UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




 

FORM 10-Q


[X]

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


For the quarterly period ended MarchDecember 31, 2019


[  ]

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


Commission File Number 1-7233


STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


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


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES [X]     NO [  ]Yes ☒    No ☐


DELAWARE




Delaware

31-0596149

(State of incorporation)


(IRS Employer Identification No.)



(IRS Employer Identification No.)


11 KEEWAYDIN DRIVE, SALEM, NEW HAMPSHIRE


Salem, New Hampshire

03079

(Address of principal executive offices)


(Zip Code)

(Zip Code)


(603) 893-9701

(RegistrantsRegistrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $1.50 Per Share

SXI

New York Stock Exchange


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


Large accelerated filer [ X ]                  

 Accelerated filer [  ]

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

Non-accelerated filer [  ]   (DoIf an emerging growth company, indicate by check mark if the registrant has elected not check if a smaller reporting company)      Smaller Reporting Company [  ]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 [X]


The number of shares of Registrant's Common Stock outstanding on April 27, 2019 February 3, 2020 was 12,651,101.12,452,659.


STANDEX INTERNATIONAL CORPORATION




INDEX

Page No.

PART I.  FINANCIAL INFORMATION:

Item 1.

Condensed Consolidated Balance Sheets as of December 31, 2019 (unaudited) and June 30, 2019

3

CondensedConsolidatedStatements of Operations for the three and six months ended December 31, 2019 and 2018 (unaudited)

4

CondensedConsolidatedStatements of Comprehensive Income for the three and six months ended December 31, 2019 and 2018 (unaudited)

5

Condensed Consolidated Statement of Stockholders’ Equity for the three and six months ended December 31, 2019 and 2018 (unaudited)

6

Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2019 and 2018 (unaudited)

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

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

28

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

Item 4.

Controls and Procedures

38

PART II.  OTHER INFORMATION:

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 6.

Exhibits

40


PART I. FINANCIAL INFORMATION

ITEM 1

STANDEX INTERNATIONAL CORPORATION

INDEX

Page No.

PART I.

FINANCIAL INFORMATION:

Item 1.

Condensed Consolidated Balance Sheets as of

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

(In thousands, except per share data)

 

December 31, 2019 (unaudited)

  

June 30, 2019

 

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $98,919  $93,145 

Accounts receivable, net of reserve for doubtful accounts of $1,895 and $1,451 at December 31, 2019 and June 30, 2019

  110,087   119,589 

Inventories

  108,513   88,645 

Prepaid expenses and other current assets

  19,861   30,872 

Income taxes receivable

  5,232   1,622 

Total current assets

  342,612   333,873 

Property, plant, and equipment, net

  146,245   148,024 

Intangible assets, net

  111,667   118,660 

Goodwill

  282,207   281,503 

Deferred tax asset

  12,544   14,140 

Operating lease right-of-use asset

  42,959   - 

Other non-current assets

  29,581   25,689 

Total non-current assets

  625,203   588,016 

Total assets

 $967,815  $921,889 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current Liabilities:

        

Accounts payable

 $69,737  $72,603 

Accrued liabilities

  68,681   62,648 

Income taxes payable

  6,822   5,744 

Current liabilities-Discontinued Operations

  34   620 

Total current liabilities

  145,274   141,615 

Long-term debt

  186,980   197,610 

Operating lease long-term liabilities

  33,728   - 

Accrued pension and other non-current liabilities

  112,229   118,351 

Total non-current liabilities

  332,937   315,961 

Stockholders' equity:

        

Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 issued, 12,382,010 and 12,334,607 outstanding at December 31, 2019 and June 30, 2019

  41,976   41,976 

Additional paid-in capital

  70,206   65,515 

Retained earnings

  837,698   818,282 

Accumulated other comprehensive loss

  (136,404)  (137,278)

Treasury shares: 15,602,268 shares at December 31, 2019 and 15,649,671 shares at June 30, 2019

  (323,872)  (324,182)

Total stockholders' equity

  489,604   464,313 

Total liabilities and stockholders' equity

 $967,815  $921,889 

2


STANDEX INTERNATIONAL CORPORATION

CondensedConsolidatedStatementsUnaudited Condensed Consolidated Statements of Operations for the

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

  

Three Months Ended

  

Six Months Ended

 
  

December 31,

  

December 31,

 

(In thousands, except per share data)

 

2019

  

2018

  

2019

  

2018

 

Net sales

 $190,585  $195,522  $387,023  $388,609 

Cost of sales

  124,132   128,586   252,286   252,421 

Gross profit

  66,453   66,936   134,737   136,188 

Selling, general, and administrative expenses

  47,126   45,693   95,801   91,165 

Acquisition related costs

  773   859   1,507   1,547 

Restructuring costs

  720   177   2,199   624 
Other operating (income) expense, net  -   -   (1,045)  - 

Total operating expenses

  48,619   46,729   98,462   93,336 

Income from operations

  17,834   20,207   36,275   42,852 

Interest expense

  (1,928)  (3,123)  (4,050)  (5,368)

Other non-operating expenses, net

  (588)  (750)  328   (1,015)

Income from continuing operations before income taxes

  15,318   16,334   32,553   36,469 

Provision for income taxes

  2,909   3,860   7,695   9,702 

Net income (loss) from continuing operations

  12,409   12,474   24,858   26,767 

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

  (171)  924   (182)  2,488 

Net income (loss)

 $12,238  $13,398  $24,676  $29,255 
                 

Basic earnings per share:

                

Continuing operations

 $1.00  $0.99  $2.01  $2.11 

Discontinued operations

  (0.01)  0.07   (0.01)  0.20 

Total

 $0.99  $1.06  $2.00  $2.31 

Diluted earnings per share:

                

Continuing operations

 $1.00  $0.98  $2.00  $2.10 

Discontinued operations

  (0.01)  0.07   (0.01)  0.20 

Total

 $0.99  $1.05  $1.99  $2.30 
                 

Cash dividends per share

 $0.22  $0.20  $0.42  $0.38 

3See notes to unaudited condensed consolidated financial statements

CondensedConsolidatedStatements


STANDEX INTERNATIONAL CORPORATION 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the

Three

  

Three Months Ended

  

Six Months Ended

 
  

December 31,

  

December 31,

 

(In thousands)

 

2019

  

2018

  

2019

  

2018

 

Net income (loss)

 $12,238  $13,398  $24,676  $29,255 

Other comprehensive income (loss):

                

Defined benefit pension plans:

                

Actuarial gains (losses) and other changes in unrecognized costs

 $(354) $(40) $(6) $281 

Amortization of unrecognized costs

  1,440   1,115   2,874   2,231 

Derivative instruments:

                

Change in unrealized (losses)

  (1,390)  (4,737)  (237)  (4,375)

Amortization of unrealized gains and into interest expense

  1,182   2,931   (19)  2,272 

Foreign currency translation gains (losses)

  4,425   359   (1,170)  (5,662)

Other comprehensive income (loss) before tax

 $5,303  $(372) $1,442  $(5,253)
                 

Income tax provision (benefit):

                

Defined benefit pension plans:

                

Actuarial gains (losses) and other changes in unrecognized costs

 $70  $(17) $23  $(26)

Amortization of unrecognized costs

  (348)  (272)  (693)  (545)

Derivative instruments:

                

Change in unrealized gains and (losses)

  134   437   109   339 

Amortization of unrealized gains and (losses) into interest expense

  (14)  25   (7)  40 

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

 $(158) $173  $(568) $(192)
                 

Other comprehensive income (loss), net of tax

  5,145   (199)  874   (5,445)

Comprehensive income (loss)

 $17,383  $13,199  $25,550  $23,810 

See notes to unaudited condensed consolidated financial statements


Consolidated Statements of Stockholders' Equity 

Standex International Corporation and Nine Months Ended March 31, 2019Subsidiaries 

              

Accumulated Other

             
      

Additional

      

Comprehensive

          

Total

 

For the Six month period ended December 31, 2019

 

Common

  

Paid-in

  

Retained

  

Income

  

Treasury Stock

  

Stockholders’

 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, June 30, 2019

 $41,976  $65,515  $818,282  $(137,278)  15,650  $(324,182) $464,313 

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

  -   (129)  -   -   (61)  1,256   1,127 

Stock-based compensation

  -   4,820   -   -   -   -   4,820 

Treasury stock acquired

  -   -   -   -   13   (946)  (946)

Comprehensive income:

  -   -   -   -   -   -   - 
Net Income  -   -   24,676   -   -   -   24,676 

Foreign currency translation adjustment

  -   -   -   (1,170)  -   -   (1,170)

Pension and OPEB adjustments, net of tax of $0.7 million

  -   -   -   2,198   -   -   2,198 

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

  -   -   -   (154)  -   -   (154)

Dividends declared ($0.42 per share)

  -   -   (5,260)  -��  -   -   (5,260)

Balance, December 31, 2019

 $41,976  $70,206  $837,698  $(136,404)  15,602  $(323,872) $489,604 
                             

For the Six month period ended December 31, 2018

                            

(in thousands, except as specified)

                            

Balance, June 30, 2018

 $41,976  $61,328  $761,431  $(121,860)  15,279  $(292,080) $450,795 

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

  -   (333)  -   -   (59)  1,131   798 

Stock-based compensation

  -   2,029   -   -   -   -   2,029 

Treasury stock acquired

  -   -   -   -   234   (19,135)  (19,135)

Adoption of ASC 606

  -   -   (1,107)  -   -   -   (1,107)

Comprehensive income:

                          - 

Net Income

  -   -   29,255   -   -   -   29,255 

Foreign currency translation adjustment

  -   -   -   (5,662)  -   -   (5,662)

Pension and OPEB adjustments, net of tax of $0.6 million

  -   -   -   1,941   -   -   1,941 

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

  -   -   -   (1,196)  -   -   (1,196)

Dividends declared ($0.38 per share)

  -   -   (4,892)  -   -   -   (4,892)

Balance, December 31, 2018

 $41,976  $63,024  $784,687  $(126,777)  15,454  $(310,084) $452,826 


Consolidated Statements of Stockholders' Equity

Standex International Corporation and 2018 (unaudited)Subsidiaries

4

              

Accumulated Other

             
      

Additional

      

Comprehensive

          

Total

 

For the Three month period ended December 31, 2019

 

Common

  

Paid-in

  

Retained

  

Income

  

Treasury Stock

  

Stockholders’

 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, September 30, 2019

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

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

  -   (52)  -   -   (11)  231   179 

Stock-based compensation

  -   2,062   -   -   -   -   2,062 

Treasury stock acquired

  -   -   -   -   2   (175)  (175)

Comprehensive income:

  -   -   -   -   -   -   - 
Net Income  -   -   12,238   -   -   -   12,238 

Foreign currency translation adjustment

  -   -   -   4,425   -   -   4,425 

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

  -   -   -   808   -   -   808 

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

  -   -   -   (88)  -   -   (88)

Dividends declared ($0.22 per share)

  -   -   (2,766)  -   -   -   (2,766)

Balance, December 31, 2019

 $41,976  $70,206  $837,698  $(136,404)  15,602  $(323,872) $489,604 
                             

For the Three month period ended December 31, 2018

                            

(in thousands, except as specified)

                            

Balance, September 30, 2018

 $41,976  $63,280  $773,938  $(127,105)  15,242  $(292,059) $460,030 

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

  -   (128)  -   -   (14)  273   145 

Stock-based compensation

  -   (128)  -   -   -   -   (128)

Treasury stock acquired

  -   -   -   -   226   (18,298)  (18,298)

Adoption of ASC 606

  -   -   (74)  -   -   -   (74)

Comprehensive income:

                          - 

Net Income

  -   -   13,398   -   -   -   13,398 

Foreign currency translation adjustment

  -   -   -   359   -   -   359 

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

  -   -   -   787   -   -   787 

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

  -   -   -   (818)  -   -   (818)

Dividends declared ($0.20 per share)

  -   -   (2,575)  -   -   -   (2,575)

Balance, December 31, 2018

 $41,976  $63,024  $784,687  $(126,777)  15,454  $(310,084) $452,826 


STANDEX INTERNATIONAL CORPORATION

Condensed Consolidated Statement of Stockholders Equity for the Three

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

5

 Unaudited Condensed Consolidated Statements of Cash Flows for the

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

  

Six Months Ended

 
  

December 31,

 

(In thousands)

 

2019

  

2018

 

Cash flows from operating activities

        

Net income

 $24,676  $29,255 

Income from discontinued operations

  (182)  2,488 

Income from continuing operations

  24,858   26,767 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        

Depreciation and amortization

  16,869   14,817 

Stock-based compensation

  4,820   2,029 

Non-cash portion of restructuring charge

  (149)  (132)
Life Insurance Benefit  (1,302)  - 

Contributions to defined benefit plans

  (1,932)  (499)

Net changes in operating assets and liabilities

  (21,342)  (29,132)

Net cash provided by operating activities - continuing operations

  21,822   13,850 

Net cash provided by operating activities - discontinued operations

  (162)  5,411 

Net cash provided by operating activities

  21,660   19,261 

Cash flows from investing activities

        

Expenditures for property, plant, and equipment

  (10,671)  (16,192)

Expenditures for acquisitions, net of cash acquired

  -   (95,918)

Proceeds from insurance recovery

  10,000   - 

Other investing activity

  1,998   3,144 

Net cash (used in) investing activities

  1,327   (108,966)

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

  -   2,690 

Net cash (used in) investing activities

  1,327   (106,276)

Cash flows from financing activities

        

Borrowings on revolving credit facility

  34,700   509,500 

Payments of revolving credit facility

  (45,500)  (387,500)

Contingent consideration payment

  (872)  (910)

Activity under share-based payment plans

  1,127   797 

Purchases of treasury stock

  (946)  (19,135)

Cash dividends paid

  (5,186)  (4,825)

Net cash provided by financing activities

  (16,677)  97,927 

Effect of exchange rate changes on cash and cash equivalents

  (536)  (2,340)

Net change in cash and cash equivalents

  5,774   8,572 

Cash and cash equivalents at beginning of year

  93,145   109,602 

Cash and cash equivalents at end of period

 $98,919  $118,174 
         

Supplemental Disclosure of Cash Flow Information:

        

Cash paid during the year for:

        

Interest

 $3,415  $4,822 

Income taxes, net of refunds

 $9,589  $7,118 

7See notes to unaudited condensed consolidated financial statements

Notes to Unaudited Condensed Consolidated Financial Statements

8


Item 2.

Management's Discussion and Analysis of Financial Condition and

Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

42

Item 4.

Controls and Procedures

43

PART II.

OTHER INFORMATION:

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 6.

Exhibits

44


PART I.  FINANCIAL INFORMATION







ITEM 1














STANDEX INTERNATIONAL CORPORATION

Condensed Consolidated Balance Sheets








(In thousands, except per share data)


March 31, 2019

(unaudited)

June 30,

2018

ASSETS







Current Assets:







Cash and cash equivalents


$

96,041


$

   109,602

Accounts receivable, net of reserve for doubtful accounts of



115,782



   119,783

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







Inventories



103,383



104,300

Prepaid expenses and other current assets



27,115



     10,255

Income taxes receivable



3,320



     2,348

Current assets- Discontinued Operations



106,863



37,671

Total current assets



452,504



   383,959

Property, plant, and equipment, net



139,432



 136,934

Intangible assets, net



111,505



84,938

Goodwill



260,443



211,751

Deferred tax asset



9,645



7,447

Other non-current assets



29,812



     29,749

Long-term assets-Discontinued Operations



-



62,159

Total non-current assets



550,837



532,978

Total assets


$

1,003,341


$

   916,937








LIABILITIES AND STOCKHOLDERS' EQUITY







Current Liabilities:







Accounts payable


$

61,358


$

78,947

Accrued liabilities



61,147



     57,679

Income taxes payable



4,762



6,050

        Current liabilities-Discontinued Operations



2,561



18,665

Total current liabilities



129,828



161,341

Long-term debt



291,725



193,772

Accrued pension and other non-current liabilities



102,171



110,979

Non-current liabilities-Discontinued Operations



-



50

Total non-current liabilities



393,896



304,801

Stockholders' equity:







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







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







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



41,976



41,976

Additional paid-in capital



63,774



61,328

Retained earnings



808,417



761,430

Accumulated other comprehensive loss



(124,417)



(121,859)

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







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



(310,133)



 (292,080)

Total stockholders' equity



479,617



450,795

Total liabilities and stockholders' equity


$

1,003,341


$

916,937








See notes to unaudited condensed consolidated financial statements








STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Operations
















Three Months Ended


Nine Months Ended



March 31,


March 31,

(In thousands, except per share data)


2019


2018


2019


2018

Net sales


$

193,771


$

192,147


$

582,380


$

566,982

Cost of sales



131,981



126,035



384,402



371,882

     Gross profit



61,790



66,112



197,978



195,100

Selling, general, and administrative expenses



45,390



44,979



136,555



131,830

Acquisition related costs



805



1,254



2,352



2,962

Restructuring costs



549



1,060



1,173



5,792

     Total operating expenses



46,744



47,293



140,080



140,584

Income from operations



15,046



18,819



57,898



54,516

Interest expense



(3,230)



(2,286)



(8,598)



(5,800)

Other non-operating expense, net



(679)



(1,014)



(1,694)



(1,350)

