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 MarchDecember 31, 2023

 

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

 

Commission File Number 001-07233

 

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

31-0596149

(State of incorporation)

(IRS Employer Identification No.)

 

23 Keewaydin drive, Salem, New Hampshire

03079

(Address of principal executive offices)

(Zip Code)

 

(603) 893-9701

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $1.50 Per Share

SXI

New York Stock Exchange

 

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

 

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

 

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

 

Large accelerated filer ☒

 

 

Accelerated filer ☐

 

Non-accelerated filer ☐  

Smaller reporting company ☐

 

   

Emerging growth company ☐

 

 

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

 

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

 

The number of shares of Registrant's Common Stock outstanding on May 3, 2023January 31, 2024 was 11,902,67611,870,622


 

 

STANDEX INTERNATIONAL CORPORATION

 

 

INDEX

 

 

 

 

Page No.

PART I.  FINANCIAL INFORMATION:

 

 

 

 

Item 1.

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of MarchDecember 31, 2023 and June 30, 20222023 (unaudited)

3

 

 

 

 

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

4

 

 

 

 

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

5

 

 

 

 

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

6

 

 

 

 

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

8

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

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

2527

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

3739

 

 

 

Item 4.

Controls and Procedures

3840

 

 

 

PART II.  OTHER INFORMATION:

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3941

Item 5.

Other Information

41
   

Item 6.

Exhibits

4042

 


 

PART I. FINANCIAL INFORMATION

ITEM 1

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

 

 March 31, June 30,  December 31, June 30, 

(In thousands, except per share data)

 

2023

  

2022

  

2023

  

2023

 

ASSETS

            

Current assets:

          

Cash and cash equivalents

 $175,284  $104,844  $142,424  $195,706 

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 

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

 125,575  123,440 

Inventories

 104,516  105,339  98,592  98,537 

Prepaid expenses and other current assets

 56,611  45,210  65,572  64,739 

Income taxes receivable

 3,203  6,530  3,836  831 

Total current assets

  460,775   378,998   435,999   483,253 
  

Property, plant, and equipment, net

 130,638  128,584  132,599  130,937 

Intangible assets, net

 79,562  85,770  82,726  75,651 

Goodwill

 269,463  267,906  280,337  264,821 

Deferred tax asset

 9,213  8,186  14,027  14,602 

Operating lease right-of-use asset

 36,069  39,119  34,026  33,273 

Other non-current assets

  29,368   25,876   25,347   22,392 

Total non-current assets

  554,313   555,441   569,062   541,676 
  

Total assets

 $1,015,088  $934,439  $1,005,061  $1,024,929 
  

LIABILITIES AND STOCKHOLDERS' EQUITY

            

Current liabilities:

          

Accounts payable

 $67,512  $74,520  $63,883  $68,601 

Accrued liabilities

 55,704  67,773  56,062  62,031 

Income taxes payable

  7,371   8,475   10,597   10,335 

Total current liabilities

  130,587   150,768   130,542   140,967 
  

Long-term debt

 173,333  174,830  148,659  173,441 

Operating lease long-term liabilities

 28,463  31,357  26,080  25,774 

Accrued pension and other non-current liabilities

  77,155   78,141   79,209   77,298 

Total non-current liabilities

  278,951   284,328   253,948   276,513 
  

Contingencies (Note 15)

              
  

Stockholders' equity:

          

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

 41,976  41,976 

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

 41,976  41,976 

Additional paid-in capital

 97,294  91,200  101,198  100,555 

Retained earnings

 1,010,395  901,421  1,058,069  1,027,279 

Accumulated other comprehensive loss

 (147,175) (153,312) (155,561) (158,477)

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

  (396,940)  (381,942)

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

  (425,111)  (403,884)

Total stockholders' equity

  605,550   499,343   620,571   607,449 
  

Total liabilities and stockholders' equity

 $1,015,088  $934,439  $1,005,061  $1,024,929 

 

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

 

Six Months Ended

 
 

March 31,

 

March 31,

  

December 31,

 

December 31,

 

(In thousands, except per share data)

 

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

 

Net sales

 $184,332  $189,281  $552,721  $550,600  $178,400  $187,789  $363,174  $368,389 

Cost of sales

  113,435   120,900   341,251   347,210   106,737   115,469   218,876   227,816 

Gross profit

  70,897   68,381   211,470   203,390   71,663   72,320   144,298   140,573 

Selling, general, and administrative expenses

 42,954  42,306  127,756  128,589  43,276  43,713  86,861  84,802 

(Gain) loss on sale of business

 (62,105) - (62,105) -  -  -  (274) - 

Restructuring costs

 2,237  1,186  3,330  2,469  1,360  511  3,266  1,093 

Acquisition related costs

  21   419   487   1,561  1,195  174  1,696  466 

Other operating (income) expense, net

 (727) - (611) 1,700   -  116  -  116 

Total operating expenses

  (17,620)  43,911   68,857   134,319   45,831   44,514   91,549   86,477 

Income from operations

 88,517  24,470  142,613  69,071  25,832  27,806  52,749  54,096 

Interest expense

 1,415  1,238  4,168  4,484  1,019  1,566  2,295  2,753 

Other non-operating (income) expense, net

  747   340   1,695   651   332   (70)  1,178   948 

Income from continuing operations before income taxes

 86,355  22,892  136,750  63,936  24,481  26,310  49,276  50,395 

Provision for income taxes

  5,788   5,484   17,783   15,677   5,409   6,226   11,312   11,995 

Income from continuing operations

 80,567  17,408  118,967  48,259  19,072  20,084  37,964  38,400 

Income (loss) from discontinued operations, net of tax

  (57)  (86)  (144)  (135)  (201)  (41)  (279)  (87)

Net income

 $80,510  $17,322  $118,823  $48,124  $18,871  $20,043  $37,685  $38,313 
  

Basic earnings (loss) per share:

  

Continuing operations

 $6.82  $1.45  $10.06  $4.02  $1.62  $1.69  $3.22  $3.25 

Discontinued operations

  -   (0.01)  (0.01)  (0.01)  (0.02)  -   (0.02)  (0.01)

Total

 $6.82  $1.44  $10.05  $4.01  $1.60  $1.69  $3.20  $3.24 

Diluted earnings (loss) per share:

  

Continuing operations

 $6.77  $1.44  $9.98  $3.98  $1.61  $1.69  $3.19  $3.22 

Discontinued operations

  -   (0.10)  (0.01)  (0.01)  (0.02)  -   (0.02)  (0.01)

Total

 $6.77  $1.34  $9.97  $3.97  $1.59  $1.69  $3.17  $3.21 
  

Weighted average number of shares:

  

Basic

 11,811  11,982  11,825  12,009  11,791  11,852  11,762  11,833 

Diluted

 11,895  12,089  11,917  12,121  11,858  11,917  11,891  11,930 

 

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

 

Six Months Ended

 
 

March 31,

 

March 31,

  

December 31,

 

December 31,

 

(In thousands)

 

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

 

Net income

 $80,510  $17,322  $118,823  $48,124  $18,871  $20,043  $37,685  $38,313 

Other comprehensive income (loss):

  

Defined benefit pension plans:

  

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

 $(601) $88  $(587) $189  $(133) $(82) $(12) $14 

Amortization of unrecognized costs, net of tax

 712  1,103  2,132  3,320  597  710  1,193  1,420 

Derivative instruments:

  

Change in unrealized gains (losses), net of tax

 (406) 4,340  2,220  5,949  (675) (170) 110  2,627 

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

 (1,134) 627  (1,212) 2,155  (1,280) (234) (2,781) (80)

Foreign currency translation gains (losses), net of tax

  1,480   (8,018)  3,584   (17,343)  13,506   23,649   4,406   2,105 

Other comprehensive income (loss), net of tax

 $51  $(1,860) $6,137  $(5,730) $12,015  $23,873  $2,916  $6,086 

Comprehensive income

 $80,561  $15,462  $124,960  $42,394  $30,886  $43,916  $40,601  $44,399 

 

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 three month period ended

   Additional    Comprehensive   Total    Additional    Comprehensive   Total 

March 31, 2023

 

Common

 

Paid-in

 

Retained

 

Income

 

Treasury Stock

 

Stockholders’

 

December 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, 2022

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

Balance, September 30, 2023

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

Stock issued under incentive compensation plans and employee purchase plans

 - 126 - - (2) 50 176  - (145) - - (22) 567 422 

Stock-based compensation

 - 3,809 - - - - 3,809  - 2,630 - - - - 2,630 

Treasury stock acquired

 - - - - 42 (5,065) (5,065) - - - - 34 (4,509) (4,509)

Comprehensive income:

                              

Net income

 -  -  80,510  -  -  -  80,510  -  -  18,871  -  -  -  18,871 

Foreign currency translation adjustment

 - - - 1,480 - - 1,480  - - - 13,506 - - 13,506 

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 

Pension, net of tax of $0.2 million

 - - - 464 - - 464 

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

 - - - (1,955) - - (1,955)

Dividends declared ($0.30 per share)

  - - (3,497) - - - (3,497)

Balance, December 31, 2023

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

For the three month period ended March 31, 2022

                     

For the three month period ended December 31, 2022

                     

(in thousands, except as specified)

                                

Balance, December 31, 2021

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

Balance, September 30, 2022

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

Stock issued under incentive compensation plans and employee purchase plans

 -  49  -  -  (5) 122  171  -  (222) -  -  (16) 380  158 

Stock-based compensation

 -  3,588  -  -  -  -  3,588  -  2,135  -  -  -  -  2,135 

Treasury stock acquired

 -  -  -  -  112  (11,874) (11,874) -  -  -  -  50  (5,123) (5,123)

Comprehensive income:

                              

Net income

 -  -  17,322  -  -  -  17,322  -  -  20,043  -  -  -  20,043 

Foreign currency translation adjustment

 -  -  -  (8,018) -  -  (8,018) -  -    23,649  -  -  23,649 

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 

Pension, net of tax of $0.2 million

 -  -  -  628  -  -  628 

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

 -  -  -  (404) -  -  (404)

Dividends declared ($0.28 per share)

  -  -  (3,359) -  -  -  (3,359)

Balance, December 31, 2022

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

 

See notes to unaudited condensed consolidated financial statements

 

6

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Stockholders' Equity (Continued)

 

          

Accumulated Other

                   

Accumulated Other

         

For the nine month period ended

    

Additional

    

Comprehensive

       

Total

 

March 31, 2023

 

Common

 

Paid-in

 

Retained

 

Income

 

Treasury Stock

 

Stockholders’

 

For the six month period ended

    

Additional

    

Comprehensive

       

Total

 

December 31, 2023

 

Common

 

Paid-in

 

Retained

 

Income

 

Treasury Stock

 

Stockholders’

 

(in thousands, except as specified)

 

Stock

 

Capital

 

Earnings

 

(Loss)

 

Shares

 

Amount

 

Equity

 

