financial & Accounting Officer) |
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Date: | May | /s/ SEAN C. VALASHINAS |
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| Sean C. Valashinas |
| Vice President/Chief Accounting Officer/Assistant Treasurer | ||