Income from continuing operations before income taxes



11,137



15,519



47,606



47,366

Provision for income taxes



3,833



3,696



13,535



27,312

Net income from continuing operations



7,304



11,823



34,071



20,054

Income (loss) from discontinued operations, net of

    income taxes


18,965



977



21,450



3,940

Net income


$

26,269


$

12,800


$

55,521


$

23,994














Basic earnings per share:













      Continuing operations


$

0.58


$

0.93


$

2.70


$

1.58

      Discontinued operations



1.51



0.08



1.70



0.31

           Total


$

2.09


$

1.01


$

4.40


$

1.89

Diluted earnings per share:













      Continuing operations


$

0.58


$

0.92


$

2.69


$

1.57

      Discontinued operations



1.51



0.08



1.69



0.31

           Total


$

2.09


$

1.00


$

4.38


$

1.88














Cash dividends per share


$

0.20


$

0.18


$

0.58


$

0.52














See notes to unaudited condensed consolidated financial statements



















STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Comprehensive Income














Three Months Ended


Nine Months Ended


March 31,


March 31,

(In thousands)

2019


2018



2019



2018

Net income

$

26,269


$

12,800


$

55,521


$

23,994

Other comprehensive income (loss):












   Defined benefit pension plans:












      Actuarial gains (losses) and other changes in

          unrecognized costs

 $

(30)


 $


(285)


 $

250


 $


(623)

      Amortization of unrecognized costs


1,116



1,378



3,347



4,114

   Derivative instruments:












      Change in unrealized gains (losses)


1449



(316)



(2,226)



(1,893)

      Amortization of unrealized gains and into

          interest expense


(506)




2,363



1,767



3,427

   Foreign currency translation gains (losses)


410



11,694



(5,252)



14,148

Other comprehensive income (loss) before tax

$

2,439


$

14,834


$

(2,114)


$

19,173













Income tax provision (benefit):












   Defined benefit pension plans:












      Actuarial gains (losses) and other changes in

          unrecognized costs

 $

1


 $


(348)


 $

(25)


 $


129

      Amortization of unrecognized costs


(273)



(329)



(818)



(1,134)

   Derivative instruments:












      Change in unrealized gains and (losses)


172



(127)



338



(231)

      Amortization of unrealized (losses) into

         interest expense


21




(7)



61




(51)

Income tax provision (benefit) to other comprehensive

         income (loss)

 $

(79)


 $


(811)


 $

(444)


 $


(1,287)













Other comprehensive gain (loss), net of tax


2,360



14,023



(2,558)



17,886

Comprehensive income

$

28,629


$

26,823


$

52,963


$

41,880













See notes to unaudited condensed consolidated financial statements


















Consolidated Statements of Stockholders' Equity


























Standex International Corporation and Subsidiaries




Accumulated















Other

Treasury Stock


 

For theNine month period ended March 31, 2019

(in thousands, except as specified)


Common Stock

 

Additional

Paid-in Capital

 


Retained

Earnings

 

Comprehensive

Income (Loss)



Shares




Amount

Total

Stockholders

Equity

 

Balance, June 30, 2018

$

    41,976

$

61,328

$

   761,430

$

       (121,859)

15,279

$

(292,080)

$

450,795

 

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




(234)





(62)


1,186


952

 

Stock-based compensation




2,680









2,680

 

Treasury stock acquired









236


(19,239)


(19,239)

 

Adoption of ASC 606






(1,106)







(1,106)

 

Comprehensive income:














 

Net Income






55,521







55,521

 

Foreign currency translation adjustment








(5,252)





(5,252)

 

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








2,754





2,754

 

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








(60)





(60)

 

Dividends declared ($0.58 per share)

 





(7,428)







(7,428)

 

Balance, March 31, 2019

$

41,976

$

63,774

$

808,417

$

(124,417)

15,453

$

(310,133)

$

479,617

 



For theNine month period ended March 31, 2018

(in thousands, except as specified)














 

Balance, June 30, 2017

$

41,976

$

56,783

$

716,605

$

(115,938)

15,322

$

(290,762)

$

408,664

 

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




(533)





(69)


1,301


768

 

Stock-based compensation




3,781









3,781

 

Treasury stock acquired









21


(2,008)


(2,008)

 

Adoption of ASU 2018-02






17,215


(17,215)





-

 

Comprehensive income:














 

Net Income






23,994







23,994

 

Foreign currency translation adjustment








14,148





14,148

 

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








2,486





2,486

 

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








1,252





1,252

 

Dividends declared ($0.52 per share)

 


 


 

(6,678)

 



 



(6,678)

 

Balance, March 31, 2018

$

41,976

$

60,031

$

751,136

$

(115,267)

15,274

$

(291,469)

$

446,407

 















 















 















 















 















 















 















 















 















 















 




Consolidated Statements of Stockholders' Equity


























 

Standex International Corporation and Subsidiaries




Accumulated















Other

Treasury Stock


 

For theThree month period ended March 31, 2019

(in thousands, except as specified)


Common Stock

 

Additional

Paid-in Capital

 


Retained

Earnings

 

Comprehensive

Income (Loss)



Shares




Amount

Total

Stockholders

Equity

 

Balance, December 31, 2018

$

    41,976

$

63,024

$

   784,687

$

       (126,777)

15,454

$

(310,084)

$

452,826

 

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




99





(2)


55


154

 

Stock-based compensation




651









651

 

Treasury stock acquired









1


(104)


(104)

 

Adoption of ASC 606














 

Comprehensive income:














 

Net Income






26,269







26,269

 

Foreign currency translation adjustment








410





410

 

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








813





813

 

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








1,137





1,137

 

Dividends declared ($0.20 per share)

 





(2,539)







(2,539)

 

Balance, March 31, 2019

$

41,976

$

63,774

$

808,417

$

(124,417)

15,453

$

(310,133)

$

479,617

 
















 

Balance, December 31, 2017

$

41,976

$

59,016

$

723,435

$

(112,075)

15,275

$

(291,420)

$

420,932

 

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




116





(2)


34


150

 

Stock-based compensation




899









899

 

Treasury stock acquired









1


(83)


(83)

 

Adoption of ASU 2018-02






17,215


(17,215)





-

 

Comprehensive income:














 

Net Income






12,800







12,800

 

Foreign currency translation adjustment








11,694





11,694

 

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








416





416

 

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








1,913





1,913

 

Dividends declared ($0.18 per share)

 


 



(2,314)







(2,314)

 

Balance, March 31, 2018

$

41,976

$

60,031

$

751,136

$

(115,267)

15,274

$

(291,469)

$

446,407

 















 






STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Cash Flows










Nine Months Ended



March 31,

(In thousands)


2019


2018

Cash flows from operating activities







Net income


$

55,521


$

23,994

Income from discontinued operations



21,450



3,940

Income from continuing operations



34,071



20,054

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

Depreciation and amortization



22,794



19,632

Stock-based compensation



2,680



3,775

Non-cash portion of restructuring charge



(81)



(1,187)

       Deferred repatriation tax



-



11,465

Disposal of real estate and equipment



-



(433)

Contributions to defined benefit plans



(751)



(808)

Net changes in operating assets and liabilities



(33,753)



(25,608)

Net cash provided by operating activities - continuing operations

24,960



26,890

Net cash (used in) operating activities - discontinued operations

617



1,829

Net cash provided by operating activities



25,577



28,719

Cash flows from investing activities







Expenditures for property, plant, and equipment



(17,844)



(20,207)

Expenditures for acquisitions, net of cash acquired



(96,768)



(10,397)

Proceeds from life insurance policies



-



2,217

Proceeds from sales of real estate and equipment



2,898



1,949

Other investing activity



(377)



(397)

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



(112,091)



(26,835)

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



2,925



(1,184)

Net cash provided by (used in) investing activities



(109,166)



(28,019)

Cash flows from financing activities







Borrowings on revolving credit facility



206,650



134,500

Payments of revolving credit facility



(107,650)



(124,788)

Contingent consideration payment



(910)



-

Activity under share-based payment plans



952



774

Purchases of treasury stock



(19,239)



(2,007)

Cash dividends paid



(7,331)



(6,600)

Net cash provided by financing activities



72,472



1,879

Effect of exchange rate changes on cash and cash equivalents



(2,444)



5,179

Net change in cash and cash equivalents



(13,561)



7,758

Cash and cash equivalents at beginning of year



109,602



88,566

Cash and cash equivalents at end of period


$

96,041


$

96,324








Supplemental Disclosure of Cash Flow Information:







Cash paid during the year for:







Interest


$

7,574


$

4,518

Income taxes, net of refunds


$

8,027


$

17,720








See notes to unaudited condensed consolidated financial statements







2



STANDEXSTANDEX INTERNATIONAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1)

1)     Management Statement


In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations and changes in stockholders equity for the three and ninesix months ended March December 31,2019 and 2018, the cash flows for the ninesix months ended MarchDecember 31, 2019 and 2018 and the financial position of Standex International Corporation (Standex(“Standex”, the Company“Company”, we“we”, us“us”, or our“our”), at MarchDecember 31, 2019. The interim results are not necessarily indicative of results for a full year. The following unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 2018.  2019. The condensed consolidated balance sheet at June 30, 2018 2019 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-K10-K and in particular the audited consolidated financial statements for the year ended June 30, 2018.  2019. Certain prior period amounts have been reclassified to conform to the current period presentation. Unless otherwise noted, references to years are to the CompanysCompany’s fiscal years.

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


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSRecently Issued Accounting Pronouncements

In February 2016, January 2017, the FASB issued ASU 2016-02,Leases (Topic 842).  ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements.  In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements.  The updated guidance provides an optional transition method, which allows for the application of the standard as of the adoption date with no restatement of prior period amounts.  We plan to adopt the standard on July 1, 2019 under the optional transition method described above.  We have selected a lease accounting software package and are completing the accumulation of existing lease data as well as assessing the impact that the new standard will have on our Consolidated Financial Statements, which will consist primarily of a balance sheet gross up of our operating leases to show equal and offsetting lease assets and lease liabilities.  Due to the materiality of the underlying leases subject to the new guidance, we anticipate the adoption will have a material impact on the Companys consolidated financial statements, however we are unable to quantify that effect until our analysis is complete.  


In January 2017 the FASB issued ASU 2017-04,-04,Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test.  Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.  ASU 2017-042017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity's testing of reporting units for goodwill impairment. It further clarifies that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.  ASU 2017-042017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  The Company is currently assessing the potential impact of the adoption of ASU 2017-042017-04 on our goodwill impairment testing procedures and our consolidated financial statements.


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


2)  

2)     Acquisitions

Acquisitions


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


GS Engineering

During the fourth quarter of fiscal year 2019, the Company acquired Ohio-based Genius Solutions Engineering Company (d/b/a GS Engineering). The privately held company is a provider of specialized “soft surface” skin texturized tooling. GS Engineering primarily serves the automotive end market and its operating results are included in the Company’s Engraving segment.

The Company paid $30.5 million in cash for all of the issued and outstanding equity interests of GS Engineering.  The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary estimate of their fair values on the closing date. The Company has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible assets based on the preliminary valuation results. Goodwill from the transaction is attributable to the combined organization utilizing the GS technology across its global production footprint to enable customers worldwide to benefit from a combined offering for harmonized designs across a variety of surfaces and materials.

Intangible assets of $8.9 million are preliminarily recorded, consisting of $5.6 million for developed technology to be amortized over a period of 15 years, $0.9 million for indefinite lived trademarks, and $2.4 million of customer relationships to be amortized over 13 years. The Company’s assigned fair values are preliminary as of September 30, 2019 until reviewed closing financial statements, including U.S. 338(h)10 elections, can be prepared by an independent accountant and agreed to by both parties as required by the stock purchase agreement.  The goodwill of $18.1 million created by the transaction is deductible for income tax purposes.

9

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

  

Preliminary Allocation June 30, 2019

  

Adjustments

  

Adjusted Preliminary Allocation December 31, 2019

 

Fair value of business combination:

            

Cash payments

 $30,502  $-  $30,502 

Less, cash acquired

  (622)  -   (622)

Total

 $29,880  $-  $29,880 

  

Preliminary Allocation June 30, 2019

  

Adjustments

  

Adjusted Preliminary Allocation December 31, 2019

 

Identifiable assets acquired and liabilities assumed:

            

Other acquired assets

 $2,197  $(72) $2,125 

Inventories

  228   (75)  153 

Customer Backlog

  180   -   180 

Property, plant, & equipment

  1,391   -   1,391 

Identifiable intangible assets

  8,910   -   8,910 

Goodwill

  17,976   147   18,123 

Liabilities assumed

  (1,002)  -   (1,002)

Total

 $29,880  $-  $29,880 

Agile Magnetics


On the last business day of the first quarter of fiscal year 2019, the Company acquired Regional Mfg. Specialists, Inc. (now named Agile Magnetics).  The New Hampshire based, privately held company is a provider of high-reliability magnetics to customers in the semiconductor, military, aerospace, healthcare, and general industrial industries.  The Company has included the results of Agile in its Electronics segment in the condensed consolidated financial statements.


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


Intangible assets of $18.2$17.4 million are preliminarily recorded, consisting of $14.3$13.5 million of customer relationships to be amortized over a period of 13 years, $3.8 million for indefinite lived trademarks, and $0.1 million for a non-compete arrangement.arrangement to be amortized over 5 years. The goodwill of $15.6$16.4 million preliminarily recorded in connection with the transaction is deductible for income tax purposes.  The CompanysCompany’s assigned fair values are preliminarywere final as of March 31, 2019 until such time as the valuation can be finalized.  September 30, 2019.


10

The components of the fair value of the Agile acquisition, including the preliminaryfinal allocation of the purchase price at March 31,September 30, 2019, are as follows (in thousands):






Preliminary Allocation September 30, 2018

Adjustments

Adjusted Allocation March 31, 2019

 

Fair value of business combination:

 

Cash payments


$

39,194

-

39,194

 

Less, cash acquired



(1)

-

(1)

 

Total


$

39,193

-

39,193

 















Preliminary Allocation September 30, 2018

Adjustments

Adjusted Allocation March 31, 2019

 

Identifiable assets acquired and liabilities assumed:



 

Other acquired assets


$

1,928

(35)

1,893

 

Inventories



2,506

268

2,774

 

Customer Backlog



-

220

220

 

Property, plant, & equipment



1,318

(348)

970

 

Identifiable intangible assets



13,718

4,432

18,150

 

Goodwill



20,142

(4,528)

15,614

 

Liabilities assumed



(419)

(9)

(428)

 

Total


$

39,193

-

39,193

 

  

Preliminary Allocation September 30, 2018

  

Adjustments

  

Final Allocation

 

Fair value of business combination:

            

Cash payments

 $39,194  $-  $39,194 

Less, cash acquired

  (1)  -   (1)

Total

 $39,193  $-  $39,193 


  

Preliminary Allocation September 30, 2018

  

Adjustments

  

Final Allocation

 

Identifiable assets acquired and liabilities assumed:

            

Other acquired assets

 $1,928  $(35) $1,893 

Inventories

  2,506   268   2,774 

Customer Backlog

  -   200   200 

Property, plant, & equipment

  1,318   (348)  970 

Identifiable intangible assets

  13,718   3,632   17,350 

Goodwill

  20,142   (3,708)  16,434 

Liabilities assumed

  (419)  (9)  (428)

Total

 $39,193  $-  $39,193 

Tenibac-Graphion Inc.


During August of fiscal year 2019, the Company acquired Tenibac-Graphion Inc. (Tenibac(“Tenibac”).  The Michigan based privately held company is a provider of chemical and laser texturing services for the automotive, medical, packaging, and consumer products markets.  The Company has included the results of Tenibac in its Engraving segment in the condensed consolidated financial statements.


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


Intangible assets of $16.9 million are preliminarily recorded, consisting of $11.3 million of customer relationships to be amortized over a period of nine15 years, $4.2 million for indefinite lived trademarks, and $1.4 million of other intangibles assets.assets to be amortized over 5 years.  The CompanysCompany’s assigned fair values are preliminarywere final as of March 31, 2019 until reviewed closing financial statements, including U.S. 338(h)10 elections, can be prepared by an independent accountant and agreed to by both parties as required by the stock purchase agreement.  June 30, 2019. The goodwill of $33.8$34.4 million created by the transaction is deductible for income tax purposes.