Balance, June 30, 2023

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

Stock issued under incentive compensation plans and employee purchase plans

 -  (4,181) -  -  (210) 5,370  1,189 

Stock-based compensation

 -  4,824  -  -  -  -  4,824 

Treasury stock acquired

 -  -  -  -  172  (26,597) (26,597)

Comprehensive income:

 

Net income

 -  -  37,685  -  -  -  37,685 

Foreign currency translation adjustment

 -  -  -  4,406  -  -  4,406 

Pension, net of tax of $0.4 million

 -  -  -  1,181  -  -  1,181 

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

 -  -  -  (2,671) -  -  (2,671)

Dividends declared ($0.58 per share)

  -  -  (6,895) -  -  -  (6,895)

Balance, December 31, 2023

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

For the six month period ended December 31, 2022

              

(in thousands, except as specified)

 

Stock

 

Capital

 

Earnings

 

(Loss)

 

Shares

 

Amount

 

Equity

    

Balance, June 30, 2022

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

Stock issued under incentive compensation plans and employee purchase plans

 -  (2,414) -  -  (150) 3,584  1,170  -  (2,540) -  -  (147) 3,534  994 

Stock-based compensation

 -  8,508  -  -  -  -  8,508  -  4,699  -  -  -  -  4,699 

Treasury stock acquired

 -  -  -  -  183  (18,582) (18,582) -  -  -  -  140  (13,517) (13,517)

Comprehensive income:

                             - 

Net income

 -  -  118,823  -  -  -  118,823  -  -  38,313  -  -  -  38,313 

Foreign currency translation adjustment

 -  -  -  3,584  -  -  3,584  -  -  -  2,105  -  -  2,105 

Pension, net of tax of $0.6 million

 -  -  -  1,545  -  -  1,545 

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

 -  -  -  1,008  -  -  1,008 

Dividends declared ($0.82 per share)

  -  -  (9,849) -  -  -  (9,849)

Balance, March 31, 2023

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

For the nine month period ended March 31, 2022

                     

(in thousands, except as specified)

                

Balance, June 30, 2021

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

Stock issued under incentive compensation plans and employee purchase plans

 -  (804) -  -  (94) 2,122  1,318 

Stock-based compensation

 -  8,213  -  -  -  -  8,213 

Treasury stock acquired

 -  -  -  -  209  (21,420) (21,420)

Comprehensive income:

              - 

Net income

 -  -  48,124  -  -  -  48,124 

Foreign currency translation adjustment

 -  -  -  (17,343) -  -  (17,343)

Pension, net of tax of $1.1 million

 -  -  -  3,509  -  -  3,509 

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

 -  -  -  8,104  -  -  8,104 

Dividends declared ($0.76 per share)

  -  -  (9,310) -  -  -  (9,310)

Balance, March 31, 2022

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

Pension, net of tax of $0.5 million

 -  -  -  1,434  -  -  1,434 

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

 -  -  -  2,547  -  -  2,547 

Dividends declared ($0.54 per share)

  -  -  (6,501) -  -  -  (6,501)

Balance, December 31, 2022

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

 

See notes to unaudited condensed consolidated financial statements

 


 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

 Unaudited Condensed Consolidated Statements of Cash Flows

 

 

Nine Months Ended

  

Six Months Ended

 
 

March 31,

  

December 31,

 

(In thousands)

 

2023

 

2022

  

2023

 

2022

 

Cash flows from operating activities

            

Net income

 $118,823  $48,124  $37,685  $38,313 

Income (loss) from discontinued operations

  (144)  (135)  (279)  (87)

Income from continuing operations

 118,967  48,259  37,964  38,400 

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

          

Depreciation and amortization

 21,275  22,411  13,969  13,966 

Stock-based compensation

 8,508  8,213  4,824  4,699 

Non-cash portion of restructuring charge

 129  595  346  (1,183)

Gain on sale of business

 (62,105) -  (274) - 

Contributions to defined benefit plans

 (151) (157) (1,541) (101)

Changes in operating assets and liabilities, net

  (36,268)  (30,693)  (15,121)  (28,690)

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

 50,355  48,628  40,167  27,091 

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

  (37)  (375)  (422)  (51)

Net cash provided by (used in) operating activities

  50,318   48,253   39,745   27,040 

Cash flows from investing activities

            

Expenditures for property, plant, and equipment

 (16,648) (13,138) (8,587) (11,028)

Proceeds from sale of business

 67,023 -  274 - 

Expenditures for acquisitions, net of cash acquired

 - (9,902) (29,229) - 

Other investing activity

  (1,321)  5,718   -   98 

Net cash provided by (used in) investing activities

  49,054   (17,322)  (37,542)  (10,930)

Cash flows from financing activities

            

Proceeds from borrowings

 224,500  -  -  28,500 

Payments of debt

 (226,200) -  (25,000) (16,000)

Contingent consideration payment

 (1,167) (1,167) - (1,167)

Activity under share-based payment plans

 1,170  1,318  1,189  994 

Purchases of treasury stock

 (18,582) (21,420) (26,650) (13,517)

Cash dividends paid

  (9,699)  (9,148)  (6,840)  (6,399)

Net cash provided by (used in) financing activities

  (29,978)  (30,417)  (57,301)  (7,589)

Effect of exchange rate changes on cash and cash equivalents

  1,046   (2,979)  1,816   129 

Net change in cash and cash equivalents

 70,440  (2,465) (53,282) 8,650 

Cash and cash equivalents at beginning of year

  104,844   136,367   195,706   104,844 

Cash and cash equivalents at end of period

 $175,284  $133,902  $142,424  $113,494 
          

Supplemental Disclosure of Cash Flow Information:

            

Cash paid during the year for:

          

Interest

 $3,186 $3,791  $2,222 $2,225 

Income taxes, net of refunds

 $22,064 $14,797  $14,010 $12,822 

 

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 ninesix months ended MarchDecember 31, 2023 and 2022, the cash flows for the ninesix months ended MarchDecember 31, 2023 and 2022 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at MarchDecember 31, 2023. The interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 20222023. The condensed consolidated balance sheet at June 30, 20222023 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, 20222023. 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 20232024 includes the twelve-month period from July 1, 20222023 to June 30, 2023.2024.

 

The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. Estimates are based on historical experience, actuarial estimates, current conditions and various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources. These estimates assist in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. The estimates and assumptions used in the preparation of the consolidated financial statements have considered the implications on the Company as a result of the COVID-19 pandemicongoing global events 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 MarchDecember 31, 2023 and the issuance date of the Quarterly Report on Form 10-Q.

 

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

 

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

Recently Issued Accounting Pronouncements

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

 

In November 2021,2023, the FASB issued ASU 20212023-10,07, Government AssistanceSegment Reporting (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to provide certain disclosures when they (1280) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. The guidance in ("ASU 20212023-1007"). This update provides, among other things, enhanced segment disclosure requirements including disclosures about significant segment expenses. ASU 2023-07 is effective for all entities for fiscal years beginning after December 15, 20212023, with earlyand interim periods within fiscal years beginning after December 15, 2024. The Company will review the extent of new disclosures necessary in the coming quarters, prior to implementation during fiscal year 2025. Other than additional disclosure, the Company does not expect a change to its condensed consolidated financial statements upon adoption.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU is expected to enhance the transparency and decision usefulness of income tax disclosures by requiring public business entities on an annual basis to disclose specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold, and certain information about income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024. The amendments in this ASU are required to be applied on a prospective basis and retrospective adoption is permitted. The Company adopted ASU 2021-10 inis currently evaluating the effect of adopting this new accounting guidance, which would be applicable to fiscal year 2023.2026. The adoption did not have a material impact on the consolidated financial statements.

 

9

 

2)     Acquisitions

 

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

 

Sensor Solutions

DuringOn November 1,2023, the Company entered into a definitive agreement, through its subsidiary Standex Electronics Japan Corporation, to acquire privately-held, Japanese-based Sanyu Switch Co., Ltd. Sanyu Switch Co., Ltd. designs and manufactures reed relays, test sockets, testing systems for semi-conductor and other electronics manufacturing, and other switching applications. The transaction is expected to close in the third quarter of fiscal year 2022,2024, subject to required regulatory approvals.  Its results will be reported in the Electronics segment upon closing. 

Minntronix

On July 31, 2023, the Company acquired Sensor Solutions,paid $29.2 million in cash for the purchase of all the issued and outstanding equity interests of Minntronix, a designerprivately held company. Minntronix designs and manufacturer ofmanufactures customized as well as standard magnetic sensormagnetics components and products including hall effect switchtransformers, inductors, current sensors, coils, chokes, and latching sensors, linearfilters. The products are used in applications across cable fiber, smart meters, industrial control and rotary sensors,lighting, electric vehicles, 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 thesehome security markets. Sensor Solutions operates one light manufacturing facility in Colorado. Sensor Solutions'Minntronix' results are reported within the Company's Electronics segment.

 

9

The Company paid $9.9 million in cash for all the issued and outstanding equity interests of Sensor Solutions. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Sensor Solutions'Minntronix's 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$10.7 million consist primarily of $0.8$3.2 million for indefinite lived tradenames and $2.0$7.5 million of customer relationships to be amortized over 1015 years. The goodwill of $5.8$13.9 million created by the transaction isnot 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 SolutionsMinntronix acquisition, including the finalpreliminary allocation of the purchase price are as follows (in thousands): 

 

   
 

Final Allocation

  

Preliminary Allocation December 31, 2023

 

Fair value of business combination:

  

Cash payments

 $10,016  $33,890 

Less cash acquired

  (114)

Less, cash acquired

  (4,661)

Total

 $9,902  $29,229 

 

 

Final Allocation

  

Preliminary Allocation December 31, 2023

 

Identifiable assets acquired and liabilities assumed:

  

Other acquired assets

 $488  $8,282 

Customer backlog

 1,120 

Inventories

 529  1,780 

Property, plant, & equipment

 420  1,039 

Identifiable intangible assets

 2,780  10,700 

Goodwill

 5,840  13,889 

Liabilities assumed

  (155)  (7,581)

Total

 $9,902  $29,229 

 

Other Acquisitions

 

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

Acquisition Related Costs

 

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

 

Acquisition related costs for the three months ended MarchDecember 31, 2023 and 2022 were less than $0.1$1.2 million and $0.4$0.2 million, respectively. Acquisition related costs for the ninesix months ended MarchDecember 31, 2023 and 2022 were $0.5$1.7 million and $1.6$0.5 million, respectively.

 

10

 

3)     Revenue From Contracts With Customers

 

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

 

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

 

Disaggregation of Revenue from Contracts with Customers

 

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

 

 

Three Months Ended

  

Three Months Ended

 

Revenue by Product Line

 

March 31, 2023

 

March 31, 2022

  

December 31, 2023

 

December 31, 2022

 
  

Electronics

 $78,211  $79,889  $79,419  $72,556 
  

Engraving Services

 35,454  34,399  38,467  36,221 

Engraving Products

  1,455   2,824   2,378   1,468 

Total Engraving

 36,909  37,223  40,845  37,689 
  

Scientific

  18,898   18,914   16,292   19,292 
  

Engineering Technologies

 18,052  20,890  19,887  24,193 
  

Hydraulics Cylinders and Systems

 13,548  15,306  11,881  17,538 

Merchandising & Display

 13,203  8,438  10,076  9,392 

Pumps

  5,511   8,621   -   7,129 

Total Specialty Solutions

 32,262  32,365  21,957  34,059 
          

Total revenue by product line

 $184,332  $189,281  $178,400  $187,789 

  

Six Months Ended

 

Revenue by Product Line

 

December 31, 2023

  

December 31, 2022

 
         

Electronics

 $161,107  $147,755 
         

Engraving Services

  77,203   69,805 

Engraving Products

  4,436   2,908 

Total Engraving

  81,639   72,713 
         

Scientific

  34,485   37,748 
         

Engineering Technologies

  38,107   41,192 
         

Hydraulics Cylinders and Systems

  26,610   34,275 

Merchandising & Display

  21,226   18,957 

Pumps

  -   15,749 

Total Specialty Solutions

  47,836   68,981 
         

Total revenue by product line

 $363,174  $368,389 

 

11

 
  

Nine Months Ended

 

Revenue by Product Line

 

March 31, 2023

  

March 31, 2022

 
         

Electronics

 $225,966  $232,351 
         

Engraving Services

  105,259   101,637 

Engraving Products

  4,363   7,400 

Total Engraving

  109,622   109,037 
         

Scientific

  56,646   65,079 
         

Engineering Technologies

  59,244   56,558 
         

Hydraulics Cylinders and Systems

  47,823   39,207 

Merchandising & Display

  32,160   23,548 

Pumps

  21,260   24,820 

Total Specialty Solutions

  101,243   87,575 
         

Total revenue by product line

 $552,721  $550,600 

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

 

 

Three Months Ended

 

Three Months Ended

 

Nine Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Three Months Ended

 

Six Months Ended

 

Six Months Ended

 

Net sales

 

March 31, 2023

 

March 31, 2022

 

March 31, 2023

 

March 31, 2022

  

December 31, 2023

 

December 31, 2022

 

December 31, 2023

 

December 31, 2022

 

United States

 $112,002  $110,076  $338,464  $314,657  $110,167  $116,303  $224,668  $226,462 

Asia Pacific

 29,204  37,441  95,858  116,842  32,742  33,861  64,151  66,654 

EMEA (1)

 38,953  37,963  106,279  108,841  31,632  33,401  66,100  67,326 

Other Americas

  4,173   3,801   12,120   10,260   3,859   4,224   8,255   7,947 

Total

 $184,332  $189,281  $552,721  $550,600  $178,400  $187,789  $363,174  $368,389 

 

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

 

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

 

 

Three Months Ended

  

Three Months Ended

 

Timing of Revenue Recognition

 

March 31, 2023

 

March 31, 2022

  

December 31, 2023

 

December 31, 2022

 

Products and services transferred at a point in time

 $169,669  $170,949  $160,204  $165,728 

Products transferred over time

  14,663  18,332   18,196   22,061 

Net sales

 $184,332  $189,281  $178,400  $187,789 

 

 

Nine Months Ended

  

Six Months Ended

 

Timing of Revenue Recognition

 

March 31, 2023

 

March 31, 2022

  

December 31, 2023

 

December 31, 2022

 

Products and services transferred at a point in time

 $501,090  $510,988  $327,429  $331,421 

Products transferred over time

  51,631  39,612  35,745 36,968 

Net sales

 $552,721  $550,600  $363,174  $368,389 

 

12

 

Contract Balances

 

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

 

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

 

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

 

  

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Nine months ended March 31, 2023

                

Contract assets:

                

Prepaid expenses and other current assets

 $24,679  $49,682  $43,820  $30,541 

Contract liabilities:

                

Customer deposits

  41   13,015   12,750   306 
  

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Six months ended December 31, 2023

                

Contract assets:

                

Prepaid expenses and other current assets

 $31,138  $33,565  $30,201  $34,502 

 

 

Balance at Beginning of Period

 

Additions

 

Deductions

 

Balance at End of Period

  

Balance at Beginning of Period

 

Additions

 

Deductions

 

Balance at End of Period

 

Nine months ended March 31, 2022

        

Six months ended December 31, 2022

        

Contract assets:

  

Prepaid expenses and other current assets

 $15,013  $35,091  $25,711  $24,393  $24,679  $33,017  $26,681  $31,015 

Contract liabilities:

  

Customer deposits

 471  10,293  10,721  43  41  -  41  - 

 

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 

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

 

 

March 31, 2022

  

December 31, 2022

 

December 31, 2022

 

Revenue recognized in the period from:

 

Three months ended

  

Nine months ended

  

Three months ended

  

Six months ended

 

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

 $252  $471  $38  $41 

 

13

 
 

4)      Fair Value Measurements

 

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

 

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

 

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

 

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

 

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

 

There were no transfers of assets or liabilities between any levels of the fair value measurement hierarchy at MarchDecember 31, 2023 and June 30, 20222023. The Company’s policy is to recognize transfers between levels as of the date they occur.

 

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

 

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

 

 

March 31, 2023

  

December 31, 2023

 
 

Total

  

Level 1

  

Level 2

  

Level 3

  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                  

Marketable securities - deferred compensation plan

 $3,629  $3,629  $-  $-  $4,431  $4,431  $-  $- 

Foreign exchange contracts

 601 - 601 - 

Interest rate swaps

 9,539 - 9,539 -  6,677 - 6,677 - 

Debt securities

 2,760 - - 2,760 

Equity securities

 2,070 - - 2,070 
                  

Liabilities

                  

Foreign exchange contracts

 $1,064  $-   1,064  $-  $- $- $- $- 

 

 

June 30, 2022

  

June 30, 2023

 
 

Total

  

Level 1

  

Level 2

  

Level 3

  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                  

Marketable securities - deferred compensation plan

 $3,033  $3,033  $-  $-  $3,720  $3,720  $-  $- 

Foreign exchange contracts

 122 - 122 - 

Interest rate swaps

 8,420 - 8,420 -  10,235 - 10,235 - 

Debt securities

 2,729 - - 2,729 

Equity securities

 2,046  -  -  2,046 
  

Liabilities

                  

Foreign exchange contracts

 $711  $-  $711  $-  $1,722  $-  $1,722  $- 

Contingent consideration (a)

 1,167  -  -  1,167 

 

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

 

14

 

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

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

 

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

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

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

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

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

 

 

5)     Inventories

 

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

 

 

March 31, 2023

  

June 30, 2022

  

December 31, 2023

  

June 30, 2023

 

Raw materials

 $50,037  $56,321  $47,521  $45,268 

Work in process

 21,092  20,592  18,065  20,389 

Finished goods

  33,387   28,426   33,006   32,880 

Total

 $104,516  $105,339  $98,592  $98,537 

 

Distribution costs associated with the sale of inventory, which are recorded as a component of selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations were $3.2$2.9 million and $2.5$3.1 million for the three months ended MarchDecember 31, 2023 and 2022, respectively. Distribution costs were $9.2$6.1 million and $11.1$6.0 million for the ninesix months ended MarchDecember 31, 2023 and 2022, respectively.

 

15

 
 

6)     Goodwill

 

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

 

 

June 30, 2022

  

Other

  

Translation Adjustment

  

March 31, 2023

  

June 30, 2023

  

Acquisitions

  

Translation Adjustment

  

December 31, 2023

 

Electronics

 $136,969  $-  $1,420  $138,389  $133,432  $13,889  $1,504  $148,825 

Engraving

 76,250  -  274  76,524  76,583  -  100  76,683 

Scientific

 15,454  -  -  15,454  15,454  -  -  15,454 

Engineering Technologies

 35,928  -  109  36,037  36,293  -  23  36,316 

Specialty Solutions

  3,305   (246)  -   3,059   3,059   -   -   3,059 

Total

 $267,906  $(246) $1,803  $269,463  $264,821  $13,889  $1,627  $280,337 

 

 

7)     Warranty Reserves

 

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

  

December 31, 2023

  

June 30, 2023

 

Balance at beginning of year

 $1,918  $2,086  $2,094  $1,918 

Acquisitions and other charges

 12  (29) 92  - 

Warranty expense

 1,033  1,083  1,139  1,939 

Warranty claims

  (1,197)  (1,222)  (894)  (1,763)

Balance at end of period

 $1,766  $1,918  $2,431  $2,094 

 

 

8)     Debt

 

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

 

 

March 31, 2023

  

June 30, 2022

  

December 31, 2023

  

June 30, 2023

 

Bank credit agreements

 $175,000  $175,000  $150,000  $175,000 

Total funded debt

 175,000  175,000  150,000  175,000 

Issuance cost

  (1,667)  (170)  (1,341)  (1,559)

Total long-term debt

 $173,333  $174,830  $148,659  $173,441 

 

16

Bank Credit Agreements

 

During the third quarter of fiscal year 2023, the Company entered into a Third Amended & Restated Credit Agreement which renewed the existing Credit Agreement for an additional five-year period (“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 MarchDecember 31, 2023, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $3.0$2.9 million and had the ability to borrow $343.7$347.1 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 MarchDecember 31, 2023.  At MarchDecember 31, 2023, the carrying value of the current borrowings approximateapproximates fair value.