11

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






Preliminary Allocation September 30, 2018

Adjustments

Adjusted Allocation

March 31, 2019

 

 

Fair value of business combination:






Cash payments


$

57,284

-

57,284

 

 

 

Less cash acquired



(558)

-

(558)

 

 

 

Total


$

56,726

-

56,726

 

 

 
















 

 

 







Preliminary Allocation September 30, 2018

Adjustments

Adjusted Allocation

March 31, 2019

 

 

 

Identifiable assets acquired and liabilities assumed:



 

 

 

Other acquired assets


$

5,023

(1,245)

3,778

 

 

 

Inventories



324

-

324

 

 

 

Customer backlog



1,000

(800)

200

 

 

 

Property, plant, & equipment



2,490

510

3,000

 

 

 

Identifiable intangible assets



15,960

944

16,904

 

 

 

Goodwill



32,949

830

33,779

 

 

 

Liabilities assumed



(1,020)

(239)

(1,259)

 

 

 

Total


$

56,726

-

56,726

 

 

 

  

Preliminary Allocation September 30, 2018

  

Adjustments

  

Final Allocation

 

Fair value of business combination:

            

Cash payments

 $57,284  $-  $57,284 

Less cash acquired

  (558)  -   (558)

Total

 $56,726  $-  $56,726 



  

Preliminary Allocation September 30, 2018

  

Adjustments

  

Final Allocation

 

Identifiable assets acquired and liabilities assumed:

            

Other acquired assets

 $5,023  $(1,253) $3,770 

Inventories

  324   -   324 

Customer backlog

  1,000   (800)  200 

Property, plant, & equipment

  2,490   (19)  2,471 

Identifiable intangible assets

  15,960   900   16,860 

Goodwill

  32,949   1,411   34,360 

Liabilities assumed

  (1,020)  (239)  (1,259)

Total

 $56,726  $-  $56,726 


 

Piazza Rosa Group


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


The Company paid $10.1 million in cash for all of the issued and outstanding equity interests of the Piazza Rosa Group and also paid $2.8 million subsequent to closing in order to satisfy assumed debt of the entity at the time of acquisition. The Company has estimated that total cash consideration will be adjusted by $2.6 million based upon achievement of certain revenue metrics over the next three years following acquisition. years. The Company made the first payment of $0.9 million during the first quarter of fiscal year 2019, and the second payment of $0.9 million in the second quarter of fiscal 2020 based on achievement of the revenue metrics during the first year.two years following acquisition.


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


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


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






Preliminary Allocation









September 30, 2017



Adjustments



Final

Allocation

Fair value of business combination:










   Total cash consideration


$

10,056


$

-


$

10,056

   Fair value of contingent consideration



-



              2,617   



   2,617

Total


$

10,056


$

             2,617  


$

12,673




Preliminary Allocation September 30, 2017


Adjustments



Final

Allocation

Identifiable assets acquired and liabilities assumed:






Other acquired assets


$

2,678


$

1,664   


$

4,342

Inventories



637



(2)



635

Property, plant, and equipment



5,005



                 558  



5,563

Identifiable intangible assets



4,087



(615)      



3,472

Goodwill



6,218



858   



7,076

Liabilities assumed



 (7,387)



           -  



 (7,387)

Deferred taxes



 (1,182)



154



 (1,028)

Total


$

10,056


$

               2,617  


$

12,673











Acquisition-Related Costs


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


Deferred compensation costs relate to the acquisition of Horizon Scientific on October 16, 2016, for which payments were due to the Horizon Scientific seller of $3.0$2.8 million on the second anniversary and $5.6 million on the third anniversary of the closing date of the purchase. For the three and ninesix months ended MarchDecember 31, 2019 we recorded deferred compensation costs of $0.7$0.5 million and $2.1$1.2 million respectively related to estimated deferred compensation earned by the Horizon Scientific seller to date which are nearly equal to the amounts recorded during the same periods in fiscal year 2018.date.  The payments are contingent on the seller remaining an employee of the Company, with limited exceptions, at each anniversary date. The final payment due to the seller was made during the second quarter of fiscal year 2020, and this liability is now considered settled. 


Acquisition related costs consist of miscellaneous professional service fees and expenses for our recent acquisitions.


12

The components of acquisition-related costs are as follows (in thousands):




Three Months Ended


Nine Months Ended

 

Three Months Ended

 

Six Months Ended

 



March 31,


March 31,

 

December 31,

 

December 31,

 



2019


2018


2019


2018

 

2019

  

2018

  

2019

  

2018

 

Deferred compensation arrangements


$

703


$

702   


$

2,107


$

2,108

 $467  $703  $1,170  $1,370 

Other acquisition-related costs

Other acquisition-related costs


102



552



245



854

  306   156   337   177 

Total

Total

$

805


$

1,254


$

2,352


$

2,962

 $773  $859  $1,507  $1,547 



3)

3) Revenue From Contracts With Customers

Effective July 1, 2018, the Company adopted the new accounting standard, ASU No. 2014-09, Revenue2014-09, “Revenue from Contracts with CustomersCustomers” (ASC 606)606) using the modified retrospective method to contracts that were not completed as of June 30, 2018. We recognized the cumulative effectThe adoption of initially applying the newASC 606 represents a change in accounting principle that provides enhanced revenue standard as an adjustment to the opening balance of retained earnings, whereby the cumulative impact of all prior periods is recorded in retained earnings or other impacted balance sheet line items upon adoption.  The comparative information has not been adjusted and continues to be reported under ASC 605.  The impact on the Companysrecognition disclosures.



3



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


Undersingle performance obligation which represents the Companys historical accounting policies, non-developmental long-term contracts were recognized when the goods were transferredproduct or service being sold to the customer. Upon adoption,Some contracts include multiple performance obligations such as a product and the related installation and/or extended warranty. Additionally, most of the Company’s contracts offer assurance type warranties in connection with the sale of a product to customers. Assurance type warranties provide a customer with assurance that the product complies with agreed-upon specifications. Assurance type warranties do not represent a separate performance obligation.

In general, the Company recognizes revenue at the point in time control transfers to its customer based on predetermined shipping terms. Revenue recognized under long-term contracts within the Engineering Technologies group for highly customized customer products that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin met the requirements for recognitionare recognized over time. For products manufactured over time, under ASC 606.  Additionally, under the Companys historical accounting policies,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 Food Service Equipment segment estimatedperiod in which the rebate accrual basedlosses become determinable. Revisions in profit estimates are reflected on a volume-related method for rebates.  Under ASC 606, the Company now calculates the rebate accrual on anticipated sales for the rebate period, rather than measurement of actual achievement of specific tiers.



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






Cumulative




(in thousands)



Effect




Net sales


$

(799)





Cost of Sales



(574)





Income tax expense



340





Net Loss



(1,033)






Effective Date


Reported

June 30, 2018


ASC 606

Adjustments


As Adjusted

July 1, 2018



Inventories


$ 127,223

$ (574)

$ 126,649



Accounts receivable


134,228

703

134,931



Accrued liabilities


         65,575

1,502

67,077



Deferred income taxes


     26,816

(340)

26,476



Retained earnings


761,430      

(1,033)

760,397




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


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



Three Months Ended March 31, 2019


As Presented

Impact of

ASC 606

Balances

Without adoption of ASC 606

Net sales

$

193,771

$

(3,324)

$

190,447

Cost of sales


131,981


(2,460)


129,521

   Gross profit


61,790


(864)


60,926

Provision for income taxes


3,833


(250)


3,583

Income from continuing operations


7,304


(614)


6,690

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


18,965


-


18,965

Net income (loss)

$

26,269

$

(614)

$

25,655



Nine Months Ended March 31, 2019


As Presented

Impact of

ASC 606

Balances

Without adoption of ASC 606

Net sales

$

582,380

$

(9,179)

$

573,201

Cost of sales


384,402


(7,742)


376,660

   Gross profit


197,978


(1,437)


196,541

Provision for income taxes


13,535


(416)


13,119

Income from continuing operations


34,071


(1,021)


33,050

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


21,450


195


21,645

Net income (loss)

$

55,521

$

(826)

$

54,695
















As of March 31, 2019


As Presented


Impact of

ASC 606


Balances

Without adoption of ASC 606

 

ASSETS







 

Prepaid Expenses

$

27,115

$

(10,407)

$

16,708

 

Inventories


103,383


7,742


111,125

 








 

LIABILITIES







 

Income taxes payable


4,762


84


4,846

 

Retained earnings


808,417


402


808,819

 


Disaggregation of Revenue from Contracts with Customers

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



Three Months Ended

 

Three Months Ended

 

Revenue by Product Line

March 31, 2019

March 31, 2018

 

December 31, 2019

  

December 31, 2018

 

Engraving Services

 35,671  35,796 

Engraving Products

  2,585   2,689 

Total Engraving

 38,256  38,485 
 

Electronics

 45,834  52,700 
 

Engineering Technologies Components

 26,495  23,568 
 

Hydraulics Cylinders and Systems

  11,316   12,116 
 

Refrigeration

$

46,883

$

52,245

 $52,274  $52,217 

Merchandising & Display


7,662


8,814

 8,692  9,065 

Pumps


9,321


9,822

  7,718   7,371 

Total Food Service Equipment


63,866


70,881

 68,684  68,653 






 

Engraving Services


34,505


30,375

Engraving Products


2,630


3,374

Total Engraving


37,135


33,749






Engineering Technologies Components


27,467


23,426






Electronics


50,197


51,213






Hydraulics Cylinders and System


15,106


12,878






Total Revenue by Product Line

$

193,771

$

192,147

 $190,585  $195,522 













13

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



Nine Months Ended

 

Six Months Ended

 

Revenue by Product Line

March 31, 2019

March 31, 2018

 

December 31, 2019

  

December 31, 2018

 

Engraving Services

 71,737  69,653 

Engraving Products

  4,950   4,813 

Total Engraving

 76,687  74,466 
 

Electronics

 92,452  104,150 
 

Engineering Technologies Components

 51,139  44,351 
 

Hydraulics Cylinders and Systems

  25,064   24,651 
 

Refrigeration

$

153,955


168,562

 $107,407  $106,664 

Merchandising & Display


25,638


25,720

 18,515  18,229 

Pumps


25,262


27,571

  15,759   16,098 

Total Food Service Equipment


204,855


221,853

 141,681  140,991 






 

Engraving Services


104,159


90,499

Engraving Products


7,443


9,958

Total Engraving


111,602


100,457






Engineering Technologies Components


71,818


65,621






Electronics


154,347


144,082






Hydraulics Cylinders and System


39,758


34,969






Total Revenue by Product Line

$

582,380


566,982

 $387,023  $388,609 






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



Three Months Ended

Nine Months

Ended

Net sales


March 31, 2019

March 31, 2019

United States

$

126,910

381,615

Asia Pacific


25,608

81,649

EMEA(1)


37,271

105,775

Other Americas


3,982

13,341

Total

$

193,771

582,380


  

Three Months Ended

  

Six Months Ended

 

Net sales

 

December 31, 2019

  

December 31, 2019

 

United States

 $129,126  $263,419 

Asia Pacific

  24,560   48,906 

EMEA (1)

  32,462   66,762 

Other Americas

  4,437   7,936 

Total

 $190,585  $387,023 

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


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


 

Three Months Ended

 


Timing of Revenue Recognition

Three Months Ended

 

December 31, 2019

 

December 31, 2018

 


March 31, 2019

March 31, 2018

Products and services transferred at a point in time

$

184,950

$

187,970

 $181,117  $188,093 

Products transferred over time


8,821


4,177

  9,468  7,429 

Net Sales

$

193,771

$

192,147

 $190,585  $195,522 







 

Six Months Ended

 


Timing of Revenue Recognition

Nine Months Ended

 

December 31, 2019

 

December 31, 2018

 


March 31, 2019

March 31, 2018

Products and services transferred at a point in time

$

360,948

$

555,923

 $371,071  $375,998 

Products transferred over time


21,432


11,059

  15,952  12,611 

Net Sales

$

582,380

$

566,982

 $387,023  $388,609 




14



4



Contract Balances


Contract assets represent sales recognized in excess of billings related to work completed but not yet shipped for which revenue is recognized over time. Contract assets are recorded as accounts receivable.

prepaid and other current assets. Contract liabilities are customer deposits for which revenue has not been recognized. Current contract liabilities are recorded as accrued expenses.


The following table provides information about contract assets and liability balances as of MarchDecember 31, 2019 (in(in thousands):



Balance at Beginning of Period





Additions





Deductions



Balance at End of Period

Nine months ended March 31, 2019








Contract assets:








Accounts receivable                                  

$          5,655


$      23,500


$        24,844


$        4,311

Unbilled services

5,904


13,708


8,938


10,674

Contract liabilities:








Customer deposits

2,552


4,612


1,881


5,283


  

Balance at Beginning of Period

  

Additions

  

Deductions

  

Balance at End of Period

 

Six months ended December 31, 2019

                

Contract assets:

                

Prepaid and other current assets

  8,418   15,670   15,956   8,132 

Contract liabilities:

                

Customer deposits

  1,358   6,154   5,884   1,628 

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


 

December 31, 2019

 


Revenue recognized in the period from:

March 31, 2019

 

Three months ended

  

Six months ended

 


Three months ended

Nine months ended

 

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

$

1,378

$

1,881

 

 $24  $1,358 






 


The timing of revenue recognition, invoicing and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheets.


When consideration is received from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the goods and services are transferred to the customer and all revenue recognition criteria have been met.


4)

4)      Fair Value Measurements


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



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


Level 1 Quoted prices in active markets for identical assets and liabilities. The CompanysCompany’s deferred compensation plan assets consist of shares in various mutual funds (for the deferred compensation plan,



5



investments are participant-directed) which invest in a broad portfolio of debt and equity securities. These assets are valued based on publicly quoted market prices for the fundsfunds’ 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 CompanysCompany’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, 2019 and June 30, 2018.  2019. The CompanysCompany’s policy is to recognize transfers between levels as of the date they occur.


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


15

Items presented at fair value at MarchDecember 31, 2019 and June 30, 2018 2019 consisted of the following (in thousands):




March 31, 2019

 

December 31, 2019

 



Total


Level 1


Level 2


Level 3

 

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets









         

Marketable securities - deferred compensation plan


$

     2,485


$

     2,485


$

            -   


$

            -   

 $2,298  $2,298  $-  $- 

Interest rate swaps


455


-


455


-

Net investment hedge


2,170


-


2,170


-











 

Liabilities









         

Foreign exchange contracts


$

3,732


$

           -   


$

3,732


$

            -   

 $3,157  $-  $3,157  $- 

Interest rate swaps


721


-


721


-

 1,364  -  1,364  - 

Contingent acquisition payments(a)


5,730


-


-


5,730

 742  -  -  742 

Net investment hedge


2,264


-


2,264


-

 



June 30, 2018



Total


Level 1


Level 2


Level 3

Assets













Marketable securities - deferred compensation plan


$

     2,362


$

     2,362


$

            -   


$

          -   

Foreign exchange contracts



1,357



           -   



     1,357



           -   

Interest rate swaps



1,325



-



1,325



-














Liabilities













Foreign exchange contracts


$

4,204


$

           -   


$

     4,204


$

           -   

Contingent acquisition payments(a)



7,535



          -   



          -   



7,535


  

June 30, 2019

 
  

Total

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Marketable securities - deferred compensation plan

 $2,354  $2,354  $-  $- 

Foreign exchange contracts

  -   -   -   - 

Interest rate swaps

 $52   -   52   - 
                 

Liabilities

                

Foreign exchange contracts

 $3,052  $-  $3,052  $- 
Interest rate swaps  1,432   -   1,432   - 

Contingent acquisition payments (a)

  6,418   -   -   6,418 


(a) The fair value of our contingent consideration arrangement is determined based on our evaluation as to the probability and amount of any deferred compensation that has been earned to date.


Our financial liabilities based upon Level 3 inputs consist of contingent consideration arrangements relating to our acquisitions of Horizon Scientific, Piazza Rosa, and Piazza Rosa.GS Engineering. We are contractually obligated to pay contingent consideration payments in connection with the Horizon Scientific acquisition based on the criteria of continued employment of the seller on the second and third anniversary of the closing date of the acquisition. The seller of Horizon remained employed on the second and third anniversaries of the closing date and payments were made to the seller in the second quarters of fiscal year 2019 and 2020. This obligation is considered settled as of December 31, 2019.  We are contractually obligated to pay contingent consideration payments in connection with the Piazza Rosa acquisition based on the achievement of certain revenue targets during each of the firstthree years following acquisition. Piazza Rosa exceeded the defined revenue targets during the first year and asecond years and payment waswere made to the Piazza Rosa sellers during the first quarter of fiscal 2019.  The seller of Horizon remained employed on2019 and the second anniversary of the closing date and a payment was made to the seller in the second quarter of fiscal 2019.  2020.  The Company is also 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.  As of December 31, 2019, the targets set in the GS stock purchase agreement have not yet been met due to the length of time since the acquisition.

We will update our assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the consideration is paid. As of MarchDecember 31, 2019, neither the range of outcomes nor the assumptions used to develop the estimate had changed.


5)

5)     Discontinued Operations


In pursuing our business strategy, the Company continues to divest certain businesses and record activities of these businesses as discontinued operations.


During the first quarter of fiscal 2019, in order to focus its financial assets and managerial resources on its remaining portfolio of businesses, the Company decided to divest its Cooking Solutions Group, which consisted of three3 operating segments and a minority interest investment. In connection with the divestiture, during the second quarter of fiscal 2019, the Company sold its minority interest investment to the majority shareholders. During the third quarter of fiscal 2019, the Company entered into a definitive agreement to sell the three operating segments to theThe Middleby Corporation for a cash purchase price of $105 million, subject to post-closing adjustments and various transaction fees.