 

 

9)       Accrued Liabilities

 

Accrued liabilities consist of the following (in thousands):

 

 

March 31, 2023

  

June 30, 2022

  

December 31, 2023

  

June 30, 2023

 

Payroll and employee benefits

 $25,794  $31,211  $22,764  $30,778 

Operating lease current liability

 8,055 7,891  8,701 8,036 

Litigation accrual

 -  5,745 

Warranty reserves

 1,766  1,918  2,431  2,094 

Fair value of derivatives

 1,064 - 

Restructuring costs

 1,869 1,740  1,642 1,296 

Workers' compensation

 1,354  1,664  1,598  1,516 

Contingent consideration

 - 1,166 

Fair value of derivatives

 - 1,722 

Other

  15,802   16,438   18,926   16,589 

Total

 $55,704  $67,773  $56,062  $62,031 

 

 

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 $175$150 million of debt due under our revolving credit agreement from a variable rate equal to 1 month Secured Overnight Financing Rate (SOFR) to a weighted average fixed rate of 1.14%0.85% at MarchDecember 31, 2023. 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, 2023

  

June 30, 2022

  

Notional Amount

 

Fixed Interest Rate

 

Maturity

 

December 31, 2023

  

June 30, 2023

 

February 6, 2023

 

25,000

  

2.80%

 

August 6, 2023

 $185  $48  

25,000

  

2.80%

 

August 6, 2023

 $-  $59 

February 23, 2023

 

100,000

  

0.86%

 

March 23, 2025

  6,157   5,538  

100,000

  

0.86%

 

March 23, 2025

  4,394   6,716 

April 24, 2020

 

25,000

 

0.88%

 

April 24, 2025

 1,654  1,447  

25,000

 

0.88%

 

April 24, 2025

 1,181  1,777 

February 24, 2023

 

25,000

  

0.86%

 

March 24, 2025

  1,543   1,387  

25,000

  

0.86%

 

March 24, 2025

  1,102   1,683 
       $9,539  $8,420       $6,677  $10,235 

 

17

 

The Company reported no losses for the three and ninesix months ended MarchDecember 31, 2023, 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 MarchDecember 31, 2023 and June 30, 20222023, the Company had outstanding forward contracts related to hedges of intercompany loans with net unrealized assets of $0.1 million and losses of $1.1 million and $0.6$1.7 million, respectively, which approximate the unrealized gains and losses on the related loans. The contracts have maturity dates ranging fromthrough fiscal year 2024, to 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, 2023

  

June 30, 2022

  

December 31, 2023

  

June 30, 2023

 

EUR

 -  5,750 

CAD

 16,600  16,600  -  16,600 

JPY

 2,100,000 1,000,000  4,200,000 2,100,000 

 

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

 

Asset Derivatives

 

Asset Derivatives

 

March 31, 2023

 

June 30, 2022

 

December 31, 2023

 

June 30, 2023

 

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

 $9,539 

Prepaid expenses and other current assets

 $8,420 

Prepaid expenses and other current assets

 $6,677 

Prepaid expenses and other current assets

 $10,235 

Foreign exchange contracts

Prepaid expenses and other current assets

  - 

Prepaid expenses and other current assets

  122 
  $9,539   $8,542   $6,677   $10,235 

 

Liability Derivatives

 

Liability Derivatives

 

March 31, 2023

 

June 30, 2022

 

December 31, 2023

 

June 30, 2023

 

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

 

Foreign exchange contracts

Accrued liabilities

 $823 

Accrued liabilities

 $- 

Accrued liabilities

 $- 

Accrued liabilities

 $315 
  $823   $-   $-   $315 

 

18

 

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

 

Six Months Ended

 
 

March 31,

 

March 31,

  

December 31,

 

December 31,

 
 

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

 

Interest rate swaps

 $(586) $6,045  $4,174  $7,885  $(903) $535  $(275) $4,760 

Foreign exchange contracts

  18   (217)  (945)  5   -   (574)  315   (963)
 $(568) $5,828  $3,229  $7,890  $(903) $(39) $40  $3,797 

 

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

 

Six Months Ended

 

in the Unaudited

Income (Loss) Components

 

March 31,

 

March 31,

 

Condensed Statements

 

December 31,

 

December 31,

 

Condensed Statements

 

2023

  

2022

  

2023

  

2022

 

of Operations

 

2023

  

2022

  

2023

  

2022

 

of Operations

Interest rate swaps

 $(1,449) $557  $(3,008) $1,761 

Interest expense

 $(1,713) $(1,105) $(3,433) $(1,559)

Interest expense

Foreign exchange contracts

  (26)  207   1,069   826 

Other non-operating (income) expense, net

  -   599   (215)  1,095 

Other non-operating (income) expense, net

 $(1,475) $764  $(1,939) $2,587   $(1,713) $(506) $(3,648) $(464) 

 

 

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,

  

December 31,

 

December 31,

 
 

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

 

Service cost

 $-  $1  $44  $58  $-  $-  $40  $43 

Interest cost

 2,397  1,830  249  193  2,473  2,396  292  263 

Expected return on plan assets

 (2,993) (3,260) (218) (215) (2,779) (2,994) (346) (247)

Recognized net actuarial loss

  953   1,384   (13)  84   951   954   (150)  (16)

Amortization of prior service cost

  -  -  (1)  (1)  -  -  (1)  (1)

Net periodic benefit cost

 $357  $(45) $61  $119 

Net periodic (benefit) cost

 $645  $356  $(165) $42 

  

U.S. Plans

  

Non-U.S. Plans

 
  

Six Months Ended

  

Six Months Ended

 
  

December 31,

  

December 31,

 
  

2023

  

2022

  

2023

  

2022

 

Service cost

 $-  $-  $81  $87 

Interest cost

  4,946   4,793   589   525 

Expected return on plan assets

  (5,558)  (5,987)  (699)  (492)

Recognized net actuarial loss

  1,902   1,907   (302)  (31)

Amortization of prior service cost

  -   -   (2)  (2)

Net periodic (benefit) cost

 $1,290  $713  $(333) $87 

 

19

  

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, 2023

  

June 30, 2022

  

December 31, 2023

  

June 30, 2023

 

Prepaid benefit cost

 $4,722  $6,295  $3,019  $2,807 

Current liabilities

 (529) (456) (502) (425)

Non-current liabilities

  (45,948)  (47,695)  (46,054)  (48,154)

Net amount recognized

 $(41,755) $(41,856) $(43,537) $(45,772)

 

The contributions made to defined benefit plans are presented below along with remaining contributions to be made for fiscal year 20232024 (in thousands):

 

 

Fiscal Year 2023

 

Fiscal Year 2022

 

Remaining

  

Fiscal Year 2024

 

Remaining

 
 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

Nine Months Ended

 

Contributions

  

Six Months Ended

 

Contributions

 

Contributions to defined benefit plans

 

March 31, 2023

  

March 31, 2023

  

March 31, 2022

  

March 31, 2022

  

FY 2023

  

December 31, 2023

  

FY 2024

 

United States, funded plan

 $-  $-  $-  $-  $-  $1,442  $8,363 

United States, unfunded plan

 49  151  52  157  49  99  53 

United Kingdom

 -  -  -  -  -  -  - 

Germany, unfunded plan

  -   -   -   -   239   -   255 
 $49  $151  $52  $157  $288  $1,541  $8,671 

  

 

12)     Income Taxes

 

The Company's effective tax rate from continuing operations for the thirdsecond quarter of fiscal year 20232024 and for the ninesix months ended MarchDecember 31, 2023 was 6.7%22.1% and 13.0%,23.0%  respectively, compared with 24.0%23.7% and 24.5%23.8% for the prior year quarter and prior year period, respectively. 

 

The tax rate was impacted in the current period by the following items: (i) a discrete tax benefit related to equity compensation, (ii) the partial releasejurisdictional mix of a valuation allowance previously recorded against deferredearnings; (iii) foreign withholding taxes, and (iv) federal research and development 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 incredits. The tax rate forwas impacted in the Company’s operations within China's tax jurisdiction, (iii)prior period by the following items: (i) a discrete tax benefit related to provision to return adjustments associated with federal and state research and development tax credits, (iv)equity compensation, (ii) the jurisdictional mix of earnings and (v)(iii) foreign withholding taxes.

20

 

13)     Earnings Per Share

The Company uses shares acquired through treasury stock repurchases for the issuance of shares of common stock for the settlement of awards under its stock-based compensation plans, with the net effect of these transactions accounting for the change in common stock outstanding.

 

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

  

Three Months Ended

 

Six Months Ended

 
 

March 31,

 

March 31,

  

December 31,

 

December 31,

 
 

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

 

Basic - Average shares outstanding

 11,811  11,982  11,825  12,009  11,791  11,852  11,762  11,833 

Dilutive effect of unvested, restricted stock awards

  84   107   92   112   67   65   129   97 

Diluted - Average shares outstanding

  11,895   12,089   11,917   12,121   11,858   11,917   11,891   11,930 

 

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 MarchDecember 31, 2023 or 2022.

 

Performance stock units of 132,21789,434 and 142,170132,217 for the ninesix months ended MarchDecember 31, 2023and 2022, 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, 2023

  

June 30, 2022

  

December 31, 2023

  

June 30, 2023

 

Foreign currency translation adjustment

 $(64,095) $(67,679) $(69,967) $(74,373)

Unrealized pension losses, net of tax

 (91,096) (92,641) (91,580) (92,761)

Unrealized gains (losses) on derivative instruments, net of tax

  8,016   7,008   5,986   8,657 

Total

 $(147,175) $(153,312) $(155,561) $(158,477)

   

 

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

As reported in the Company's annual report on Form 10-K file on August 5, 2022, during the fourth quarter of fiscal year 2022, the Company agreed to a full and comprehensive settlement of its pending lawsuit with Miniature Precision Components, Inc., and, as a result, recorded $5.7 million as accrued liabilities in the consolidated balance sheet.  During the first quarter of fiscal year 2023, the liability was paid and the matter is considered settled.

21

 

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 two operating segments that manufacture and sell refrigerated, heated and dry merchandizing display cases and single and double acting telescopic and piston rod hydraulic cylinders. 

 

Net sales and income (loss) from continuing operations by segment were as follows (in thousands):

 

 

Three Months Ended March 31,

  

Three Months Ended December 31,

 
 

Net Sales

  

Income from Operations

  

Net Sales

  

Income from Operations

 
 

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

 

Industry segment:

  

Electronics

 $78,211  $79,889  $17,047  $19,194  $79,419  $72,556  $15,850  $16,972 

Engraving

  36,909   37,223   5,353   5,728   40,845   37,689   8,910   6,373 

Scientific

 18,898 18,914 4,561 4,155  16,292 19,292 4,248 4,165 

Engineering Technologies

 18,052  20,890  2,351  2,327  19,887  24,193  3,405  3,741 

Specialty Solutions

 32,262 32,365 7,151 3,632  21,957 34,059 3,965 5,716 

Corporate

 - - (8,520) (8,961) - - (7,991) (8,360)

Restructuring costs

 -  -  (2,237) (1,186) -  -  (1,360) (511)

Gain on sale of business

 - - 62,105 -  - - - - 

Acquisition related costs

  -   -   (21)  (419)  -   -   (1,195)  (174)

Other operating income (expense), net

  -  -  727  -  - -  -  (116)

Sub-total

 $184,332  $189,281  $88,517  $24,470  $178,400  $187,789  $25,832  $27,806 

Interest expense

      1,415  1,238       1,019  1,566 

Other non-operating (income) expense

        747   340         332   (70)

Income from continuing operations before income taxes

       $86,355  $22,892        $24,481  $26,310 

 

  

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 
22

 
  

Six Months Ended December 31,

 
  

Net Sales

  

Income from Operations

 
  

2023

  

2022

  

2023

  

2022

 

Industry segment:

                

Electronics

 $161,107  $147,755  $32,184  $35,113 

Engraving

  81,639   72,713   16,505   12,227 

Scientific

  34,485   37,748   9,178   7,888 

Engineering Technologies

  38,107   41,192   6,422   5,606 

Specialty Solutions

  47,836   68,981   9,582   11,793 

Corporate

  -   -   (16,434)  (16,856)

Restructuring costs

  -   -   (3,266)  (1,093)

Gain on sale of business

  -   -   274   - 

Acquisition related costs

  -   -   (1,696)  (466)

Other operating income (expense), net

  -   -   -   (116)

Sub-total

 $363,174  $368,389  $52,749  $54,096 

Interest expense

          2,295   2,753 

Other non-operating (income) expense

          1,178   948 

Income from continuing operations before income taxes

         $49,276  $50,395 

 

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.