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


16

Results of the Cooking Solutions Group in current and prior periods have been classified as discontinued operations in the Condensed Consolidated Financial Statements and excluded from the results from continuing operations. Activity related to the Cooking Solutions Group and other discontinued operations for the three and ninesix months ended MarchDecember 31, 2019 and 2018 is as follows (in thousands):




Three Months Ended


Nine Months Ended



March 31,


March 31,



2019


2018


2019


2018

Net Sales


$

23,024


$

24,596


$

71,451


$

73,891














Gain on Sale of Business


$

20,539


$

-


$

20,539


$

-

Transaction Fees



(4,397)



-



(4,397)



-

Income from Operations


$

16,214


$

1,089


$

19,824


$

4,847













Profit Before Taxes

$

16,447


$

1,214


$

19,459


$

5,227

Benefit (Provision) for Taxes


2,518



(237)



1,991



(1,287)

Net income from Discontinued Operations

$

18,965


$

977


$

21,450


$

3,940



  

Three Months Ended

  

Six Months Ended

 
  

December 31,

  

December 31,

 
  

2019

  

2018

  

2019

  

2018

 

Net Sales

 $-  $23,980  $-  $48,427 

Income from Operations

 $(264) $1,777  $(70) $3,608 

Profit Before Taxes

 $(275) $1,119  $(250) $3,016 

Benefit (Provision) for Taxes

  104   (195)  68   (528)

Net income from Discontinued Operations

 $(171) $924  $(182) $2,488 

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


March 31,

 2019

June 30,

 2018

Accounts receivable

$

-

$

14,445

Inventories


-


22,923

Prepaid Expenses


-


303

Due from Buyer


106,863


-

Total current assets


106,863


37,671






Property, plant, equipment, net


-


7,637

Intangible assets, net


-


13,137

Goodwill


-


40,011

Other non-current assets


-


1,374

Total non-current assets


-


62,159

Total Assets


106,863


99,830






Accounts Payable


-


10,759

Accrued Liabilities


2,561


7,897

Income Tax Payable


-


9

Total current liabilities


2,561


18,665






Non-current Liabilities


-


50

Total Liabilities


2,561


18,715






Net Assets

$

104,302

$

81,115


6)

6)     Inventories

Inventories


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




March 31, 2019


June 30,

2018

 

December 31, 2019

  

June 30, 2019

 

Raw materials


$

47,216


$

46,833

 $49,510  $43,117 

Work in process



31,235



30,526

 29,273  28,120 

Finished goods



24,932



26,941

  29,730   17,408 

Total


$

103,383


$

104,300

 $108,513  $88,645 


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 Statementsunaudited condensed consolidated statements of Operations,operations were $4.7$5.0 million and $13.6$10.0 million for the three and ninesix months ended MarchDecember 31, 2019, respectively and $5.4$4.8 million and $14.1$8.9 million for the three and ninesix months ended MarchDecember 31, 2018, respectively.





7)     Goodwill








7)

Goodwill



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


  

June 30, 2019

  

Acquisitions

  

Translation Adjustment

  

December 31, 2019

 

Engraving

 $79,776  $147  $(32) $79,891 

Electronics

  131,317   820   (627)  131,510 

Engineering Technologies

  43,890   -   396   44,286 

Hydraulics

  3,059   -   -   3,059 

Food Service Equipment

  23,461   -   -   23,461 

Total

 $281,503  $967  $(263) $282,207 



June 30,

2018

Discontinued

Operations

Continuing Ops - June 30, 2018

Acquisitions

Translation Adjustment

March 31,  2019

Food Service Equipment

$

63,464

$

 (40,011)

$

23,453

$

-   

$

-   

$

23,453

Engraving


27,194


-   


27,194


34,281


(376)


61,099

Engineering Technologies


44,247


-   


44,247


-   


(119)


44,128

Electronics


113,798


-   


113,798


15,614


(708)


128,704

Hydraulics


3,059


-   


3,059


-   


-   


3,059

Total

$

  251,762

$

(40,011)

$

211,751

$

49,895

$

(1,203)

$

260,443



17

8)

8)     Intangible Assets


Intangible assets consist of the following (in thousands):






Tradenames












Customer Relationships



(Indefinite-lived)



Developed Technology



Other



Total

March 31, 2019















Cost

$

72,559


$

18,850


$

48,228


$

5,486


$

145,123

Accumulated amortization


(22,712)



-



(7,527)



(3,379)



(33,618)

Balance, March 31, 2019

$

49,847


$

18,850


$

40,701


$

2,107


$

111,505
















June 30, 2018















Cost

$

   48,285


$

        11,102


$

48,281


$

4,025


$

111,693

Accumulated amortization


 (19,134)



                    -   



(4,709)



(2,912)



(26,755)

Balance, June 30, 2018

$

   29,151


$

          11,102


$

43,572


$

 1,113


$

  84,938


  

Customer Relationships

  

Tradenames (Indefinite-lived)

  

Developed Technology

  

Other

  

Total

 

December 31, 2019

                    

Cost

 $74,272  $19,711  $54,790  $5,492  $154,265 

Accumulated amortization

  (27,991)  -   (10,805)  (3,802)  (42,598)

Balance, December 31, 2019

 $46,281  $19,711  $43,985  $1,690  $111,667 
                     

June 30, 2019

                    

Cost

 $75,018  $19,977  $55,164  $5,492  $155,651 

Accumulated amortization

  (24,476)  -   (8,765)  (3,750)  (36,991)

Balance, June 30, 2019

 $50,542  $19,977  $46,399  $1,742  $118,660 



Amortization expense from continuing operations for the three months ended MarchDecember 31, 2019 and 2018 was $2.8$2.9 million and $1.9$3.0 million, respectively. Amortization expense from continuing operations for the ninesix months ended MarchDecember 31, 2019 and 2018 was $7.6$5.8 million and $6.0$4.7 million, respectively. At MarchDecember 31, 2019, amortization expense of intangible assets is estimated to be $2.9$5.8 million for the remainder of fiscal year 2019,2020, $11.0 million in 2020,2021, $10.3 million in 2021, $9.72022, $9.6 million in 2022, $8.92023, $8.7 million in 20232024 and $50.3$46.5 million thereafter.


9)

Warranties


9)     Warranties

The expected cost associated with warranty obligations on our products is recorded as a component of cost of sales when the revenue is recognized. The CompanysCompany’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.




6



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



March 31, 2019


June 30,

 2018

 

December 31, 2019

  

June 30, 2019

 

Balance at beginning of year

$

4,966


$

4,667

 $5,278  $4,966 

Acquisitions and other


(139)



(138)

 10  (85)

Warranty expense


3,773



6,248

 3,359  5,016 

Warranty claims


(3,577)



  (5,811)

  (2,994)  (4,619)

Balance at end of period

$

5,023


$

        4,966

 $5,653  $5,278 



10)

10)     Debt


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



March 31, 2019


June 30,

2018

 

December 31, 2019

  

June 30, 2019

 

Bank credit agreements

$

293,000


$

     194,000

 $188,000  $198,800 

Total funded debt


293,000



     194,000

 188,000  198,800 

Issuance Cost


(1,275)



        (228)

  (1,020)  (1,190)

Total long-term debt

$

291,725


$

     193,772

 $186,980  $197,610 



18

The CompanysCompany’s debt payments are due as follows (in thousands):


Fiscal Year


March 31, 2019

 

December 31, 2019

 

2019


$

-

2020



-

 $- 

2021



-

 - 

2022



-

 - 

2023



-

 - 

2024

 188,000 

Thereafter



293,000

  - 

Total Debt



293,000

 188,000 

Issuance cost



(1,275)

  (1,020)

Debt net of issuance cost


$

291,725

 $186,980 



Bank Credit Agreements


During the second quarter of fiscal year 2019, the Company entered into a five-yearfive-year Amended and Restated Credit Agreement ((“Credit FacilityFacility”, or facility“facility”). The facility has a borrowing limit of $500 million which is an increase of $100 million from the prior facilitys $400 million limit.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.


At MarchDecember 31, 2019, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $7.4$7.6 million and had the ability to borrow $175.9$252.3 million under the facility. At MarchDecember 31, 2019, the carrying value of the current borrowings under the facility approximates fair value.






11)

11) Derivative Financial Instruments


In August 2017, the FASB issued ASU 2017-12,DerivativesThe Company is exposed to market risks from changes in interest rates, commodity prices and Hedging (Topic 815); Targeting Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entitys risk management activitieschanges in its financial statements and to make certain targeted improvements to simplify the application of hedge accounting guidance.  Given the improvements made to the application of hedge accounting under the guidance, the Company has decided to early adopt the ASU in the second quarter of fiscal 2019, or on December 1, 2018.  As of the adoption date, the Company had both foreign currency swaps and interest rate swaps which are designated and accounted forrates. We selectively use derivative financial instruments in order to manage these risks. Information about the Company’s derivative financial instruments is as cash flow hedges with no hedge ineffectiveness historically recorded.  As the Company had historically determined its foreign currency exchange contracts and interest rate swaps to be perfectly effective it did not record any hedge ineffectiveness in earnings related to the swaps historically or on the initial application date.  Therefore, there is no cumulative-effect adjustment necessary to apply this change in accounting principle.  In addition to the above, the Company reviewed the ASU and identified no other provisions of the standard which would result in a quantitative impact as a result of applying the new guidance.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 CompanysCompany’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 are forward-dated, as cash flow hedges, and changes in the fair value of the swaps are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swaps will be reported by the Company in interest expense.


The CompanysCompany’s effective swap agreements convert the base borrowing rate on $85$75 million of debt due under our revolving credit agreement from a variable rate equal to LIBOR to a weighted average fixed rate of 2.11%2.13% at MarchDecember 31, 2019. The fair value of the swaps, recognized in accrued expenses and in other comprehensive income, is as follows (in thousands, except percentages):









Effective Date


Notional Amount

Fixed Interest Rate

Maturity


March 31,

2019


June 30,

2018

 

Notional Amount

  

Fixed Interest Rate

 

Maturity

 

December 31, 2019

  

June 30, 2019

 

December 18, 2015


     15,000

1.46%

December 19, 2018


-



55

December 19, 2015


      10,000

2.01%

December 19, 2019


32



74

 10,000  2.01% 

December 19, 2019

 $ -  $ 3 

May 24, 2017


25,000

1.88%

April 24, 2022


220



764

 25,000  1.88% 

April 24, 2022

 (203) (190)

May 24, 2017


25,000

1.67%

May 24, 2020


203



432

 25,000  1.67% 

May 24, 2020

 -  49 

August 6, 2018


25,000

2.83%

August 6, 2023


(721)



-

 25,000  2.83% 

August 6, 2023

 (1,160) (1,242)






$

(266)


$

1,325

        $ (1,363)  $ (1,380) 


The Company reported no0 losses for the three and ninesix months ended MarchDecember 31, 2019, as a result of hedge ineffectiveness. Future changes in these swap arrangements, including termination of the agreements, may result in a reclassification of any gain or loss reported in accumulated other comprehensive income (loss) into earnings as an adjustment to interest expense. Accumulated other comprehensive income (loss) related to these instruments is being amortized into interest expense concurrent with the hedged exposure.


19

Foreign Exchange Contracts


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



7



had outstanding forward contracts related to hedges of intercompany loans with net unrealized losses of $(3.7)$(3.1) million and $(2.9)$(3.1) million, respectively, which approximate the unrealized gains and losses on the related loans. The contracts have maturity dates ranging from 2019-2023,2020 to 2023, which correspond to the related intercompany loans.


Net Investment Hedges

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


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


The notional amounts of the CompanysCompany’s forward contracts, by currency, are as follows:


Currency


March 31,

 2019


June 30,

2018

USD


175,015


64,558

Euro


12,250


21,300

Pound Sterling


-


       6,826

Peso


-


54,000

Canadian


20,600


20,600

Currency

 

December 31, 2019

  

June 30, 2019

 

USD

 46,278  55,015 

EUR

 5,750  5,750 

CAD

 20,600  20,600 


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


Asset Derivatives


March 31, 2019


June 30, 2018

Derivative designated

Balance





Balance




as hedging instruments

Sheet





Sheet





Line Item



Fair Value


Line Item



Fair Value

Interest rate swaps

Other Assets


$

455


Other Assets


$

1,325

Foreign exchange contracts

Other Assets



-


Other Assets



1,357

Net investment hedge

Other Assets



2,170





-




$

2,625




$

2,682












Liability Derivatives

 


March 31, 2019


June 30, 2018

 

Derivative designated

Balance





Balance




 

as hedging instruments

Sheet





Sheet




 


Line Item



Fair Value


Line Item



Fair Value

 

Interest rate swaps

Accrued Liabilities


721


Accrued Liabilities


-

 

Foreign exchange contracts

Accrued Liabilities


3,732


Accrued Liabilities


4,204

 

Net investment hedge

Other non-current liabilities



2,264





-

 




$

6,717




$

         4,204  

 



 

Asset Derivatives

 
 

December 31, 2019

 

June 30, 2019

 

Derivative designated

Balance

    

Balance

    

as hedging instruments

Sheet

    

Sheet

    
 

Line Item

 

Fair Value

 

Line Item

 

Fair Value

 

Interest rate swaps

Other Assets

 $- 

Other Assets

 $52 

Foreign exchange contracts

Other Assets

  - 

Other Assets

  - 
   $-   $52 

 

Liability Derivatives

 
 

December 31, 2019

 

June 30, 2019

 

Derivative designated

Balance

    

Balance

    

as hedging instruments

Sheet

    

Sheet

    
 

Line Item

 

Fair Value

 

Line Item

 

Fair Value

 

Interest rate swaps

Accrued Liabilities

 $1,364 

Accrued Liabilities

 $1,432 

Foreign exchange contracts

Accrued Liabilities

  3,157 

Accrued Liabilities

  3,052 
   $4,521   $4,484 

8



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




Three Months Ended


Nine Months Ended

 

Three Months Ended

 

Six Months Ended

 



March 31,


March 31,

 

December 31,

 

December 31,

 



2019


2018


2019


2018

 

2019

  

2018

  

2019

  

2018

 

Interest rate swaps


$

(693)


$

513


$

(1,365)


$

930

 $(546) $(1,768) $(443) $(1,372)

Foreign exchange contracts



2,142



(829)



(861)



(2,823)

  (844)  (2,969)  206   (3,003)



$

1,449


$

(316)


$

(2,226)


$

(1,893)

 $(1,390) $(4,737) $(237) $(4,375)


20

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

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

Income (Loss) Components

March 31,



March 31,


Condensed Statements

 

December 31,

 

December 31,

 

Condensed Statements



2019


2018



2019


2018


of Operations

 

2019

  

2018

  

2019

  

2018

 

of Operations

Interest rate swaps


$

(84)


$

2,363



$

(246)


$

3,427


Interest expense

 $59  $(101) $29  $(162)

Interest expense

Foreign exchange contracts



(422)



-




2,012



-


Interest expense

  1,123   3,032   (48)  2,434 

Interest expense

Net investment hedge



(435)



-




(435)



-


Non-operating income



$

(941)


$

2,363



$

1,331


$

3,427



 $1,182  $2,931  $(19) $2,272  



12)

12)     Retirement Benefits


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


Net Periodic Benefit Cost for the CompanysCompany’s U.S. and Foreign pension benefit plans for the threeandnine monthsendedMarch and six months ended December 31, 2019 and 2018consisted 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,

 


2019


2018


2019


2018

 

2019

  

2018

  

2019

  

2018

 

Service cost

$

1


$

              1


$

9


$

               9

 $1  $1  $10  $9 

Interest cost


2,586


         2,520


254


           269

 2,271  2,586  213  249 

Expected return on plan assets


(3,385)


       (3,354)


(229)


         (244)

 (3,288) (3,385) (221) (225)

Recognized net actuarial loss


1,030


       1,145


86


           242

  1,275   1,030   165   84 

Amortization of prior service cost


-


                 -


-


           (9)

Net periodic benefit cost

$

232


$

            312


$

120


$

            267

 $259  $232  $167  $117 



U.S. Plans


Non-U.S. Plans


Nine Months Ended


Nine Months Ended


March 31,


March 31,


2019


2018


2019


2018

Service cost

$

3


$

3


$

26


$

27

Interest cost


7,757



7,560



757



783

Expected return on plan assets


(10,156)



(10,061)



(682)



 (710)

Recognized net actuarial loss


3,091



3,435



256



705

Amortization of prior service cost


-



-



-



 (26)

Net periodic benefit cost

$

695


$

937


$

357


$

779


  

U.S. Plans

  

Non-U.S. Plans

 
  

Six Months Ended

  

Six Months Ended

 
  

December 31,

  

December 31,

 
  

2019

  

2018

  

2019

  

2018

 

Service cost

 $2  $2  $20  $17 

Interest cost

  4,542   5,171   418   503 

Expected return on plan assets

  (6,575)  (6,771)  (432)  (453)

Recognized net actuarial loss

  2,551   2,061   323   170 

Net periodic benefit cost

 $520  $463  $329  $237 

21

The contributions made to defined benefit plans for the three and ninesix months ended MarchDecember 31, 2019 and 2018 are presented below along with remaining contributions to be made for fiscal year 20192020 (in thousands):


Contributions to defined benefit plans



Three Months

 Ended

March 31,



Nine Months

Ended

March 31,



Remaining Contributions to be made in Fiscal 2019

 




2019



2018



2019



2018




 

United States, unfunded plan


$

56


$

67


$

169


$

      194

$                        56

United Kingdom



196



210



582



614



184

 

Germany, unfunded plan



-



-



-



-



274

 

Ireland



-



-



-



-



65

 



$

252


$

277


$

751


$

808


$

579

 


13)

  

Fiscal Year 2020

  

Fiscal Year 2019

  

Remaining

 
  

Three Months Ended

  

Six Months Ended

  

Three Months Ended

  

Six Months Ended

  

Contributions

 

Contributions to defined benefit plans

 

December 31, 2019

  

December 31, 2019

  

December 31, 2018

  

December 31, 2018

  

FY 2020

 

United States, funded plan

 $1,468  $1,468  $-  $-  $2,880 

United States, unfunded plan

  58   114   56   111   102 

United Kingdom

  193   377   192   388   - 

Germany, unfunded plan

  -   -   -   -   280 

Ireland

  -   -   -   -   63 
  $1,719  $1,959  $248  $499  $3,325 

13)     Income Taxes


The Company's effective tax rate from continuing operations for the thirdsecond quarter of 20192020 was 34.4%19.0% compared with 23.8%23.6% for the prior year quarter.  The effective tax rate in 2019fiscal 2020 was higherlower due to both an $0.5a $0.8 million discrete tax benefit related toreceipt of formal approval by the US tax reform recorded in the prior year quarter and not in the current year quarter as well as withholding taxes included in the annual effectiveauthorities for application of a beneficial “high tech” tax rate for foreign repatriation in the current quarter that was not included in the rate in the prior year quarter.   certain of our Chinese operations.

 

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


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


14)

14)     Earnings Per Share


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






Three Months Ended




Nine Months Ended

 

Three Months Ended

 

Six Months Ended

 





March 31,




March 31,

 

December 31,

 

December 31,

 



2019


2018


2019


2018

 

 

2019

  

2018

  

2019

  

2018

 

Basic - Average shares outstanding


12,530


12,709


12,626


12,695

 

 12,376  12,636  12,359  12,667 

Dilutive effect of unvested, restricted stock awards


44


      88


61


89

 

  79   49   68   70 

Diluted - Average shares outstanding


12,574


12,797


12,687


12,784

 

  12,455   12,685   12,427   12,737 



Earnings available to common stockholders are the same for computing both basic and diluted earnings per share. ThereNaN options to purchase common stock were not anyexcluded as anti-dilutive potential common shares excluded from the calculation aboveof diluted earnings per share for the three and ninesix months ended MarchDecember 31, 2019 and 2018, respectively.


Performance stock units of 68,93386,806 and 51,27075,191 for the ninesix months ended MarchDecember 31, 2019 and 2018, respectively, are excluded from the diluted earnings per share calculation as the performance criteria have not been met.






9



15)

15)Comprehensive Income (Loss) (Loss)


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



March 31,

 2019


June 30,

 2018

Foreign currency translation adjustment


$

(30,266)


$

      (25,013)

Unrealized pension losses, net of tax



(92,357)



      (95,112)

Unrealized losses on derivative instruments, net of tax



(1,794)



           (1,734)

Total


$

(124,417)


$

    (121,859)


  

December 31, 2019

  

June 30, 2019

 

Foreign currency translation adjustment

 $(28,828) $(27,658)

Unrealized pension losses, net of tax

  (105,182)  (107,380)

Unrealized losses on derivative instruments, net of tax

  (2,394)  (2,240)

Total

 $(136,404) $(137,278)

16)

Contingencies

22


16)     Contingencies

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


17)

17)     Industry Segment Information


The Company has determined that it has five5 reportable segments organized around the types of product sold:


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

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

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.

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

Food Service Equipment – a manufacturer of commercial food service equipment and scientific refrigeration equipment;

Food Service Equipment a manufacturer of commercial food service equipment;

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

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

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

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


Net sales and income (loss) from continuing operations by segment for the three and ninesix months ended MarchDecember 31, 2019 and 2018 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

 



2019


2018


2019


2018

 

2019

  

2018

  

2019

  

2018

 

Segment:













         

Engraving


$

37,135


$

33,749


$

4,485


$

7,195

 $38,256  $38,485  $6,916  $6,849 

Electronics



50,197



51,213



9,418



11,221

 45,834  52,700  7,776  10,376 

Engineering Technologies



27,467



23,426



2,800



1,155

 26,495  23,568  3,422  2,061 

Hydraulics



15,106



12,878



2,242



1,749

 11,316  12,116  1,818  1,929 

Food Service Equipment



63,866



70,881



3,559



5,546

 68,684  68,653  6,773  5,190 

Corporate

      (7,378) (5,162)

Restructuring costs









(549)



 (1,060)

      (720) (177)

Corporate









(6,104)



 (5,733)

Acquisition-related costs









(805)



(1,254)

      (773) (859)
Other operating (income) expense, net         -  - 

Sub-total


$

193,771


$

192,147


$

15,046


$

18,819

 $190,585  $195,522  $17,834  $20,207 

Interest expense









(3,230)



(2,286)

      (1,928) (3,123)

Other non-operating income









(679)



(1,014)

Other non-operating expense

       (588)  (750)

Income from continuing operations before income taxes

Income from continuing operations before income taxes




$

11,137


$

15,519

      $15,318  $16,334 




Nine Months Ended March 31,



Net Sales


Income from Operations



2019


2018


2019


2018

 

Segment:













 

Engraving



111,602



100,457



18,883



21,735

 

Electronics



154,347



144,082



32,581



31,774

 

Engineering Technologies



71,818



65,621



6,636



3,879

 

Hydraulics



39,758



34,969



5,753



5,138

 

Food Service Equipment


$

204,855


$

221,853


$

15,417


$

19,834

 

Restructuring costs









(1,173)



(5,792)

 

Corporate









(17,847)



(19,090)

 

Acquisition-related costs









(2,352)



(2,962)

 

Sub-total


$

582,380


$

566,982


$

57,898


$

54,516

 

Interest expense









(8,598)



(5,800)

 

Other non-operating income









(1,694)



(1,350)

 

Income from continuing operations before income taxes




$

47,606


$

    47,366

 


23

  

Six Months Ended December 31,

 
  

Net Sales

  

Income from Operations

 
  

2019

  

2018

  

2019

  

2018

 

Segment:

                

Engraving

 $76,687  $74,466  $13,454  $14,398 

Electronics

  92,452   104,150   15,875   23,163 

Engineering Technologies

  51,139   44,351   6,781   3,836 

Hydraulics

  25,064   24,651   4,345   3,512 

Food Service Equipment

  141,681   140,991   15,145   11,857 

Corporate

          (16,664)  (11,743)

Restructuring costs

          (2,199)  (624)

Acquisition-related costs

          (1,507)  (1,547)
Other operating (income) expense, net          1,045   - 

Sub-total

 $387,023  $388,609  $36,275  $42,852 

Interest expense

          (4,050)  (5,368)

Other non-operating income

          328   (1,015)

Income from continuing operations before income taxes

         $32,553  $36,469 

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).


The CompanysCompany’s identifiable assets at MarchDecember 31, 2019 and June 30, 2018 2019 are as follows (in thousands):



March 31, 2019

    June 30, 2018

Engraving



202,989



149,973

Electronics



336,494



318,564

Engineering Technologies



147,754



150,150

Hydraulics  



32,655



25,646

Food Service Equipment


$

152,062


$

149,743

Corporate & Other



24,524



23,031

Discontinued Operations



106,863



99,830

Total


$

1,003,341


$

916,937


  

December 31, 2019

  

June 30, 2019

 

Engraving

 $267,727  $233,569 

Electronics

  329,239   332,326 

Engineering Technologies

  153,022   149,628 

Hydraulics

  26,450   28,132 

Food Service Equipment

  170,595   159,656 

Corporate & Other

  20,782   18,578 

Total

 $967,815  $921,889 

18)

Restructuring


18)      Restructuring

The Company has undertaken cost reduction and facility consolidation initiatives that have resulted in severance, restructuring, and related charges.

 

20192020 Restructuring Initiatives


The Company continues to focus our efforts to reduce cost and improve productivity across our businesses, particularly through headcount reductions, facility closures, and consolidations. DuringRestructuring expenses primarily related to headcount reductions and facility rationalization within our Engraving segment. Thus far, during fiscal year 2019,2020, we have also incurred restructuring expenses related to third party assistance with analysis and implementation of these activities.


Prior Year Restructuring Initiatives


During the fiscal year 2018, we2019, the Company initiated restructuring expensesprograms related to three restructuring programs, namely: (1)to:  (1) employee headcount reductions as the realignment ofCompany realigned management functions at the Food Service Equipment Group level; (2) headcount reduction and plant realignment with regard to the standard products businesses within Food Service Equipment; and (3)(2) the exit of an unprofitable Engraving businessbusinesses, and (3) initiatives intended to improve profitability, streamline production, and enhance capacity to support future growth in Brazil.the Electronics and Engraving segments.




24






10



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


 

Three Months Ended

 

Six Months Ended

 



Three Months Ended


Nine Months Ended

 

 

December 31, 2019

  

December 31, 2019

 



March 31, 2019


March 31, 2019

 

Fiscal 2019


Involuntary Employee Severance and Benefit Costs

Other


Total


Involuntary Employee Severance and Benefit Costs

Other


Total

Fiscal 2020

 

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Restructuring initiatives

Restructuring initiatives

$

497


$

5


$

502


$

794


$

75


$

869

 $795  $(134) $661  $1,795  $345  $2,140 

Prior year initiatives

Prior year initiatives


47



-



47



172



132



304

  -   59  $59   -   59  $59 



$

544


$

5


$

549


$

966


$

207


$

1,173

 $795  $(75) $720  $1,795  $404  $2,199 







Three Months Ended




Nine Months Ended

 



March 31, 2018


March 31, 2018

 

Fiscal 2018


Involuntary Employee Severance and Benefit Costs

Other


Total


Involuntary Employee Severance and Benefit Costs

Other


Total

Restructuring initiatives

$

265


$

 755


$

1,020


$

2,043


$

    2,649


$

4,692

Prior year initiatives


            7   



33   



40   



161



939



1,100



$

        272


$

788


$

    1,060


$

            2,204


$

3,588


$

   5,792


  

Three Months Ended

  

Six Months Ended

 
  

December 31, 2018

  

December 31, 2018

 

Fiscal 2019

 

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Restructuring initiatives

 $297  $(280) $17  $297  $70  $367 

Prior year initiatives

  40   120   160   125   132   257 
  $337  $(160) $177  $422  $202  $624 

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, 2018


$

-


$

-   


$

-   


Restructuring liabilities at June 30, 2019

 $-  $-  $- 

Additions and adjustments


794



75


869


 1,795  345  2,140 

Payments


(484)



(75)


(559)


  (1,795)  (345)  (2,140)

Restructuring liabilities at March 31, 2019


$

310  


$

-               


$

310              


Restructuring liabilities at December 31, 2019

 $-  $-  $- 


Prior Year Initiatives


Involuntary Employee Severance and Benefit Costs



Other




Total

 

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Restructuring liabilities at June 30, 2018


$

456   


$

25   


$

481   

 $147  $5  $152 

Additions and adjustments


172



132


304

 -  59  59 

Payments


                (545)



        (151)


     (696)

  (147)  (61)  (208)

Restructuring liabilities at March 31, 2019


$

83


$

6


$

89

Restructuring liabilities at December 31, 2018

 $-  $3  $3 




25












11



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


 

Three Months Ended

 

Six Months Ended

 




Three Months Ended



Nine Months Ended

 

 

December 31, 2019

  

December 31, 2019

 




March 31, 2019



March 31, 2019

 

 

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

 

Engraving

 $572  $(134) $438  $1,132  $345  $1,477 

Electronics

 -  59  59  -  59  59 

Engineering Technologies

 -  -  -  -  -  - 

Food Service Equipment

Food Service Equipment

$

-


$

-


 $

-


$

276


  $

91


  $

367

 

 

 150  -  150  241  -  241 

Engraving



173



-



173



239



-



239

 

 

Engineering Technologies



-



-



-



17



99



116

 

 

Electronics



296



5



301



297



17



314

 

 

Corporate

Corporate



75



-



75



137



-



137

 

 

  73   -   73   422   -   422 




$

544


$

5


$

549


$

966


$

207


$

1,173

 

 

 $795  $(75) $720  $1,795  $404  $2,199 



Three Months Ended



Nine Months Ended



March 31, 2018



March 31, 2018



Involuntary Employee Severance and Benefit Costs




Other





Total


Involuntary Employee Severance and Benefit Costs




Other





Total

 

Food Service Equipment

$

1


$

747


 $

748


$

618


  $

2,201


  $

2,819

 

Engraving



186



2



188



925



345



1,270

 

Engineering Technologies



8



18



26



161



900



1,061

 

Electronics



77



7



84



209



90



299

 

Corporate



-



14



14



291



52



343

 



$

272


$

788


$

1,060


$

2,204


$

3,588


$

5,792

 


  

Three Months Ended

  

Six Months Ended

 
  

December 31, 2018

  

December 31, 2018

 
  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

  

Involuntary Employee Severance and Benefit Costs

  

Other

  

Total

 

Engraving

 $20  $-  $20  $67  $-  $67 

Electronics

  -   -   -   -   12   12 

Engineering Technologies

  -   99   99   17   99   116 

Food Service Equipment

  255   91   346   276   91   367 

Corporate

  62   (350)  (288)  62   -   62 
  $337  $(160) $177  $422  $202  $624 

Restructuring expense is expected to be approximately $0.8 $1.0 million for the remainder of fiscal year 2019.2020.


19)      Leases

19)

Subsequent Event


On April 17,Effective July 1, 2019, the Company announcedadopted ASU 2016-02,Leases (Topic 842), using the modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”). The Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have material financing leases.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. To estimate its incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that it had entered into an agreementthe Company will renew.

26

Amounts (in thousands) recorded in the Company's Condensed Consolidated Balance Sheet and Statement of Operations related to acquire Ohio-based Genius Solutions Engineering Company (d/b/a GS Engineering), a providerleases are as follows:

  

December 31, 2019

 

Assets

    

ROU Assets (other assets)

 $42,959 
     

Liabilities

    

Current (accrued expense)

 $8,503 

Other non-current liability

  33,728 

Total lease liability

 $42,231 

Lease cost

The components of specialized soft surface skin texturized tooling,lease costs for $30 million.  GS Engineering primarily serves the automotive end marketthree and will report operating results intosix months ended September 30, 2019 and December 31, 2019 are as follows:

  

Three Months Ended

  

Six Months Ended

 
  

December 31, 2019

  

December 31, 2019

 

Operating lease cost1

 $3,120  $5,961 

1Includes short-term leases and variable lease costs, which are immaterial.

Maturity of lease liability

The maturity of the Engraving segment.Company's lease liabilities at December 31,2019 were as follows:


  

Operating Leases

 

Remainder of 2020

 $4,809 

2021

  7,929 

2022

  6,357 

2023

  4,449 

2024

  3,885 

After 2024

  20,198 

Less: Interest

  (5,396)

Present value of lease Liabilities

 $42,231 

ITEM 2.The weighted average remaining lease term and discount rates are as follows:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Lease Term and Discount Rate

December 31, 2019

Weighted average remaining lease term (years)

Operating leases

10.42

Weighted average discount rate (percentage)

Operating leases

2.6%


Other Information

Supplemental cash flow information related to leases is as follows:

  

Three Months Ended

  

Six Months Ended

 
  

December 31, 2019

  

December 31, 2019

 

Operating cash flows from operating leases

 $2,573  $5,148 

Total cash paid for amounts included in the measurement of lease liabilities

  2,573   5,148 

27

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“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,“should,could,“could,may,“may,will,“will,expect,“expect,believe,“believe,estimate,“estimate,anticipate,“anticipate,intend,“intend,continue,“continue, or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the CompanysCompany’s business and the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated. These factors include, but are not limited to: 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 food service equipment, automotive, construction, aerospace, energy, oil and gas, transportation, consumer appliance 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, petroleum based products, refrigeration components and certain materials used in electronics parts; 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 impact of the current coronavirus on our China supply chain as well as the demand for our products and services in China; 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; and our ability to increase manufacturing production to meet demand; and potential changes to future pension funding requirements. In addition, any forward-looking statements represent management's estimates only as of the day made and should not be relied upon as representing management's estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management's estimates change.


Overview


We are a leading manufacturer of a variety of products and services for diverse commercial and industrial markets. We have nine operating segments aggregated into five reportable segments: Engraving, Electronics, Engineering Technologies, Hydraulics, and Food Service Equipment, Engraving, Engineering Technologies, Electronics and Hydraulics.Equipment. Overall management, strategic development and financial control are led by the executive staff at our corporate headquarters located in Salem, New Hampshire. During the third quarter of 2019, we completed the previously announced divestiture of our Cooking Solutions Group consistent with our strategy to focus our financial assets and managerial resources on our higher growth and operating margin businesses.  The divestiture of the Cooking Solutions Group was completed as of March 31, 2019 and consideration was exchanged on April 1.  Subsequent to the disposition, we now have nine operating business units.  