22
23

 

17)      Restructuring

 

The Company has undertaken a number of initiatives that have resulted in severance, restructuring, and related charges.

 

20232024 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 20232024 restructuring activities to be completed by fiscal year 2024.2025. 

 

Prior Year Restructuring Initiatives 

 

Restructuring expenses primarily related to headcount reductions and facility rationalization within our Specialty Solutions segment.Engraving and Electronics segments. 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 2023.2024.

  

A summary of charges by initiative is as follows (in thousands):

 

 

Three Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

March 31, 2023

  

March 31, 2023

  

December 31, 2023

  

December 31, 2023

 

Fiscal Year 2023

 

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Fiscal Year 2024

 

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Current year initiatives

 $1,460  $68  $1,528  $1,671  $185  $1,856  $359  $907  $1,266  $1,786  $1,252  $3,038 

Prior year initiatives

  87   622   709   412   1,062   1,474   56   38   94   182   46   228 
 $1,547  $690  $2,237  $2,083  $1,247  $3,330  $415  $945  $1,360  $1,968  $1,298  $3,266 

 

  

Three Months Ended

  

Nine Months Ended

 
  

March 31, 2022

  

March 31, 2022

 

Fiscal Year 2022

 

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 

Prior year initiatives

  -   -   -   -   -   - 
  $966  $220  $1,186  $1,637  $832  $2,469 
24

 
  

Three Months Ended

  

Six Months Ended

 
  

December 31, 2022

  

December 31, 2022

 

Fiscal Year 2023

 

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Current year initiatives

 $117  $74  $191  $211  $117  $328 

Prior year initiatives

  217   103   320   468   297   765 
  $334  $177  $511  $679  $414  $1,093 

 

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, 2022

 $-  $-  $- 

Restructuring liabilities at June 30, 2023

 $-  $-  $- 

Additions and adjustments

 1,671  185  1,856  1,786  1,252  3,038 

Payments

  (339)  (185)  (524)  (843)  (1,029)  (1,872)

Restructuring liabilities at March 31, 2023

 $1,332  $-  $1,332 

Restructuring liabilities at December 31, 2023

 $943  $223  $1,166 

 

Prior Year Initiatives

 

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Restructuring liabilities at June 30, 2022

 $1,045  $695  $1,740 

Restructuring liabilities at June 30, 2023

 $1,104  $192  $1,296 

Additions and adjustments

 412  1,062  1,474  182  46  228 

Payments

  (1,210)  (1,467)  (2,677)  (985)  (63)  (1,048)

Restructuring liabilities at March 31, 2023

 $247  $290  $537 

Restructuring liabilities at December 31, 2023

 $301  $175  $476 

2325

Prior Year Initiatives

 

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Restructuring liabilities at June 30, 2021

 $39  $10  $49 

Additions and adjustments

  1,637   832   2,469 

Payments

  (1,099)  (775)  (1,874)

Restructuring liabilities at March 31, 2022

 $577  $67  $644 
 

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

  679   414   1,093 

Payments

  (1,577)  (699)  (2,276)

Restructuring liabilities at December 31, 2022

 $147  $410  $557 

 

The Company’s total restructuring expenses by segment are as follows (in thousands):

 

 

Three Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

March 31, 2023

  

March 31, 2023

  

December 31, 2023

  

December 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

 $58  $545  $603  $214  $885  $1,099  $347  $408  $755  $591  $439  $1,030 

Engraving

  157   145   302   537   362   899  43  537  580  836  859  1,695 

Engineering Technologies

 13  -  13  55  -  55 

Corporate

  1,332  -  1,332  1,332  -  1,332   12   -   12   486   -   486 
 $1,547  $690  $2,237  $2,083  $1,247  $3,330  $415  $945  $1,360  $1,968  $1,298  $3,266 

 

  

Three Months Ended

  

Nine Months Ended

 
  

March 31, 2022

  

March 31, 2022

 
  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Electronics

 $441  $65  $506  $513  $83  $596 

Engraving

  379   149   528   832   679   1,511 

Engineering Technologies

  97   6   103   238   6   244 

Specialty Solutions

  -   -   -   -   64   64 

Corporate

  49   -   49   54   -   54 
  $966  $220  $1,186  $1,637  $832  $2,469 
  

Three Months Ended

  

Six Months Ended

 
  

December 31, 2022

  

December 31, 2022

 
  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Electronics

 $168  $83  $251  $299  $197  $496 

Engraving

  166   94   260   380   217   597 
  $334  $177  $511  $679  $414  $1,093 

 

Restructuring expense is expected to be approximately $0.8 $3.5 million for the remainder of fiscal year 2023.2024.

 

 

18)      Divestitures

 

On February 28, 2023, the Company 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 first eight months of fiscal year 2023. Procon which is reported within the Specialty Solutions Group, was divested in order to focus on the continued simplification of the Company’s portfolio and enable greater focus on managing larger platforms and pursuing growth opportunities.

 

The Company received $67.0 million cash consideration at closing, which is presented as an investing cash flow for thein fiscal year nine2023. months ended March 31, 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.million in fiscal year 2023. The operating unit's goodwill balance of $0.2 million was written off as a part of the transaction.transaction in fiscal year 2023. The sale transaction and financial results of Procon are classified as continuing operations in the Consolidated Financial Statements.

During the first quarter of fiscal year 2024, the Company recorded an additional $0.3 million gain on the sale of the business due to cash received in the period related to closing cash adjustments

24


 

 

Item 2.

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 Companys 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 coronavirusand other global crises or catastrophic events 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; the impact on our operations of any successful cybersecurity attacks; 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. Factors that may affect our operating results are described in the Risk Factors section in the Annual Reports we file with the SEC. Please refer to our most recent discussion of risk factors included in the fiscal year 2023 10-K filed with the SEC on August 5, 2023.

 

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. Headquartered in Salem, New Hampshire, we have six operating segments aggregated into five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. Two operating segments are aggregated into Specialty Solutions. Our businesses work in close partnership with our customers to deliver custom solutions or engineered components that solve their unique and specific needs, an approach we call "Customer Intimacy". 

 

Our long-term business strategy is to create, improve, and enhance shareholder value by building more profitable, focused industrial platforms through our Standex Value Creation System. 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 a commitment to both organic and inorganic initiatives. We have a particular focus on identifying and investing in opportunitiesbusinesses, new products and new applications that complement our existing products and will increase theour overall scale, global presence and capabilities 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.capabilities. We continue to execute on acquisitions where strategically aligned with our businesses and where the opportunity meets our investment metrics. 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. We also 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. 

 

2527

 

As part of our ongoing strategy:

 

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

On July 31, 2023, we acquired Minntronix, a privately held company. Minntronix designs and manufactures customized as well as standard magnetics components and products including transformers, inductors, current sensors, coils, chokes, and filters. The products are used in applications across cable fiber, smart meters, industrial control and lighting, electric vehicles, and home security markets. Its results are reported in the Electronics segment. 

 

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 beare being deployed towards organic and inorganic initiatives and returning capital to shareholders. Its results arewere 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.

 

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 use our cash flow from operations to invest selectively in our ongoing pipeline of organic and inorganic opportunities.

 

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.

 

2628

 

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.  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, (iii) labor shortages, especially in North America, and (iv) lockdowns implemented by the Chinese government in select cities in which we operate. Like other industrial manufacturers, we are impacted by rising inflation which we attempt to manage through appropriate pricing actions and enhanced production efficiency measures.

We exited the third quarter of fiscal year 2023 with $175.3 million in cash and $175.0 million of borrowings under our revolving credit facility.  Our leverage ratio covenant, as defined in our revolving credit agreement, was 0.89 to 1 and allowed us the capacity to borrow an additional $343.7 million at March 31, 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

 

Six Months Ended

 
 

March 31,

 

March 31,

  

December 31,

 

December 31,

 

(In thousands, except percentages)

 

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

 

Net sales

 $184,332  $189,281  $552,721  $550,600  $178,400  $187,789  $363,174  $368,389 

Gross profit margin

 38.5% 36.1% 38.3% 36.9% 40.2% 38.5% 39.7% 38.2%

Income from operations

 88,517  24,470  142,613  69,071  25,832  27,806  52,749  54,096 

 

 

Three Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Six Months Ended

 

(In thousands)

 

March 31, 2023

  

March 31, 2023

  

December 31, 2023

  

December 31, 2023

 

Net sales, prior year period

 $189,281  $550,600  $187,789  $368,389 

Components of change in sales:

  

Organic sales change

 2,891  25,824  (13,984) (9,542)

Effect of acquisitions

 -  1,919  10,655  18,188 

Effect of business divestitures

 (3,109) (3,109) (7,128) (15,748)

Effect of exchange rates

  (4,731)  (22,513)  1,068   1,887 

Net sales, current period

 $184,332  $552,721  $178,400  $363,174 

  

2729

 

Net sales decreased in the thirdsecond quarter of fiscal year 20232024 by $4.9$9.4 million or 2.6%5.0%, when compared to the prior year quarter. Organic sales increased $2.9decreased $14.0 million, or 1.5%7.4%, primarily due to pricing actionstransitory headwinds in several of our end markets, primarily from unfavorable project timing in our Engineering Technologies group and stronglower demand in our Specialty and Engraving segmentssegment, partially offset by negative impactsstrong demand in the Engraving segment.  Organic sales included $21.0 million in the period attributed to fast growth markets. Foreign currency also positively impacted sales by $1.1 million, or 0.6%. The acquisition of Minntronix positively impacted sales by $10.7 million, or 5.6%, partially offset by the impact on sales for divestituresassociated with the divestiture of $3.1Procon of $7.1 million, or 1.6%, and foreign currency of $4.7 million, or 2.5%3.8%

 

Net sales increaseddecreased in the ninesix months ended MarchDecember 31, 2023 by $2.1$5.2 million or 0.4% 1.4%, when compared to the prior year period. Organic sales increased by $25.8decreased $9.5 million, or 4.7%2.6%, primarily due to transitory headwinds in several of our end markets, primarily from unfavorable project timing in our Engineering Technologies group and lower demand in our Specialty segment, partially offset by pricing actions and strong demand in our ETG,the Engraving and Specialty segments. Acquisitions had asegment. Organic sales included $40.9 million in the period attributed to fast growth markets. Foreign currency also positively impacted sales by $1.9 million, or 0.3%0.5%. The acquisition of Minntronix positively impacted sales by $18.2 million, or 4.9%, offset by the impact on sales offset by negatives impacts on sales for divestituresassociated with the divestiture of $3.1Procon of $15.7 million, or 0.6%, and foreign currency of $22.5 million, or 4.1%4.2%

 

Gross Profit Margin

 

Gross profit in the thirdsecond quarter of fiscal year 2023 increased2024 decreased to $70.9$71.7  million, or a gross margin of 38.5%40.2% as compared to $68.4$72.3  million, or a gross margin of 36.1%38.5%, in the thirdsecond quarter of fiscal year 2022.2023. The change in gross profit ismargin increase was a result of organic sales increases of $2.9 million,pricing actions, productivity improvementsinitiatives and targeted pricing initiatives, which more than offset material and labor inflation duringcontribution from the quarter.  The gross profit increase was alsoMinntronix acquisition, partially offset by $1.0 million fromthe divestiture of the Procon which closed during the third quarterbusiness and organic sales decreases of fiscal year 2023.$14.0 million.  