Our long-term strategy is to create, improve, and enhance shareholder value by building larger, more profitable industrial platforms through a value creation system that assists management in meeting specific corporate and business unit financial and strategic performance goals. In so doing, we expect to focus our financial assets and managerial resources on our higher growth and operating margin businesses while considering divestiture of those businesses that we feel are not strategic or do not meet our growth and return expectations. The Standex Value Creation System is a standard methodology which provides consistent tools used throughout the company in order to achieve our organizationsorganization’s goal of transforming from its historic roots as a holding company to an efficient operating company. The Standex Value Creation System employs four components: Balanced Performance Plan,



12



Standex Growth Disciplines, Standex Operational Excellence, and Standex Talent Management. The Balanced Performance Plan process aligns annual goals throughout the business and provides a standard reporting, management and review process by setting and meeting annual and quarterly targets that support our short and long-term goals. The Standex Growth Disciplines use a set of tools and processes including market maps, growth lane ways, and market tests to identify opportunities to expand the business organically and through acquisitions. Standex Operational Excellence employs a standard playbook and processes, including LEAN, to eliminate waste and improve profitability, cash flow and customer satisfaction. Finally, the Standex Talent Management process is an organizational development process that provides training, development, and succession planning for our employees throughout our worldwide organization. The Standex Value Creation System ties all disciplines in the organization together under a common umbrella by providing standard tools and processes to deliver our business objectives.


It is our objective to invest in our higher growth and operating margin businesses through both organic initiatives and acquisitions. Organically, we seek to identify and implement growth initiatives such as new product development, geographic expansion, and the introduction of products and technologies into new markets and applications, key accounts and strategic sales channel partners. Inorganically, we look to add strategically aligned or bolt on“bolt on” acquisitions to strengthen these core businesses, creating both sales and cost synergies and accelerating their growth and margin improvement. We have a particular focus on identifying and investing in opportunities that complement our products and will increase the global presence and capabilities of our core businesses. From time to time, we have divested, and likely will continue to divest.


As part of our ongoing strategy:


During the second quarter of fiscal year 2020, we announced a definitive agreement to acquire Torotel Inc. (“Torotel”).  Torotel is a leading designer and manufacturer of custom magnetics products primarily for the aerospace and defense industries and specializes in the custom design, manufacture and sale of a wide variety of precision magnetic components. Consummation of the transaction is dependent upon approval of holders of two-thirds of Torotel's outstanding shares. A special meeting of Torotel's shareholders to secure the necessary vote is scheduled for February 12, 2020, and we expect closing to occur shortly thereafter.  Torotel operates one facility in Kansas and one in Pennsylvania.

·

During the first quarter of 2019, the Company decided to divest

During the fourth quarter of fiscal year 2019, we acquired Ohio-based Genius Solutions Engineering Company (d/b/a GS Engineering), a provider of specialized “soft surface” skin texturized tooling, primarily serving the automotive end market. GS Engineering brings us critical proprietary technologies that offer significant advantages in creating tools for “soft surface” components which are used increasingly in vehicle interiors. The tooling for soft surface products offered by GS is highly complementary to our current industry-leading capabilities in texturing molds and tools used to create “hard surface” components. This technology also complements and enables us to improve our existing nickel shell technology that produces soft surface tooling. We currently are introducing the GS technology across our global production footprint which will enable customers worldwide to benefit from a combined offering for harmonized designs across a variety of surfaces and materials. GS operates one facility in Ohio and its Cooking Solutions Group, which consisted of three operating segments, Associated American Industries, BKI, and Ultrafryer, and a minority interest investment.  During the third quarter of 2019, we completed this divestiture.  In connection with the divestiture efforts, we also sold our minority interest in a European oven manufacturer back to the majority owners.  Results of the Cooking Solutions Group in current and prior periods have been classified as discontinued operations in the Condensed Consolidated Financial Statements.


·

In September 2018, we acquired New Hampshire-based Regional Mfg. Specialists, Inc. (now named Agile Magnetics, Inc.), a provider of high-reliability magnetics.  The addition of Agile Magnetics is an important step forward in building out the high reliability magnetics business of Standex Electronics.  As a result of this combination, we have broadened our exposure to several high-growth end-markets and added a valuable manufacturing and sales base in the Northeast.  Additionally, we can now offer complementary products from Standexs broader portfolio to Agiles customer base.  Agile Magnetics products include transformers, inductors and coils for mission critical applications for blue chip OEMs in the semiconductor, military, aerospace, healthcare, and industrial markets.  It operates one manufacturing facility in New Hampshire.


·

In August 2018, we acquired Michigan-based Tenibac-Graphion, Inc. (Tenibac-Graphion), a provider of chemical and laser texturing services.  The combination of Tenibac-Graphion and Standex Engraving will expand services available to customers, increase responsiveness to customer demands, and drive innovative approaches to solving customer needs.  The combined customer base now has access to the full line of mold and tool services, such as the Architexture design consultancy, Vycon part wrapping, chemical and laser engraving, tool finishing, and tool enhancements.  Tenibac-Graphion serves automotive, packaging, medical and consumer products customers, and operates three facilities, two in Michigan and one in China.


·

We acquired Italy-based Piazza Rosa Group (Piazza Rosa) in July 2017.  The privately held company is a leading provider of mold, tool treatment and finishing services for the automotive and consumer products markets.  The combination of these competencies with Standex Engravings worldwide presence and texturizing capabilities creates a global tool finishing service leader.  The



13



acquisition also opens additional opportunities in the broader surface engineering market.  The Piazza Rosa Groups results are reported within our Engraving segment.

During the third quarter of fiscal year 2019, consistent with our strategy to focus our financial assets and managerial resources on our higher growth and operating margin businesses, we completed the divestiture of our Cooking Solutions Group, which consisted of three operating segments, Associated American Industries, BKI, and Ultrafryer, along with a minority interest investment.  We completed the divestiture on March 31, 2019 and exchanged consideration for the sale on April 1 of 2019. In connection with the divestiture efforts, we also sold our minority interest in a European oven manufacturer back to the majority owners. Results of the Cooking Solutions Group in current and prior periods have been classified as discontinued operations in the Condensed Consolidated Financial Statements.

In the first quarter of fiscal year 2019, we acquired New Hampshire-based Regional Mfg. Specialists, Inc. (now named Agile Magnetics, Inc.), a provider of high-reliability magnetics. The addition of Agile Magnetics represented an important step forward in building out the high reliability magnetics business of Standex Electronics. As a result of this combination, we have broadened our exposure to several high-growth end-markets and added a valuable manufacturing and sales base in the northeast. Additionally, we can now offer complementary products from Standex’s broader portfolio to Agile’s customer base. Agile Magnetics products include transformers, inductors and coils for mission critical applications for blue chip OEMs in the semiconductor, military, aerospace, healthcare, and industrial markets. It operates one manufacturing facility in New Hampshire.

In the first quarter of fiscal year 2019, we acquired Michigan-based Tenibac-Graphion, Inc. (Tenibac), a provider of chemical and laser texturing services. The combination of Tenibac and Standex Engraving expands services available to customers, increase responsiveness to customer demands, and drive innovative approaches to solving customer needs. The combined customer base now has access to the full line of mold and tool services, such as the Architexture design consultancy, Vycon™ part wrapping, chemical and laser engraving, tool finishing, and tool enhancements. Tenibac serves automotive, packaging, medical and consumer products customers, and operates three facilities, two in Michigan and one in China.

We create Customer Intimacy“Customer Intimacy” by utilizing the Standex Growth Disciplines to partner with our customers in order to develop and deliver custom solutions or engineered components. By partnering with our customers during long-term product development cycles, we become an extension of their development teams. Through this Partner, Solve, Deliver®Deliver ® methodology, we are able to secure our position as a preferred long-term solution provider for our products and components. This strategy is designed to result in increased sales and operating margins that enhance shareholder returns.

Standex Operational Excellence drives continuous improvement in the efficiency of our businesses, both on the shop floor and in the office environment. We recognize that our businesses are competing in a global economy that requires us to improve our competitive position. We have deployed a number of management competencies to drive improvements in the cost structure of our business units including operational excellence through lean enterprise, the use of low cost manufacturing facilities in countries such as Mexico and China, the consolidation of manufacturing facilities to achieve economies of scale and leveraging of fixed infrastructure costs, alternate sourcing to achieve procurement cost reductions, and capital improvements to increase productivity.

The CompanysCompany’s strong historical cash flow has been a cornerstone for funding our capital allocation strategy. We use cash flow generated from operations to fund the strategic growth programs described above, including acquisitions and investments for organic growth, investments in capital assets to improve productivity and lower costs and to return cash to our shareholders through payment of dividends and stock buybacks.


Restructuring expenses reflect costs associated with our efforts to continuously improve operational efficiency and expand globally in order to remain competitive in the end-user markets we serve. 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, 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 CompanysCompany’s businesses, end user markets and geographic locations, we do 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(“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, the Company calculates 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 our acquisition. Sales resulting from synergies between our acquisitions and existing operations of the Company are considered organic growth for the purposes of our discussion.



14



Unless otherwise noted, references to years are to fiscal years.


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)


2019


2018



2019


2018

 

2019

  

2018

  

2019

  

2018

 

Net sales

$

193,771


$

192,147


$

582,380


$

566,982

 $190,585  $195,522  $387,023  $388,609 

Gross profit margin


31.9%


34.4%



34.0%


34.4%

 34.9% 34.2% 34.8% 35.0%

Income from operations


15,046


18,819



57,898


54,516

 17,834  20,207  36,275  42,852 














Three Months Ended



Nine Months Ended

(In thousands)


March 31, 2019



March 31, 2019

Net sales, prior year period

$

192,147


$

566,982

Components of change in sales:






    Organic sales change


(1,718)



3,316

    Effect of acquisitions


7,680



20,416

    Effect of exchange rates


(4,338)



(8,334)

Net sales, current period

$

193,771


$

582,380



  

Three Months Ended

  

Six Months Ended

 

(In thousands)

 

December 31, 2019

  

December 31, 2019

 

Net sales, prior year period

 $195,522  $388,609 

Components of change in sales:

        

Organic sales change

  (5,778)  (8,988)

Effect of acquisitions

  1,629   10,047 

Effect of exchange rates

  (788)  (2,645)

Net sales, current period

 $190,585  $387,023 

Net sales increased infor the thirdsecond quarter of fiscal year 2019 by $1.62020 declined $4.9 million, or 0.8%2.5%, when compared to the prior year period.  Organic sales decreased by $5.8 million, or 3.0%, with Engraving, Electronics, and Hydraulics organically declining in the quarter.  Acquisitions contributed $7.70.8% to the overall growth in the quarter, but were offset by negative foreign currency impacts of 0.4%.

Net sales in the six months ended December 31, 2019 decreased $1.6 million, or 4.0%0.4%, when compared to overallthe prior year.  The decrease in net sales growth.  Organic sales declined $1.7was driven by organic declines of $9.0 million, or 0.9%2.3%, incremental sales from acquisitions of $10.0 million, or 2.6%, and foreignunfavorable currency had a $4.3of $2.6 million, or 2.3% negative impact on sales.0.7%.  We discuss our sales results and outlook for each segment below.


Net sales in the nine months ended March 31, 2019 increased $15.4 million or 2.7% when compared to prior year.  Organic sales contributed $3.3 million or 0.6% to overall sales growth.  Acquisitions accounted for $20.4 million or 3.6% of the increase in sales.  Foreign currency also had a negative effect of $8.3 million or 1.5% on sales.


Gross Profit Margin


Our gross margin for the thirdsecond quarter of 20192020 was 31.9% which declined from34.9% compared to the prior year second quarters gross margin of 34.4%34.2%We experienced grossGross margin declines in all segments exceptexpanded 70 basis points as compared to the prior year period due to sales mix within the Engineering Technologies assegment along with productivity improvements driven by our Standex Operational Excellence initiatives, primarily within the Food Service Equipment Group, which more than offset gross profit declines associated with a product of the deleveraging generated by3% organic sales declines, as well as increased expenses such as, material costs, and wage inflation.decline.


Our gross margin in the ninesix months ended MarchDecember 31, 2019 was 34.0% which was a slight decrease when compared to34.8%, essentially flat with the prior year resultsperiod’s gross margin of 34.4%35.0%


Restructuring Charges

We incurred restructuring expenses of $0.7 million for the quarter and $2.2 million for the six-month period, primarily related to headcount reductions and facility rationalization within our Engraving segment.

We expect to incur additional restructuring costs of approximately $1.0 million throughout the remainder of fiscal year 2020.

Acquisition Related Expenses

We incurred acquisition-related expenses of $0.7 million for the second quarter and $0.9 million for the six months ended December 31, 2019, primarily for deferred compensation earned by the seller of our Horizon Scientific business, which we acquired in October 2016.  The Horizon seller achieved the all employment-based requirements during the second quarter of 2019 and all remaining amounts due.  We anticipate no further acquisition expenses related to the Horizon deferred compensation agreement.

Selling, General, and Administrative Expenses


Selling, General, and Administrative Expenses ((“SG&A&A”) for the thirdsecond quarter of 20192020 were $45.4$47.1 million, or 23.4%24.7% of sales, compared to $45.0$45.7 million, or 23.4% of sales, during the prior year quarter.  SG&A expenses during the quarter were impacted by: i)by on-going SG&A expenses related to our recent acquisitions of $2.2$0.5 million offset by ii) a decline in distributionalong with increased employee benefit and selling expenses of $1.3 million as a result of our organic sales declines.compensation costs.


SG&A for the ninesix months ended MarchDecember 31, 2019 were $136.6$95.8 million, or 23.4%24.8% of sales, compared to $131.8$91.2 million, or 23.3%23.5% of sales, during the prior year.year quarter.  SG&A expenses were impacted by on-going SG&A expenses related to our recent acquisitions of $5.2 million.  Distribution$1.5 million along with increased employee benefit and selling expenses remained consistent with prior year to date levels.



15



compensation costs.

 

Restructuring Charges


We incurred restructuring expenses of $0.5 million for the quarter and $1.2 million for the nine-month period, primarily related to headcount reductions within our Electronics and Engraving segments and the commencement of facility rationalization within our Engraving Group.  


We expect to incur restructuring costs of approximately $0.8 million throughout the remainder of fiscal year 2019 primarily as a result of further rationalization efforts within Engraving and targeted administrative headcount reductions across other segments.  Further, we expect to incur additional restructuring costs of approximately $2.5 million during fiscal year 2020 to complete these restructuring efforts, which we anticipate will generate annual savings of $2.7 million per year upon completion.


Acquisition Related Expenses


We incurred acquisition-related expenses of $0.8 million during the third quarter and $2.4 million for the nine months ended March 31, 2019 as compared to $1.3 million and $3.0 million for the respective periods in the prior year.  Acquisition-related expenses in fiscal year 2019 primarily related to deferred compensation earned during the quarter by the seller of our Horizon Scientific business acquired in October of fiscal year 2017.  The last of these payments is payable in October of fiscal year 2020 and is contingent on the seller remaining an employee of the Company at that time.


Income from Operations


Income from operations for the thirdsecond quarter of 20192020 was $15.1$17.8 million, compared to $18.8$20.2 million during the prior year quarter.  The declinedecrease of $3.7$2.4 million, or 20.0%11.7%, is primarily due to gross profit declines of $4.3 million as a result of the deleveraging generated bylower organic sales declines, as well as increased expenses such as, material costs and wage inflation.  The operating income declines werevolume, an increase in restructuring expense due to recent facility rationalization initiatives in Engraving, partially offset by lower administrative spending.gross margin increases.


Income from operations for the ninesix months ended MarchDecember 31, 2019 was $57.9$36.3 million, compared to $54.5$42.9 million during the prior year.year period.  The increasedecrease of $3.4$6.6 million, or 6.2%15.3%, is primarily due to operating income generated by the Tenibac acquisition made during the year, lower organic sales volume, higher input costs for certain raw materials, and a $1.6 million increase in restructuring expenses, as compared topartially offset by a $1.0 million gain upon receipt of insurance proceeds realized in the priorfirst quarter of fiscal year and2020 from the variability ofJune 2019 fire loss at our business segment performance.New Albany, Mississippi facility.


Interest Expense


Interest expense for the thirdsecond quarter of 20192020 was $3.2$1.9 million, compared to $2.3$3.1 million during the prior year quarter.  Interest expense for the nine months ended March 31, 2019 and March 31, 2018 were $8.6 million and $5.8 million, respectively.  The increased interest expense for both periodsdecrease is due to higherlower borrowings associated with the recent acquisitions in addition to an increasea decrease in our effective interest rate of 3.71%3.4% as of MarchDecember 31, 2019, as compared to 2.98%3.7% as of MarchDecember 31, 2018. Interest expense for the six months ended December 31, 2019 and December 31, 2018 were $4.1 million and $5.4 million, respectively. 


Income Taxes


The Company's effective tax rate from continuing operations for the thirdsecond quarter of 20192020 was 34.4%19.0% compared with 23.8%23.6% for the prior year quarter.  The effective tax rate in 20192020 was higherlower due to a $0.5$0.8 million discrete tax benefit related totoreceipt of formal approval by the US tax reform recorded in the prior year quarter, withholding taxes included in the current yearauthorities for foreign repatriation, andapplication of a shift in geographic mix whereby we incurred lower profit beforebeneficial “high tech” tax in the United States (a low tax jurisdiction), and comparatively higher income in the restrate for certain of the world.our Chinese operations.


The Company's effective tax rate from continuing operations for the ninesix months ended MarchDecember 31, 2019 was 28.4%23.6% compared with 57.7%26.6% for the prior year.year period.  The effective tax rate for priorthe year to date was higherlower due to the $14.6same discrete tax reform benefit in addition to a $1.3 million impactgain on non-taxable life insurance proceeds received in fiscal year 2020, and jurisdictional mix whereby less income was earned in higher rate jurisdictions in the first six months of fiscal year 2020 than in the U.S. Section 965 repatriation tax.prior year period.