 

Gross profit forin the ninesix months ended MarchDecember 31, 2023 increased to $211.5$144.3  million, or a gross margin of 38.3%,39.7% as compared to $203.4$140.6  million, or a gross margin of 36.9%38.2%, forin the prior year period. The change in gross profit ismargin increase was a result of organic sales increase of $25.8 million,pricing actions, productivity improvements and targeted pricing initiatives and contribution from the absence of a one-time project related charge at Engineering Technologies during the first quarter of fiscal year 2022, allMinntronix acquisition, partially offset by material and labor inflation and the impactdivestiture of the Procon divestiture.business and organic sales decreases of $9.5 million.  

 

Selling, General, and Administrative Expenses

 

Selling, General, and Administrative (“SG&A”) expenses for the thirdsecond quarter of fiscal year 20232024 were $43.0$43.3 million, or 23.3%24.3% of sales, compared to $42.3$43.7 million, or 22.4%23.3% of sales, during the prior year quarter. SG&A expenses during the quarter were primarily impacted by a reduction in selling and marketing expenses partially offset by increased research and development spending to drive future product initiatives.

 

Selling, General, and Administrative (“SG&A”) expenses for the ninesix months ended MarchDecember 31, 2023 were $127.8$86.9 million, or 23.1%23.9% of sales, compared to $128.6$84.8 million, or 23.4%23.0% 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.and partially offset by a reduction in selling and marketing expenses. 

 

2830

 

Restructuring ChargesCosts

 

We incurred restructuring expenses of $2.2$1.4 million and $3.3 million in the thirdsecond quarter of fiscal year 20232024 and the  ninesix months ended MarchDecember 31, 2023, respectively, primarily related to productivity improvements, facility rationalization activities, and global headcount reductions within our Engraving, Electronics and ElectronicsEngineering Technologies segments as well as the Corporate headquarters.

 

We expect to incur restructuring costs of approximately $0.8$3.5 million throughout the remainder of fiscal year 2023,2024, 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 ExpensesCosts

 

We incurred acquisition related expenses of less than $0.1$1.2 million and $0.5$1.7 million in the thirdsecond quarter of fiscal year 20232024 and the ninesix months ended MarchDecember 31, 2023, respectively. Acquisition related expenses typically consist of due diligence, integration, and valuation expenses incurred in connection with recent or pending acquisitions.

 

Gainon Sale of Business

We recorded a pre-tax gain on sale of the Procon business of $62.1 million for fiscal year 2023. In the first quarter of fiscal year 2024, we recorded an additional $0.3 million gain on the sale related to closing cash adjustments. The sale transaction and financial results of Procon are classified as continuing operations in the Consolidated Financial Statements.

Income from Operations

 

Income from operations for the thirdsecond quarter of fiscal year 20232024 was $88.5$25.8 million, compared to $24.5$27.8 million during the prior year quarter. The increasedecrease of $64.0$2.0 million, or 261.7%7.1%, is primarily due to the divestiture of the Procon business for a gain of $62.1 million as well as income from organic sales increasesdecreases and increased investment in research and development spending, restructuring and acquisition related costs partially offset by pricing actions, along with cost reduction activities and productivity improvement initiatives, partially offset by foreign currency, material inflation, and increased logistics and labor costs.initiatives. 

 

Income from operations for the ninesix months ended MarchDecember 31, 2023 was $142.6$52.7  million, compared to $69.1$54.1  million during the prior year period. The increasedecrease of $73.5$1.3 million, or 106.5%2.5%, is primarily due to due to the divestiture of the Procon business for a gain of $62.1 million as well as income from organic sales increasesdecreases and increased investment in research and development spending, restructuring and acquisition related costs partially offset by pricing actions, along with cost reduction activities and productivity improvement initiatives, partially offset by foreign currency, material inflation, and increased logistics and labor costs.initiatives. 

 

Interest Expense

 

Interest expense for the thirdsecond quarter of fiscal year 20232024 was $1.4$1.0 million, a 14.3% increase34.9% decrease from interest expense of $1.2$1.6 million during the prior year quarter. Interest expense for the ninesix months ended MarchDecember 31, 2023 was $4.2$2.3 million, a 7.0%16.6% decrease from interest expense of $4.5$2.8 million during the prior year period. Our effective interest rate infor the ninesix months ended MarchDecember 31, 2023 was 2.83%2.65%.

 

Income Taxes

 

Our effective tax rate from continuing operations for the thirdsecond quarter of fiscal year 20232024 and for the ninesix months ended MarchDecember 31, 2023 was 6.7%22.1%  and 13.0%23.0%, respectively, compared with 24.0%23.7% and 24.5%23.8% for the prior year quarter and prior year period, respectively. The tax rate was impacted in the current period by the following items: (i) a discrete tax benefit related to equity compensation, (ii) the partial releasejurisdictional mix of a valuation allowance previously recorded against deferredearnings, (iii) foreign withholding taxes, and (iv) federal research and development 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 incredits. The tax rate forwas impacted in the Company’s operations within China's tax jurisdiction, (iii)prior period by the following items: (i) a discrete tax benefit related to provision to return adjustments associated with federal and state research and development tax credits, (iv)equity compensation, (ii) the jurisdictional mix of earnings and (v)(iii) foreign withholding taxes.

 

The Inflation Reduction ActOn July 31, 2023, we completed our acquisition of Minntronix, Inc. (“IRA”Minntronix”). We accounted for the Minntronix purchase under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, the purchase price was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchasesallocated to the fair value of the assets acquired, including identifiable intangible assets, 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 effectivethe liabilities assumed as of January 1, 2023. We currently dothe closing date. Goodwill resulting from the difference between the fair value of the assets acquired and the fair value of the liabilities assumed is not anticipateamortizable for book or tax purposes. Although the IRAacquisition was nontaxable, the transaction gave rise to certain temporary differences for which deferred taxes have a material impact tobeen recognized. The results of operations for the Minntronix acquisition have been included in our consolidated financial statements.results beginning on the July 31, 2023 closing date.

 

2931

 

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, 2023

  

As of March 31, 2022

  

As of December 31, 2023

  

As of December 31, 2022

 
 

Total Backlog

 

Backlog under 1 year

 

Total Backlog

 

Backlog under 1 year

  

Total Backlog

 

Backlog under 1 year

 

Total Backlog

 

Backlog under 1 year

 

Electronics

 $156,806  $144,741  $164,786  $151,033  $126,127  $111,977  $170,754  $153,504 

Engraving

  39,185   33,069   26,097   19,868   28,828   25,333   27,947   17,677 

Scientific

 3,078  3,078  6,542  6,542  3,000  3,000  3,909  3,909 

Engineering Technologies

 64,708  57,105  55,564  41,197  67,386  52,348  69,853  53,975 

Specialty Solutions

  26,958   26,541   51,948   48,342   16,908   16,641   44,442   39,577 

Total

 $290,735  $264,534  $304,937  $266,982  $242,249  $209,299  $316,905  $268,642 

 

Total backlog realizable under one year decreased $2.4$59.3 million, or 0.9%22.1%, to $264.5$209.3 million at MarchDecember 31, 2023, from $267.0$268.6 million at MarchDecember 31, 2022. 

 

Changes in backlog under one year are as follows (in thousands):

 

  

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 

  

As of

 

(In thousands)

 

December 31, 2023

 

Backlog under 1 year, prior year period

 $268,642 

Components of change in backlog:

    

Organic change

  (64,339)

Effect of acquisitions

  11,203 

Effect of divestitures

  (6,207)

Backlog under 1 year, current period

 $209,299 

 

Segment Analysis

 

Overall

 

Looking forward to the remainder of fiscal year 2023,2024, we expect to be well positioned to build on fiscal year 20222023 and the ninesix months ended MarchDecember 31, 2023 momentum, withwith anticipated year over yearcontinued improvement in key financial metrics, supported by orders growth and productivity initiatives.

 

In general, for the remainder of fiscal year 2023,2024, we have experienced and continue to expect: 

 

 

growth in transportation markets from electric vehicle programs, both theprogram with a ramp up of existing business and new business opportunities;opportunities, including sensors for charger plugs and soft trim growth;
 

a decline in vaccine storage demand to remain stable after the record COVID-19 related surge in fiscal year 2021 and early fiscal year 2022, affecting the first nine months of fiscal year 2023 results, countered by a return of demand from universities and research institutions;2022;
 

commercial aviation and defense end markets demand to remain strong with double digit sales increase from the prior year based on current program expectations;

 

space markets to remain attractive, with an anticipated moderate volume declineto slightly increase from fiscal year 2023 due to timing of production versus launch;new product development for existing customers;
 refuse and dump truck and dump trailer end markets to remain stable while being supported by investmentsimprove;
slightly lower demand levels in the U.S. infrastructure bill;food service equipment markets; 
 

strong Merchandising business to benefit from return to pre-COVID-19 demand levelsmarket softness in food service equipment markets. China and Europe, including inventory destocking, affecting general industrial and appliances end markets served by our Electronics Group.

 

3032

 

Electronics Group

 

 

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

    

Six Months Ended

   
 

March 31,

 

%

 

March 31,

 

%

  

December 31,

  % 

December 31,

  %

(In thousands, except percentages)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 

Net sales

 $78,211  $79,889  (2.1%) $225,966  $232,351  (2.7%) $79,419  $72,556  9.5% $161,107  $147,755  9.0%

Income from operations

 17,047  19,194  (11.2%) 52,160  54,624  (4.5%) 15,850  16,972  (6.6%) 32,184  35,113  (8.3%)

Operating income margin

 21.8% 24.0%    23.1% 23.5%    20.0% 23.4%    20.0% 23.8%   

 

Net sales in the thirdsecond quarter of fiscal year 2023 decreased $1.72024 increased $6.9 million, or 2.1%9.5%, when compared to the prior year quarter.  The acquisition of Minntronix in the first quarter of fiscal year 2024 added $10.7 million, or 14.7%, in sales for the second quarter of fiscal year 2024.  The organic sales increasedecrease of $1.0$4.2 million, or 1.3%5.7%, was partially offset by foreign currency impacts of $2.7$0.4 million, or 3.4%. The segment continues0.5% compared to see positive trendsthe prior year quarter. Organic sales were impacted by continued softness in China and Europe, primarily in the appliances and general industrial end markets like industrial applications, power management, renewable energy technologies, and electric vehicle related applications.markets. 