16



The Company is routinely audited by various jurisdictions.  The Company is currently under audit by the IRS for the fiscal years ending June 30, 2016 and 2017.  We anticipate finalizing the audit during the first quarter of fiscal year 2020.


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. With the exception of our Engineering Technologies Group, backlogBacklog is not generally a significant factor in the CompanysCompany’s businesses because of our relatively short delivery periods and rapid inventory turnover.turnover with the exception of Engineering Technologies. Backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems. Customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Due to the nature of long termlong-term agreements in the Engineering Technologies group, the timing of orders and delivery dates can vary considerably resulting in significant backlog changes from one period to another. In general, the majority of net realizable backlog beyond one year comes from the Engineering Technologies Group.


 

As of December 31, 2019

  

As of December 31, 2018

 



As of March 31, 2019



As of March 31, 2018

 

Total Backlog

  

Backlog under 1 year

  

Total Backlog

  

Backlog under 1 year

 



Total Backlog


Backlog under 1 year



Total Backlog


Backlog under 1 year

Engraving

 $21,722  $19,372  $17,671  $17,662 

Electronics

 52,341  52,257  69,858  62,127 

Engineering Technologies

 117,082  93,802  106,948  79,892 

Hydraulics

 9,027  9,027  17,531  17,531 

Food Service Equipment

$

31,558

$

28,114


$

31,903

$

28,575

  24,354   21,628   30,784   26,713 

Engraving


17,490


17,481



22,282


22,282

Engineering Technologies


119,454


84,212



93,646


72,960

Electronics


69,507


62,654



72,046


68,097

Hydraulics


14,952


14,887



10,610


10,604

Total

$

252,961

$

207,348


$

230,487

$

202,518

 $224,526  $196,086  $242,792  $203,925 


Total backlog realizable under one year increased $4.8declined $7.8 million, or 2.4%3.8%, to $207.3$196.1 million at MarchDecember 31, 2019 from $202.5$203.9 million at MarchDecember 31, 2018.  Organic backlog under one year decreased $0.7 million, or 0.3%, while acquisitions contributed an additional $5.5 million.  Thein all segments except Engraving Group experienced backlog declines as compared to prior year primarilyand Engineering Technologies due to the timing of new platform launches within the automotive industry which that segment serves.a slow-down in select end markets. 


Segment Analysis

Engraving Group


Three Months Ended




Nine Months Ended




March 31,


%


March 31,


%

(In thousands, except percentages)

2019


2018


Change


2019


2018


Change

Net sales

$ 37,135


$ 33,749


10.0%


111,602


$ 100,457


11.1%

Income from operations

4,485


 7,195


(37.7%)


18,883


 21,735


(13.1%)

Operating income margin

12.1%


21.3%




16.9%


21.6%




  

Three Months Ended

      

Six Months Ended

     
  

December 31,

  

%

  

December 31,

  

%

 

(In thousands, except percentages)

 

2019

  

2018

  

Change

  

2019

  

2018

  

Change

 

Net sales

 $38,256  $38,485   (0.6%) $76,687  $74,466   3.0%

Income from operations

  6,916   6,849   1.0%  13,454   14,398   (6.6%)

Operating income margin

  18.1%  17.9%      17.5%  19.3%    

Net sales for the second quarter of fiscal year 2020 decreased by $0.2 million or -0.6% when compared to the prior year quarter.  Organic sales declined by $1.4 million or -2.7% and foreign exchange was unfavorable by $0.5 million.  Sales in Europe and Americas were impacted by slower incoming workload due to customer timing of automotive projects.  We anticipate increased sales in the third quarter of fiscal 2020 as delayed projects are initiated by customers.  Organic sales declines were offset by the acquisition of GS Engineering, which increased our global offerings by providing new soft trim technology to customers and generated $1.6 million of sales for the second quarter fiscal year 2020.

Income from operations for the second quarter of fiscal year 2020 increased by $0.1 million, or 1.0%, when compared to the prior year quarter as the combination of cost improvements together with the restructuring actions announced in the third quarter of fiscal year 2019 overcame the impact of reduced sales volume during the quarter. 

Net sales for the third quarter ofsix months ended December 31, 2019, increased by $3.4$2.2 million, or 10.0%3.0% when compared to the prior year as the acquisitions of GS and Tenibac contributed $6.9 million or 9.3% to the increase.  Organic sales declined by -4.0% due to the timing of automotive projects, primarily in North America along with the closure of unprofitable sites as part of our previously announced restructuring.  Additionally, foreign exchange negatively impacted sales by $2.0 million for the year to date period.


Income for the six months ended December 31, 2019, decreased $0.9 million, or -6.6%, when compared to the prior year largely due to the impact of the sales declines, increased amortization expenses of $0.9 million as a result of our recent acquisitions, and negative foreign exchange rate impacts of $0.4 million which, collectively, more than offset productivity improvements and cost reduction activities in our facilities. Looking forward, we expect year-over-year operating income improvement due to increased automotive model roll-outs, continued contribution from the GS Engineering acquisition and operating leverage associated with recent cost restructuring actions.

Electronics Group

  

Three Months Ended

      

Six Months Ended

     
  

December 31,

  

%

  

December 31,

  

%

 

(In thousands, except percentages)

 

2019

  

2018

  

Change

  

2019

  

2018

  

Change

 

Net sales

 $45,834  $52,700   (13.0%) $92,452  $104,150   (11.2%)

Income from operations

  7,776   10,376   (25.1%)  15,875   23,163   (31.5%)

Operating income margin

  17.0%  19.7%      17.2%  22.2%    

Net sales in the second quarter of fiscal year 2020 decreased $6.9 million, or 13.0%, when compared to the prior year quarter.  Organic sales increaseddeclined by $1.0$7.2 million or 3.0%.   Acquisitions contributed $4.6 million, or 13.6% partially offset by a negative foreign exchange impact of $2.2 million, or 6.6%, during the quarter.  New product offerings of nickel shell, laser engraving, Architexture, and tool finishing-13.6% as sales were lower in all realized increased sales of 39% whichmajor geographic markets, particularly Asia. Sales declines were experienced across most products lines but were partially offset by lower sales in traditional services.  We anticipate another challenging quarter as fewer new automotive platforms are forecasted to be launched.  However, the Company expects demand in both the automotivesensor, switch and non-automotive markets to rebound beginning in the first fiscal quarter of 2020 as there are a number of scheduled new product launches by customers which should lead torelay applications. The foreign currency impact increased sales in all regions.


Net sales for the nine months ended March 31, 2019 increased by $11.1$0.3 million, or 11.1%, when compared to the prior year.  The Tenibac acquisition contributed $14.2 million, or 14.1% to the groups overall sales increases for0.6%.



17



the year.  Foreign exchange had a negative impact of 4.6%, or $4.7 million.  New service offerings within the group including tool finishing, laser engraving, Architexture, and nickel shell all had a positive impact on organic growth and helped offset declines in traditional services. 


Income from operations for the third quarter of 2019 decreased by $2.7 million, or 37.7%, when compared to the prior year.  The decrease was primarily due to an unfavorable geographic mix, lower automotive sales in North America, reduced demand at our higher profit China facilities due to concerns regarding trade conflicts, and the increased costs associated with the integration process following the Tenibac acquisition.  Due to the lower profitability in the quarter, we have announced a restructuring program to close underperforming sites and reduce administrative headcount.  We anticipate that these actions will save $2.7 million on an annual basis upon completion of the activities.  


Income for the nine months ended March 31, 2019 decreased by $2.9 million, or 13.1%.  Profitability within the group for the year has been negatively impacted as customers of our China locations have been negatively impacted by a reduction in their export demand due to the impact of tariffs.  The Engraving group is investing in and promoting new technologies that we anticipate will facilitate improved operating income results in future quarters as these technologies are implemented throughout our worldwide Engraving network.  



Electronics Group


Three Months Ended




Nine Months Ended




March 31,


%


March 31,


%

(In thousands, except percentages)

2019


2018


Change


2019


2018


Change

Net sales

 $ 50,197


 $ 51,213


(2.0%)


 $154,347


 $144,082


7.1%

Income from operations

     9,418


     11,221


(16.1%)


  32,581


  31,774


2.5%

Operating income margin

18.8%


21.9%




21.1%


22.1%




Net sales in the third quarter of fiscal year 2019 decreased $1.0 million, or 2.0%, when compared to the prior year quarter.  Organic growth declined 4.8% partially offset by acquisition growth of 6.0%.  Currency impacts reduced sales by $1.6 million, or 3.2%.  Sales were down in Europe and Asia and mostly flat in North America as geographic softness was partially offset by new business.  Growth was strong in the industrial markets but offset by weakness due to tariffs and reduced demand in automotive and distribution markets.  We anticipate a challenging sales comparison in the fourth quarter as bookings are down in all regions partially offset by new business opportunities in our product pipeline.


Net sales for the first nine months ended March 31, 2019 increased $10.3 million, or 7.1%, when compared to the prior year.  Sales increased $6.2 million, or 4.3%, due to the Agile Magnetics acquisition.  The currency effect decreased sales by $2.9 million, or 2.0%.  Organic sales growth was $6.9 million, or 4.8% for the first nine months when compared to the prior year as sales in all major geographic areas during the first two quarters of the fiscal year were higher with growth mostly in industrial and distribution markets.   


Income from operations in the thirdsecond quarter of fiscal year 20192020 decreased $1.8$2.6 million, or 16.1%-25.1%, when compared to the prior year quarter.  The earnings decreasedecline was due to product mixthe margin loss on lower organic sales and increased expenses suchsignificant inflationary cost increases, particularly among platinum group metals offset some by cost savings initiatives in all regions.  In the third quarter we expect sales volume to decrease year-over-year, but increase slightly from the second quarter as materials costend markets improve slightly sequentially and wage inflationdistributor de-stocking is anticipated to slow.

Net sales for the six months ended December 31, 2019, decreased $11.7 million, or -11.2%, when compared to the prior year to date period.  Organic sales growth was negative $14.3 million, or -13.8% for the first half when compared to the prior year. Sensor and reed switch volumes have experienced lower sales volume due to a slowdown in global economic conditions while magnetics levels remained steady to the prior year period.  Organic sales declines were partially offset by various operating efficiency initiatives.  In anticipationsales increases of lower demand, we have initiated a restructuring program$3.1 million, or 3.0%, due to reduce administrative headcount which will cost approximately $0.5the Agile Magnetics acquisition. Foreign currency changes decreased sales by $0.4 million, and generate savings of $1.1 million per year upon implementation.  or -0.4%.


Income from operations for the first ninesix months ended MarchDecember 31, 2019, increased $0.8decreased $7.3 million, or 2.5%31.5%, when compared to the prior year.  The increasedecrease is due to the profitmargin loss on lower organic sales, volumeunfavorable currency impacts and inflationary cost increases partially offset by cost savings initiatives as well as operatingthe Agile acquisition earnings impact. We anticipate that we will continue to manage and accelerate cost savings initiativesreduction projects in order to partially offset by materialcommodity and wage inflationarylabor cost increases and product mix.  The Company currently expects sales for the calendar year will remain at levels similar to those in the fiscal third quarter.  As a result, Standex has initiated efforts focused on G&A expense reduction as well as actions targeting increased productivity and reduced material spend.inflation.




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)

2019


2018


Change


2019


2018


Change

 

2019

  

2018

  

Change

  

2019

  

2018

  

Change

 

Net sales

$ 27,467


 $     23,426


17.3%


$ 71,818


 $     65,621


9.4%

 $26,495  $23,568  12.4% $51,139  $44,351  15.3%

Income from operations

2,800


          1,155


142.4%


6,636


3,879


71.1%

 3,422  2,061  66.0% 6,781  3,836  76.8%

Operating income margin

10.2%


4.9%




9.2%


5.9%



 12.9% 8.7%    13.3% 8.6%   


Net sales in the thirdsecond quarter of fiscal year 20192020 increased by $4.0$2.9 million, or 17.3%12.4%, when compared to the prior year quarter.  Sales distribution by market for the quarter was as follows: 46%43% aviation, 27%25% space, 15% energy, 11% energy, 10% defense, 6%5% medical and 1% other markets.  Aviation sales increased by $0.8 million compared to the prior period due to higher sales on the A320 NEO program.  Sales in the defenseaviation market were up $0.9$0.4 million due to an increase in sales to the Navy Nuclear segment.  Energy sales increased by $2.0 million due to higher sales to the Oil and Gas market.  Based on our backlog, we anticipate growth in aviation, space, and defense markets in our fourth quarter.  


Net sales for the nine months ended March 31, 2019 increased by $6.2 million, or 9.4%, when compared to the prior year.  Aviation sales increased by $1.0 million due to higher customer demand.  Energy related sales were up $3.7 million due to higher demand in the project based Oil and Gas segment.  Defense related sales improved by $0.7 million from the prior year due to higher volumesales to engine suppliers on the LEAP and C-130 programs.  Defense sales increased by $1.3 million in the quarter due to higher sales in the Navy Nuclear and Missile segments of the market.  nuclear segment.


Income from operations in the thirdsecond quarter of fiscal year 2019 increased by $1.6$1.4 million, or 142.4%66.0%, when compared to the prior year quarter.  Margins improvedquarter as a result of higher sales volume and continued manufacturing processefficiency improvements. We anticipate higher comparative operating income performance based on projected volumes

Net sales for the six months ended December 31, 2019, increased by $6.8 million, or 15.3%, when compared to the prior year period.  Aviation sales increased $1.7 million due to volume improvements in both the structures and the aircraft engine segments while total launch vehicle sales were up $2.2 million due to an increase in the fourth quartermanned space segment.  Current customer demand in the aviation segment along with the project-based backlog in the defense and continued realizationspace markets should support increased sales in the second half of manufacturing efficiencies.  the year.


Income from operations for the ninesix months ended MarchDecember 31, 2019, increased by $2.8$2.9 million, or 71.1%76.8%, when compared to the prior year.  The increase in operating income was the result of higher sales volume, price increases in the aviation segment, and improvements in plant operating efficiencies along with higher sales volume. In the fourth quarter, Standex expects to continue to benefit from increased demand in the Aviation, Space, and Defense markets.  Operating income is expected to increase as a result of this volume increase as well as continued productivity improvement efforts.manufacturing efficiencies.



Hydraulics Group


Three Months Ended




Nine Months Ended




March 31,


%


March 31,


%

(In thousands, except percentages)

2019


2018


Change


2019


2018


Change

Net sales

$15,106


$12,878    


17.3%


$39,758


$34,969


13.7%

Income from operations

2,242


      1,749


28.2%


5,753


5,138


12.0%

Operating income margin

14.8%


13.6%




14.5%


14.7%




  

Three Months Ended

      

Six Months Ended

     
  

December 31,

  

%

  

December 31,

  

%

 

(In thousands, except percentages)

 

2019

  

2018

  

Change

  

2019

  

2018

  

Change

 

Net sales

 $11,316  $12,116   (6.6%) $25,064  $24,651   1.7%

Income from operations

  1,818   1,929   (5.8%)  4,345   3,512   23.7%

Operating income margin

  16.1%  15.9%      17.3%  14.2%    

Net sales in the thirdsecond quarter of fiscal year 2019 increased $2.22020 decreased $0.8 million, or 17.3%-6.6%, when compared to the prior year quarter.  The increasedecrease is primarily due to strong demand from original equipment manufacturers (OEMs)a buildup of inventory at certain customers as well as a slowdown in the dump markets,  partially offset by increased sales to the refuse space along with new refuse applications.  Specifically,markets.  Sales of our new pack eject cylinder for front end loading garbage trucks and other applications continuecontinues to receive market acceptance by OEMs.       


Net sales for the nine months ended March 31, 2019 increased $4.8 million, or 13.7%, when compared to the prior year.  Similar to the results of the quarter, the sales increase is due to market share gains in the refuse OEM marketplace.  The Company expects end market demand to remain positive due to ongoing strong demand from construction and infrastructure projects.




18



Income from operations in the thirdsecond quarter of fiscal year 2019 increased $0.52020 decreased $0.1 million, or 28.2%-5.8%, when compared to the prior year quarter.  The operating income increasedecrease was driven by top line volume growth whichthe sales decline and was partially offset by materiallower manufacturing costs and improved cost increasesmanagement. 

Net sales for the six months ended December 31, 2019, increased $0.4 million, or 1.7%, when compared to the prior year.  The increase is due to tariffs on material components purchased from China.continued strong sales growth in the refuse markets partially offset by declines due to inventory buildup and a decline in sales in the dump markets.         


Income from operations for the ninesix months ended MarchDecember 31, 2019, increased $0.6$0.8 million, or 12.0%23.7%, when compared to the prior year.  The operating income increase was driven by the sales volume increases during the first nine months particularly in the refuse market.  Operating income increasestop line growth and lower manufacturing costs which were partially offset by higher material costs, driven by tariffsinventory reserves. Looking forward, we expect revenue and operating income to decrease in the third quarter reflecting customer de-stocking as well as the expiration of tariff relief for rod and telescopic cylinders during coming quarter.  We continue to focus efforts on purchased material components from China,growing our aftermarket presence and higher manufacturing overhead for the yearnew business opportunity pipeline in order to date period.partially offset these impacts.