 

Income from operations in the thirdsecond quarter of fiscal year 20232024 decreased by $2.2$1.1 million, or 11.2%6.6%, when compared to the prior year quarter. The operating income decrease was the result of lower organic sales and a change in product mix, partially offset by contribution from the Minntronix acquisition, pricing actions and productivity initiatives.

 

Net sales in the ninesix months ended MarchDecember 31, 2023 decreased $6.4increased $13.4 million, or 2.7%9.0%, when compared to the prior year period.  Organic sales increased by $4.0 million, or 1.8%, reflecting positive trends in end markets like industrial applications, power management, renewable energy technologies, and electric vehicle related applications. Sensor Solutions was acquiredThe acquisition of Minntronix in the thirdfirst quarter of fiscal year 2022, adding $1.92024 added $18.2 million, or 0.8%12.3%, in sales for the period.six months ended December 31, 2023.  The organic sales decrease of $5.5 million, or 3.7%, was partially offset by foreign currency impact decreased sales by $12.3impacts of $0.6 million, or 5.3%.0.4% compared to the prior year period. Organic sales were impacted by continued softness in China and Europe, primarily in appliances and general industrial end markets. 

 

Income from operations in the ninesix months ended MarchDecember 31, 2023 decreased by $2.5$2.9 million, or 4.5%8.3%, when compared to the prior year period. The operating income decrease was the result of inflationarylower sales, a change in product mix and foreign currency impacts, partially offset partially by organic sales growthcontribution from the Minntronix acquisition, pricing actions and various cost savingproductivity initiatives.

 

In the fourththird quarter of fiscal year 2023,2024, on a sequential basis, we expect similarslightly to moderately higher revenue and slightly higher operating margin primarily due to increased sales into fast growth markets, offset by a slower recovery in Chinahigher volume and Europe. contribution from the pending acquisition of Sanyu.

 

Engraving Group

 

 

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

    

Six Months Ended

   
 

March 31,

 

%

 

March 31,

 

%

  

December 31,

  % 

December 31,

  %

(In thousands, except percentages)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 

Net sales

 $36,909  $37,223  (0.8%) $109,622  $109,037  0.5% $40,845  $37,689  8.4% $81,639  $72,713  12.3%

Income from operations

 5,353  5,728  (6.5%) 17,580  15,806  11.2% 8,910  6,373  39.8% 16,505  12,227  35.0%

Operating income margin

 14.5% 15.4%    16.0% 14.5%    21.8% 16.9%    20.2% 16.8%   

 

Net sales in the thirdsecond quarter of fiscal year 2023 decreased2024 increased by $0.3$3.2 million, or 0.8%8.4%, when compared to the prior year quarter. Organic sales increased by $1.4$2.5 million, or 3.9%6.7%as a result of improved end market activity. The organic sales increase was offset by foreigndue to strong demand in Europe. Foreign currency positive impacts of $1.7contributed $0.6 million, or 4.7%1.7%

 

Income from operations in the thirdsecond quarter of fiscal year 2023 decreased2024 increased by $0.3$2.5 million, or 6.5%39.8%, when compared to the prior year quarter.  The operating income decreaseincrease was driven by unfavorable regional mix.organic sales increases and previously announced productivity initiatives. 

 

Net sales in the ninesix months ended MarchDecember 31, 2023 increased by $0.6$8.9 million, or 0.5%12.3%, when compared to the prior year period. Organic sales increased by $8.6$7.9 million, or 7.9%10.9%, as a result of timing of projects. The organic sales increase was offset by foreign exchange due to strong demand in Europe and growth in soft trim applications in Asia. Foreign currency positive impacts of $8.0contributed $1.0 million, or 7.4%1.3%

 

Income from operations in the ninesix months ended MarchDecember 31, 2023 increased by $1.8$4.3 million, or 11.2%35.0%, when compared to the prior year period.  OperatingThe operating income increased during the period reflecting theincrease was driven by organic sales increaseincreases and ongoing productivity actions, offsetting the foreign exchange impacts.initiatives. 

 

In the fourththird quarter of fiscal year 2023,2024, on a sequential basis, we expect similar to slightly highermeaningfully lower revenue and operating margin.margin due to the seasonal impact of the Chinese New Year on project timing and fewer new platform rollouts in North America. 

 

3133

 

Scientific

 

 

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

    

Six Months Ended

   
 

March 31,

 

%

 

March 31,

 

%

  

December 31,

  % 

December 31,

  %

(In thousands, except percentages)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 

Net sales

 $18,898  $18,914  (0.1%) $56,646  $65,079  (13.0%) $16,292  $19,292  (15.6%) $34,485  $37,748  (8.6%)

Income from operations

 4,561  4,155  9.8% 12,449  14,153  (12.0%) 4,248  4,165  2.0% 9,178  7,888  16.4%

Operating income margin

 24.1% 22.0%    22.0% 21.7%    26.1% 21.6%    26.6% 20.9%   

 

Net sales in the thirdsecond quarter of fiscal year 2023 remained flat at $18.9 million2024 decreased when compared to the prior year quarter, reflecting lower demand for COVID vaccine storage units mostlyfrom retail pharmacies, slightly offset by higher sales into research and academic end markets.an increase in new product sales.

 

Income from operations in the thirdsecond quarter of fiscal year 20232024 increased $0.4$0.1 million, or 9.8% ,when2.0%, when compared to the prior year quarter. The small increase reflects pricing and productivity actions andis driven by lower oceanic freight costs.costs and productivity initiatives offset by lower volume. 

 

Net sales in the ninesix months ended MarchDecember 31, 2023 decreased when compared to the prior year period, reflecting lower demand for COVID vaccine storage units from retail pharmacies, slightly offset by $8.4higher demand in research and academic end market and an increase in new product sales.

Income from operations in the six months ended December 31, 2023 increased $1.3 million, or 13.0%16.4%, when compared to the prior year period. The net sales decreased as expected due to lower demand for cold storage surrounding COVID-19 vaccine distribution partially offsetincrease is primarily driven by pricing actions.

Income from operations in the nine months ended March 31, 2023 decreased $1.7 million, or 12.0% when compared to the prior year period. The decrease reflects lower sales volume, partially offset by pricing and productivity actionsinitiatives and lower oceanic freight costs.costs, partially offset by lower volume. 

 

In the fourththird quarter of fiscal year 2023,2024, on a sequential basis, we expect similarslightly higher revenue and similar to slightly higher operating margin.

 

Engineering Technologies Group

 

 

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

     

Six Months Ended

    
 

March 31,

 

%

 

March 31,

 

%

  

December 31,

 

%

 

December 31,

 

%

 

(In thousands, except percentages)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 

Net sales

 $18,052  $20,890  (13.6%) $59,244  $56,558  4.7% $19,887  $24,193  (17.8%) $38,107  $41,192  (7.5%)

Income from operations

 2,351  2,327  1.0% 7,957  5,540  43.6% 3,405  3,741  (9.0%) 6,422  5,606  14.6%

Operating income margin

 13.0% 11.1%    13.4% 9.8%    17.1% 15.5%    16.9% 13.6%   

 

Net sales in the thirdsecond quarter of fiscal year 20232024 decreased by $2.8$4.3 million, or 13.6%17.8%, when compared to the prior year quarter.  Organic sales decreased by $2.5$4.4 million, or 12.1%, and18.1% partially offset by foreign currency impacts were $0.3of $0.1 million, or 1.5%0.3%, as compared to the prior year quarter. The net sales decrease reflects lower volumewas due to the timing of projects partially offset by higher revenue from new product development.pricing. 

 

Income from operations remained relatively flat in the thirdsecond quarter of fiscal year 20232024 decreased by $0.3 million, or 9.0%, when compared to the prior year quarter due to the impact of ongoingreflecting lower volume and higher research and development expenses, mostly offset by pricing and productivity and efficiency initiatives offsetting the lower volume. initiatives.

 

Net sales in the ninesix months ended MarchDecember 31, 2023 increaseddecreased by $2.7$4.3 million, or 4.7%7.5%, when compared to the prior year period.  Organic sales increaseddecreased by $3.9$3.4 million, or 6.8%8.1%, partially offset by foreign currency impacts of $1.2were $0.3 million, or 2.1%0.6%, as compared to the prior year period. NetThe net sales changedecrease was due to increasesproject timing partially offset by pricing actions, an increase in new product development in the fast growth commercial aviation sectorspace market, and defensehigher sales for missile productionto the oil and development programs.gas market. 

 

Income from operations in the six months ended December 31, 2023 increased $2.4by $0.8 million, or 43.6%14.6%, in the nine months ended March 31, 2023when compared to the prior year period primarilyperiod.  The increase was due to productivity initiatives, volume increases and the impact of a one-timepricing and productivity initiatives, mostly offset by research and development expenses related to new product development and new applications, partially offset by sales declines due to project related charge in firsttiming. 

In the third quarter of fiscal year 2022 that did not repeat.

In2024, on a sequential basis, we expect similar revenue reflecting improvement across most end markets, offset by lower defense sales related to delays in government funding, and similar to slightly lower operating margin. We also anticipate significant sequential growth in the fourth quarter of fiscal year 2023, on a sequential basis, we expect a moderate increase in revenue and operating margin,2024 reflecting more favorable timing of projects in aviation and space end markets.project timing.

 

3234

 

Specialty Solutions Group

 

 

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

     

Six Months Ended

    
 

March 31,

 

%

 

March 31,

 

%

  

December 31,

 

%

 

December 31,

 

%

 

(In thousands, except percentages)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 

Net sales

 $32,262  $32,365  (0.3%) $101,243  $87,575  15.6% $21,957  $34,059  (35.5%) $47,836  $68,981  (30.7%)

Income from operations

 7,151  3,632  96.9% 18,944  10,185  86.0% 3,965  5,716  (30.6%) 9,582  11,793  (18.7%)

Operating income margin

 22.2% 11.2%    18.7% 11.6%    18.1% 16.8%    20.0% 17.1%   

 

Net sales in the thirdsecond quarter of fiscal year 2023 remained relatively flat2024 decreased by $12.1 million, or 35.5%, when compared to the prior year quarter.  Organic sales for the group increased $2.9decreased $5.0 million, or 9.3%, offset by the divestiture impact of $3.1 million, or 9.6%14.6%, as compared to the prior year quarter.quarter, reflecting an organic sales decline in the Hydraulics business due to an ongoing industry-wide chassis shortage. The netdivestiture of Procon in the third quarter of fiscal year 2023 negatively impacted the group by $7.1 million, or  20.9%. 

Income from operations in the second quarter of fiscal year 2024 decreased $1.8 million or 30.6%, when compared to the prior year quarter, due to the Procon divestiture and lower volume in the Hydraulics business. 