Food Service Equipment 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)

2019


2018


Change


2019


2018


Change

 

2019

  

2018

  

Change

  

2019

  

2018

  

Change

 

Net sales

$63,866


$ 70,881


(9.9%)


$ 204,855


$ 221,853


(7.7%)

 $68,684  $68,653  0.1% $141,681  $140,991  0.5%

Income from operations

3,559


5,546


(35.8%)


15,417


19,834


(22.3%)

 6,773  5,190  30.50% 15,145  11,857  27.7%

Operating income margin

5.6%


7.8%




7.5%


8.9%



 9.9% 7.6%    10.7% 8.4%   

Net sales for the third quarter of 2019 decreased $7.0 million or 9.9% when compared to the prior year quarter. Organic sales growth declined 9.4% while foreign exchange had a negative 0.5% effect on sales.  The organic sales decrease was driven by our Refrigeration business where sales declined over 17.3% primarily due to three factors: lower volume in the retail channel (drug, retail, and dollar stores), slow market conditions for non-buying group dealers, and reduced sales to large chains.  The Refrigeration sales declines were partially offset by sales gains of 13.3% in Scientific due to new product launches. Standex expects a sequential, seasonal revenue increase in the next quarter, but with continued weakness in Refrigeration.  In addition, the Company continues to pursue productivity improvements to address the current market conditions.  The Company is also actively pursuing new Refrigeration business opportunities as well as continuing to promote its new Scientific, pump and display merchandizer product offerings.

Net sales for the nine months ended March 31, 2019 decreased $17.0 million or 7.7% from the same period last year.  The Refrigeration group experienced a 14.8% sales decrease in the first nine months of fiscal year 2019 due to a lower number of scheduled store remodels and higher number of store closures in addition to the factors described above.  Additionally, pump business sales have declined as compared to prior year due to sales decreases in the European espresso market.  Sales declines in Refrigeration and the pump business were partially offset by Scientific sales increases of 12.1% due to increased sales to retail pharmacy customers.

Income from operations decreased $2.0 million or 35.8% in the third quarter of fiscal 2019.  The decrease in operating income is primarily due to decreased sales volume and cost structure issues within the Refrigeration business, which are being addressed.

Income from operations for the nine months ended March 31, 2019 decreased $4.4 million or 22.3% from the same period in the prior year.  This reflected a combination of decreased volume, higher material prices in the pump business, and cost structure issues in Refrigeration which we are addressing through a consolidation of certain production facilities.









19



Corporate and Other


Three Months Ended




Nine Months Ended




March 31,


%


March 31,


%

(In thousands, except percentages)

2019


2018


Change


2019


2018


Change

Income (loss) from operations:












Corporate

$(6,104)


$(5,733)


(6.4%)


$(17,847)


$(19,090)


6.5%

Acquisition-related costs

(805)


(1,254)


35.8%


(2,352)


(2,962)


20.6%

Restructuring

 (549)


 (1,060)


48.2%


  (1,173)


  (5,792)


79.7%


Corporate expenses in the thirdsecond quarter of fiscal year 20192020 increased by $0.4$0.1 million, or 6.5%0.1%, when compared to the prior year. Sales growth reflected growth in our Pump business balanced against relatively flat demand in our Scientific and Refrigeration businesses as the Refrigeration group continued to re-stock inventory and fulfill sales after the warehouse fire in June.

Income from operations for the second quarter of fiscal year 2020 increased $1.6 million primarily related to direct and indirect labor reductions along with shop floor efficiencies yielded operating income improvements in the Refrigeration group together with favorable mix in our Scientific and Specialty Solutions businesses. 

Net sales for the first six months of fiscal year 2020 increased by $0.8 million or 0.6% as Scientific sales into retail pharmacy customers helped offset Refrigeration sales declines, especially during the first quarter, caused by the June 2019 warehouse fire at Refrigeration. 

Income from operations increased $3.3 million or 27.7% during the six months ended December 31, 2019 as a result of factory efficiencies in Refrigeration along with favorable mix in our Scientific and Specialty Solutions groups. On a year-over-year basis, the Company expects that segment sales will increase slightly in the third fiscal quarter of 2020 driven by increased Scientific sales and expects improvement in operating income due to the impact of productivity improvements.


Corporate and Other

  

Three Months Ended

      

Six Months Ended

     
  

December 31,

  

%

  

December 31,

  

%

 

(In thousands, except percentages)

 

2019

  

2018

  

Change

  

2019

  

2018

  

Change

 

Income (loss) from operations:

                        

Corporate

 $(7,378) $(5,162)  42.9% $(16,664) $(11,743)  41.9%
Other Operating Income  -   -   -   1,045   -   100.0%

Acquisition-related costs

  (773)  (859)  (10.0%)  (1,507)  (1,547)  (2.6%)

Restructuring

  (720)  (177)  306.8%  (2,199)  (624)  252.4%

Corporate expenses increased by $2.2 million and $4.9 million on a quarter and year to date basis primarily due to increased strategic consulting services partially offset by reduced incentivestock-based compensation expenses.  and benefit expenses in fiscal year 2020 along with management transition costs.


Corporate expenses for the nine months ended March 31, 2019, decreased by $1.2 million, or 6.5%, when compared to the prior year primarily due reduced incentive compensation expenses.  


The restructuring and acquisition-related costs have been discussed above in the Company Overview.


During the first quarter of 2020, we received $9.0 million of insurance proceeds related to fire losses of finished goods and personal property as a result of the June 2019 fire which occurred at a leased Refrigertaion warehouse in New Albany, Mississippi.  As the lost property carried a book value that was below the insurance coverage for this property, we recorded a $1.0 million gain upon receipt of the proceeds and recorded this as a component of Other Operating Income. 

Liquidity and Capital Resources


At MarchDecember 31, 2019, our total cash balance was $96.0$98.9 million, of which $78.5$86.9 million was held by foreign subsidiaries.  During the first six months of fiscal year 2020, we have repatriated $43.2$11.9 million to the United States from our foreign subsidiaries.  subsidiaries and we expect to repatriate $35.0 million during the entire fiscal year. 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, 2019, was $25.0$21.4 million compared to net cash provided by continuing operating activities of $26.9$13.9 million in the prior year.  We generated $59.5$22.5 million from income statement activities and used $34.5$2.4 million of cashdue to fundreduced working capital and other balance sheet increases.decreases.  During the quarter, we made the final contingent consideration payment of $5.9 million due to the Horizon Scientific seller.   This payment was a component of operating activities as it was considered non-substantive as the obligation to make the payment was dependent solely on continued employment of the Seller.  Cash flow used inprovided by continuing investing activities for the nine monthsquarter ended MarchDecember 31, 2019 totaled $112.1 million.  Uses$1.3 million and consisted of investing cash consisted primarilyinsurance proceeds related to the destruction of inventory in our leased Refrigeration facility and life insurance proceeds collected upon the death of a former executive offset by $10.0 million of capital expenditures of $17.8 million and $96.8 million for the acquisitions of Agile and Tenibac.expenditures.  Cash inflows providedused by financing activities for the ninesix months ended MarchDecember 31, 2019 were $72.5$16.3 million and included net borrowingsdebt repayments of $99.0$10.8 million partially offset byand cash paid for dividends of $7.3 million, stock repurchases of $19.2 million, and an earnout payment of $0.9 million due to the Piazza Rosa sellers.  $5.2 million. 


During the second quarter of fiscal year 2019, the Companywe entered into a five-year Amended and Restated Credit Agreement ((“credit agreementagreement”, or facility“facility”).  The facility has with a borrowing limit of $500 million which is an increase of $100 million from the prior facilitys $400 million limit.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 will 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 will dependdepends upon both the undrawn amount remaining available under the facility and the CompanysCompany’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 will increase.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, 2019, the Company has used $7.4$7.6 million against the letter of credit sub-facility and had the ability to borrow $175.9$252.3 million under the facility based on our current trailing twelve-month EBITDA.  The facility contains customary representations, warranties and



20



restrictive covenants, as well as specific financial covenants.  The CompanysCompany’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 FacilityFacility”), to interest expense for the trailing twelve months of at least 2.75:1, an improvement over the interest coverage ratio of 3.0:1 permitted under the previous agreement.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, an increase from the prior agreements $7.5 million cap on restructuring expenses.EBITDA.  The new facility continues to allowalso allows for unlimited non-cash charges including purchase accounting and goodwill adjustments. At MarchDecember 31, 2019, the CompanysCompany’s Interest Coverage Ratio was 8.22:8.24:1.


Leverage Ratio - The CompanysCompany’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, 2019, the CompanysCompany’s Leverage Ratio was 2.02:1.22:1.


As of MarchDecember 31, 2019, we had borrowings under our facility of $293.0$187.0 million net of issuance costs and the effective rate of interest for outstanding borrowings under the facility was 3.71%3.35%Subsequent to the end of the third quarter, on April 1st, we collected $106.9 million in connection with the sale of our Cooking Solutions Group and substantially all of these proceeds were used to repay borrowings under our facility.  


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 20192020 capital spending to be between $35.0$30.0 and $36.0$32.0 million which includes amounts not spent in fiscal year 2018 and includes $0.8 million for our recent acquisitions.2019.  We also expect that depreciation and amortization expense will be between $21.5$25.0 and $22.5$26.0 million and $8.5 and $9.5 million, respectively.


In order to manage our interest rate exposure, we are party to $85.0$75.0 million of active floating to fixed rate swaps.  These swaps convert our interest payments from LIBOR to a weighted average rate of 2.11%2.13%.



The following table sets forth our capitalization at MarchDecember 31, 2019 and June 30, 2018:2019:


(In thousands)


March 31,

 2019



June 30,

 2018

 

December 31, 2019

  

June 30, 2019

 

Long-term debt

$

                  291,725


$

193,772

 $186,980  $197,610 

Less cash and cash equivalents


96,041



109,602

  (98,919)  (93,145)

Net debt


195,684



84,170

 88,061  104,465 

Stockholders' equity


                  479,617



450,795

  489,604   464,313 

Total capitalization

$

675,301


$

         534,965

 $577,665  $568,778 


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 $183.6$192.2 million at MarchDecember 31, 2019, as compared to $191.0$187.0 million at the most recent measurement date, which occurred as of June 30, 2018.2019.  The next measurement date to determine plan assets and benefit obligations will be on June 30, 2019.2020.




21



The Company expects to pay $1.3$5.3 million in contributions to its defined benefit plans during fiscal 2019.2020.  Contributions of $0.3$1.7 million and $0.8$2.0 million were made during the three andninemonths endedMarch31,and six months ended December 31, 2019equaltothe$0.3 compared to $0.3 million and $0.8$0.5 million during the three andninemonths endedMarch31,and six months ended December 31, 2018,, respectively.  Required contributions of $0.8$4.3 million and $0.4 million will be paid to the CompanysCompany’s U.S. and U.K. defined benefit planplans respectively during 2019.2020.  The Company also expects to make contributions during the current fiscal year of $0.2 million and $0.3 million to its unfunded defined benefit plans in the U.S. and Germany, respectively.  Any  Any subsequent plan contributions will depend on the results of future actuarial valuations.


We have an insurance program in place to fund supplemental retirement income benefits for five retired executives.  Current executives and new hires are not eligible for this program.  At MarchDecember 31, 2019, the underlying policies had a cash surrender value of $17.8$18.1 million and are reported net of loans of $8.7 million for which we have the legal right of offset.offset, these amounts are reported net on our balance sheet.



Other Matters


Inflation Certain of our expenses, such as wages and benefits, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures.  Inflation for medical costs can impact both our employee benefit costsreserves for self-insured medical plans 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 insurancemanage medical costcosts 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.  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), Mexican (Peso), Japanese (Yen), and Chinese (Yuan).


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, however our fiscal third quarter typically has a comparatively lower level of sales and profitability.


Employee Relations The Company has labor agreements with four union locals in the United States and several European employees belong to European trade unions.  None ofOne expiring union contract was renegotiated during the unionsecond quarter ending December 31, 2019. There are no contracts in the U.S. willset to expire during the remainder of fiscal 2019.year 2020.


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, 20182019 lists a number of accounting policies which we believe to be the most critical.







22



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 rates.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. Our overall transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts. In the ninesix months ended MarchDecember 31, 2019, net sales to external customers in our consolidated sales not transacted in functional currency were 2.9%2.8%. 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 dividend payments, loan payments, 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, 2019 the fair value, in the aggregate, of the CompanysCompany’s open foreign exchange contracts was a liability of $3.7$3.1 million.


Our primary translation risk is with the Euro, British Pound Sterling, Peso, Japanese Yen and Chinese Yuan. A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at MarchDecember 31, 2019, 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


Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings. From time to time, we will use interest rate swap agreements to modify our exposure to interest rate movements. The CompanysCompany’s currently effective swap agreements convert our base borrowing rate on $85.0$75.0 million of debt due under our Credit Agreement from a variable rate equal to LIBOR to a weighted average rate of 2.11%2.13% at MarchDecember 31, 2019.


The CompanysCompany’s effective rate on variable-rate borrowings, including the impact of interest rate swaps, under the revolving credit agreement increaseddecreased from 3.29%3.88% at June 30, 20182019 to 3.71%3.35% at MarchDecember 31, 2019.


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, 2019, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.







23



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 and the impact that any tariffs may have on such commodities. 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, Food Service Equipment, Electronics, and Hydraulics Groups are all sensitive to price increases for steel products, other metal commodities and petroleum based products. In the past year, we have experienced price fluctuations for a number of materials including steel, copper wire, other metal commodities, refrigeration components and foam insulation. 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 divisionsdivisions’ respective competitors and the timing of their price increases.



ITEM 4.

CONTROLS AND PROCEDURES


At the end of the period covered by this Report, the management of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the CompanysCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ((“Exchange ActAct”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the CompanysCompany’s disclosure controls and procedures were effective as of MarchDecember 31, 2019 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 CompanysCompany’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.


SEC guidance permits the exclusion of an evaluation of the effectiveness of a registrant's disclosure controls and procedures as they relate to the internal control over financial reporting for an acquired business during the first year following such acquisition. As discussed in Note 2 to the consolidated financial statements contained in this Report, the Company acquired all of the outstanding stock of Regional Mfg. Specialists, Inc. (now named Agile Magnetics, Inc.) and Tenibac-Graphion, Inc.GS Engineering during the last year. These acquisitionsacquisition represent approximately 4.0%0.9% and 3.4%1.0% of the Company's consolidated continuing operations revenue for the three and ninesix months ended MarchDecember 31, 2019, respectively, and approximately 13.8%1.4% of the Company's consolidated assets at MarchDecember 31, 2019. Management's evaluation and conclusion as to the effectiveness of the design and operation of the CompanysCompany’s disclosure controls and procedures as of MarchDecember 31, 2019 excludes any evaluation of the internal control over financial reporting of Agile Magnetics and Tenibac-Graphion Inc.GS Engineering.


There was no change in the Company's internal control over financial reporting during the quarterly period ended MarchDecember 31, 2019 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.













24



PART II. OTHER INFORMATION


ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


(c)

The following table provides information about purchases by the CompanyUnregistered Sales of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:


Issuer Purchases of Equity Securities1







Quarter Ended March 31, 2019












Period



(a) Total number of shares (or units) purchased



(b) Average price paid per share (or unit)

(c) Total number of shares (or units) purchased as part of publicly announced plans or programs

(d) Maximum number (or appropriate dollar value) of shares (or units) that may yet be purchased under the plans or programs

January 1 - January 31, 2019


-


$     -


                      -


$               67,938,406










February 1 February 28, 2019


1,312


 $      79.28


1,312


67,834,396










March 1 March 31, 2019


      -


 $                -


-


               67,834,396










        Total


      1,312


 $       79.28


1,312


  $               67,834,396


(1)   The Company has a Stock Buyback Program (the Program) which was originally announced on January 30, 1985 and most recently amended on April 26, 2016.  Under the Program, the Company was authorized to repurchase up to an aggregate of $100 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 theEquity Securities and Exchange Commission.  The Boards authorization is open-ended and does not establish a timeframe for the purchases.  The Company is not obligated to acquire a particular numberUse of shares, and the program may be discontinued at any time at the Companys discretion.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 Securities1

Quarter EndedDecember 31, 2019

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 - October 31, 2019

  -  $-   -  $52,908,508 
                 

November 1 - November 30, 2019

  1,165  $73.73   1,165   52,822,613 
                 

December 1 - December 31, 2019

  1,155  $76.88   1,155   52,733,816 
                 

Total

  2,320  $75.30   2,320  $52,733,816 

(1)

The Company has a Stock Buyback Program (the “Program”) which was originally announced on January 30, 1985 and most recently amended on April 26, 2016. Under the Program, the Company was authorized to repurchase up to an aggregate of $100 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


Item 6. EXHIBITS


(a)

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).

31.1

Principal Executive Officers 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 Officers 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 Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Stockholders Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.




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:

April 30, 2019February 4, 2020

/s/ THOMAS D. DEBYLEADEMIR SARCEVIC



Thomas D. DeByleAdemir Sarcevic



Vice President/Chief Financial Officer



(Principal Financial & Accounting Officer)




Date:

April 30, 2019February 4, 2020

/s/  SEAN C. VALASHINAS



Sean C. Valashinas



Chief Accounting Officer/Assistant Treasurer







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