Net sales change reflects robustin the six months ended December 31, 2023 decreased by $21.1 million, or 30.7%, when compared to the prior year period.  Organic sales for the group decreased $5.4 million, or 7.8%, as compared to the prior year period, reflecting organic growth in the Display Merchandising business, offset by an organic sales decline in the Hydraulics business and the impactdue to an ongoing industry-wide chassis shortage. The divestiture of the Procon divestiture in February 2023. 

Income from operations increased $3.5 million or 96.9% in the third quarter of fiscal year 2023 when compared tonegatively impacted the prior year quarter, reflecting sales increases in Display Merchandising and realization of productivity actionsgroup by $15.7 million, or 22.9%. 

Income from operations in the Hydraulics business. 

Net sales in the ninesix months ended MarchDecember 31, 2023 increased $13.7decreased $2.2 million or 15.6%18.7%, when compared to the prior year period. Organic sales increased $17.8 million, or 20.3%, 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 pricing realization, strong market demand in the Hydraulics business and absence of the labor work stoppage in two plants during the prior year, partially offset by the Procon divestiture.

Income from operations increased $8.8 million or 86.0% in the nine months ended March 31, 2023 when compared to the prior year period, as a result of sales increases in Display Merchandising, pricing actions and volume increases, particularly in Hydraulics and the impact of the labor work stoppage in two plants during the prior year. 

In the fourth quarter of fiscal year 2023, on a sequential basis, we expect a moderate to significant decline in revenue primarily due to the Procon divestiture and lower salesvolume in the Hydraulics business, partially offset by improved operating performance in the Display Merchandising business and slightly lower operating margin.business. 

 

In the third quarter of fiscal year 2024, on a sequential basis, we expect slightly to moderately higher revenue and operating margin due to improved demand in the Hydraulics business.

Corporate and Other

 

 

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

    

Six Months Ended

   
 

March 31,

 

%

 

March 31,

 

%

  

December 31,

  % 

December 31,

  %

(In thousands, except percentages)

 

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

  

2023

  

2022

  

Change

 

Income (loss) from operations:

  

Corporate

 $(8,520) $(8,961) (4.9%) $(25,376) $(25,507) (0.5%) $(7,991) $(8,360) (4.4%) $(16,434) $(16,856) (2.5%)

Restructuring

 (2,237) (1,186) 88.6% (3,330) (2,469) 34.9% (1,360) (511) 166.1% (3,266) (1,093) 198.8%

Acquisition related costs

 (1,195) (174) 586.8% (1,696) (466) 263.9%

Gain on sale of business

 62,105 - 0.0% 62,105 - 0.0% -  -  0.0% 274  -  0.0%

Acquisition related costs

 (21) (419) (95.0%) (487) (1,561) (68.8%)

Other operating income (expense), net

 727  -  0.0% 611  (1,700) (135.9%) -  (116) (100.0%) -  (116) (100.0%)

 

Corporate expenses in the second quarter of fiscal year 2024 decreased by 4.4% when compared to the prior year quarter. Corporate expenses in the six months ended December 31, 2023 decreased by 2.5% when compared to the prior year period.  We expect corporate expenses to increase in the third quarter of fiscal year 2023 decreased by $0.4 million, or 4.9%, when compared2024 reflecting the impact of a charge due to the prior year quarter. The decrease is related to employee relatedCEO reaching retirement eligibility under the stock compensation and insurance related accruals. Corporate expenses in the nine months ended March 31, 2023 remained flat when compared to the prior year period.plan.  

 

The restructuring, gain on sale of business and acquisition related costs have been discussed above in the Company Overview. Other operating expenses are primarily driven by a $1.7 million litigation accrual in the second quarter of fiscal year 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. 

 

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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$0.2 million and $0.3 million for the three and ninesix months ended MarchDecember 31, 2023, and 2022, respectively. 

 

Liquidity and Capital Resources

 

At MarchDecember 31, 2023, our total cash balance was $175.3$142.4 million, of which $98.8$116.7 million was held by foreign subsidiaries. During the third quarter of fiscal year 2023, we repatriated $9.3 millionThe amount and timing of cash repatriation is dependent upon foreign exchange rates and each business unit’s operational needs including requirements to the United States from our foreign subsidiaries. We expect to repatriate between $30.0 millionfund working capital, capital expenditure, and $35.0 million during fiscal year 2023.jurisdictional tax payments. 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 ninesix months ended MarchDecember 31, 2023, was $50.4$40.2 million compared to net cash provided by continuing operating activities of $48.6$27.1 million in the prior year.  We generated $86.8$56.8 million from income statement activities and used $36.3$15.1 million of cash to fund working capital and other balance sheet increases.  Cash flow provided byused in investing activities for the ninesix months ended MarchDecember 31, 2023 totaled $49.1$37.5 million and primarily consisted of $67.0$29.2 million for the acquisition of Minntronix in the first quarter of fiscal year 2024 and $8.6 million used for capital expenditures offset by $0.3 million proceeds from the prior divestiture of the Procon business and $16.6 million used for capital expenditures.business. Cash used for financing activities for the ninesix months ended MarchDecember 31, 2023 was $30.0totaled $57.3 million and consisted primarily of repayments of debt modification costs of $1.7$25.0 million, offset by purchases of stock of $18.6$26.7 million and cash paid for dividends of $9.7 million, and $1.2 million of contingent consideration payments to the sellers of the Renco business.$6.8 million. 

 

During the third quarter of fiscal year 2023, the Company entered into a Third Amended & 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 MarchDecember 31, 2023, the Company used $3.0$2.9 million against the letter of credit sub-facility and had the ability to borrow $343.7$347.1 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 purchase accounting and goodwill adjustments.  At MarchDecember 31, 2023, the Company’s Interest Coverage Ratio was 18.59.23.30:1.

 

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 MarchDecember 31, 2023, the Company’s leverage ratio was 0.89.0.65:1.

 

As of MarchDecember 31, 2023, we had borrowings under our facility of $175.0$150.0 million. In order to manage our interest rate exposure on these borrowings, we are party to $175.0$150.0 million of active floating to fixed rate swaps.  These swaps convert our interest payments from SOFR to a weighted average fixed rate of 1.14%0.85%.  The effective rate of interest for our outstanding borrowings, including the impact of the interest rate swaps, was 2.83%2.65%.

 

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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 20232024 capital spending to be approximatelybetween $25.0 million and $30.0 million which includes amounts not spent in fiscal year 2022.million.  We expect that fiscal year 20232024 depreciation and amortization expense will be between $20.0 and $21.0$22.0 million and $7.0$25.0 million and $9.0$8.0 million and $10.0 million, respectively.

 

The following table sets forth our capitalization:

 

(In thousands)

 

March 31, 2023

  

June 30, 2022

  

December 31, 2023

  

June 30, 2023

 

Long-term debt

 $173,333  $174,830  $148,659  $173,441 

Less cash and cash equivalents

  (175,284)  (104,844)  (142,424)  (195,706)

Net (cash) debt

 (1,951) 69,986  6,235  (22,265)

Stockholders' equity

  605,550   499,343   620,571   607,449 

Total capitalization

 $603,599  $569,329  $626,806  $585,184 

 

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 $146.2$141.3 million at MarchDecember 31, 2023, as compared to $157.9$142.1 million at the most recent measurement date, which occurred as of June 30, 2022.2023. The next measurement date to determine plan assets and benefit obligations will be on June 30, 2023.2024.

 

The Company expects to pay $0.3$8.7 million in contributions to its defined benefit plans during the remainder of fiscal year 2023.2024. Contributions of less than $0.1$1.5 million and $0.2$0.1 million were made during the three and ninesix months ended MarchDecember 31, 2023 and 2022, respectively.  There are no required contributions of $9.8 million to the United States funded pension plan for fiscal year 2023.2024. In the second quarter of fiscal year 2024, we contributed $1.4 million and the remaining $8.4 million will be contributed in the second half of fiscal year 2024. The Company expects to make contributions during the remainder of fiscal year 20232024 of less than $0.1 million and $0.2$0.3 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 three retired executives. Current executives and new hires are not eligible for this program.  At MarchDecember 31, 2023, the underlying policies had a cash surrender value of $11.7 million and are reported net of loans of $5.0 million for which we have the legal right of offset, these amounts are reported net on our balance sheet.

 

3537

 

Other Matters
 

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, 20222023 lists a number of accounting policies which we believe to be the most critical.

 

3638

 

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 MarchDecember 31, 2023 the fair value, in the aggregate, of the Company’s open foreign exchange contracts was a liabilityan asset of $1.1$0.6 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 MarchDecember 31, 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 2.83%2.65% at MarchDecember 31, 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 MarchDecember 31, 2023, we have $175.0$150.0 million of active floating to fixed rate swaps with terms ranging from one to four years.through fiscal year 2025.  These swaps convert our interest payments from SOFR to a weighted average rate of 1.14%0.85%.  At MarchDecember 31, 2023 the fair value, in the aggregate, of the Company’s interest rate swaps was assets of $9.5$6.7 million. A 25-basis point increase in interest rates would not materially change our annual interest expense as most 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 MarchDecember 31, 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.

 

3739

 

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 MarchDecember 31, 2023 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 MarchDecember 31, 2023 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.

 


 

PART II. OTHER INFORMATION

 

Item 5.2.

 

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 MarchDecember 31, 2023

 

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 

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

 

October 1, 2023 - October 31, 2023

  59  $151.32   59  $42,957 
                 

November 1, 2023 - November 30, 2023

  31,656   136.40   31,656   38,749 
                 

December 1, 2023 - December 31, 2023

  1,735   158.38   1,735   38,474 
                 

Total

  33,450  $137.60   33,450  $38,474 

 

 (1)The Company has a Stock Buyback Program (the “Program”) which was originally announced on January 30, 1985 and most recently amended on April 28, 2022. Under the Program, the Company is authorized to repurchase up to an aggregate of $200 million of its shares. Under the program, purchases may be made from time to time on the open market, including through 10b5-1 trading plans, or through privately negotiated transactions, block transactions, or other techniques in accordance with prevailing market conditions and the requirements of the Securities and Exchange Commission. The Board’s authorization is open-ended and does not establish a timeframe for the purchases. The Company is not obligated to acquire a particular number of shares, and the program may be discontinued at any time at the Company’s discretion.

ITEM 5. Other Information

None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarter ended December 31, 2023.

 

  


 

Item 6. Exhibits

 

 

(a)

Exhibits

 

 

31.1

Principal Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

Principal Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32

Principal Executive Officer and Principal Financial Officer Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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.

 104Cover 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.

 

  

 

 

STANDEX INTERNATIONAL CORPORATION

 

 

 

Date:

May 5, 2023February 2, 2024

/s/ ADEMIR SARCEVIC

 

 

Ademir Sarcevic

 

 

Vice President/Chief Financial Officer

 

 

(Principal Financial & Accounting Officer)

 

 

 

Date:

May 5, 2023February 2, 2024

/s/  SEAN C. VALASHINASAMY GAGNON

 

 

Sean C. ValashinasAmy Gagnon

  Vice President/Chief Accounting Officer/Assistant TreasurerOfficer

 

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