10-K 1 f10k.htm Form 10-K



 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

 

 

 

FORM 10-K

 

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended June 30, 2014

Commission File Number 1-7233

 

 

 

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its Charter)

 

 

 

DELAWARE

31-0596149

(State of incorporation)

(I.R.S. Employer Identification No.)

 

 

11 KEEWAYDIN DRIVE, SALEM, NEW HAMPSHIRE

03079

(Address of principal executive offices)

(Zip Code)

 

 

 

(603) 893-9701

(Registrant’s telephone number, including area code)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE

SECURITIES EXCHANGE ACT OF 1934:

 

 

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, Par Value $1.50 Per Share

 

New York Stock Exchange

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES [   ]     NO [X]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES [   ]     NO [X]

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

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

Large accelerated filer  X                    Accelerated filer                         Non-accelerated filer __                  Smaller Reporting Company __

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [   ]     NO [X]

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant at the close of business on December 31, 2013 was approximately $777,812,000.  Registrant’s closing price as reported on the New York Stock Exchange for December 31, 2013 was $62.88 per share.

The number of shares of Registrant's Common Stock outstanding on August 21, 2013 was 12,760,139

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant’s 2014 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III of this report.




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Forward Looking Statement


Statements contained in this Annual Report on Form 10-K that are not based on historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” "may," “will,” “expect," "believe," "estimate," "anticipate," ”intends,” "continue," or similar terms or variations of those terms or the negative of those terms.  There are many factors that affect the Company’s business and the results of its operations and may cause the actual results of operations in future periods to differ materially from those currently expected or desired.  These factors include, but are not limited to material adverse or unforeseen 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, general and international recessionary economic conditions, including the impact, length and degree of the current slow growth conditions on the customers and markets we serve and more specifically conditions in the food service equipment, automotive, construction, aerospace, energy, transportation and general industrial markets, lower-cost competition, the relative mix of products which impact margins and operating efficiencies, both domestic and foreign, in certain of our businesses, the impact of higher raw material and component costs, particularly steel, petroleum based products and refrigeration components, an inability to realize the expected cost savings from restructuring activities, effective completion of plant consolidations, cost reduction efforts, restructuring including procurement savings and productivity enhancements, capital management improvements, strategic capital expenditures, and the implementation of lean enterprise manufacturing techniques, the inability to achieve the savings expected from the sourcing of raw materials from and diversification efforts in emerging markets, the inability to attain expected benefits from strategic alliances or acquisitions and the inability to achieve synergies contemplated by the Company.  Other factors that could impact the Company include 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.


PART I


Item 1.  Business


Standex International Corporation (“Standex”, the “Company" or "we" (1)) was incorporated in 1975 and is the successor of a corporation organized in 1955.  We have paid dividends each quarter since Standex became a public corporation in November 1964.  


(1)

References in this Annual Report on Form 10-K to "Standex" or the "Company" or “we,” “our” or “us” shall mean Standex International Corporation and its subsidiaries.


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


We are a leading manufacturer of a variety of products and services for diverse commercial and industrial market segments.  We have 11 operating segments, aggregated and organized for reporting purposes into five segments:  Food Service Equipment Group, Engraving Group, Engineering Technologies Group, Electronics Products Group and Hydraulics Products Group.  Overall management, strategic development and financial control are maintained by the executive staff from our corporate headquarters located in Salem, New Hampshire.  


Our corporate strategy has several primary components.

·

It is our objective to grow larger and more profitable business units through both organic initiatives and acquisitions.  On an ongoing basis we identify and implement organic growth initiatives such as new product development, geographic expansion, introduction of products and technologies into new markets and applications and leveraging of sales synergies between business units, key accounts and strategic sales channel partners.  Also, we utilize strategically aligned or “bolt on” acquisitions to create both sales and cost synergies with our core business platforms to accelerate their growth and margin improvement.  There is a particular focus on identifying and investing in opportunities that complement our products and will increase the global presence and capabilities of our businesses.  From time to time we have divested businesses that we felt were not strategic or did not meet our growth and return expectations.

·

We create “Customer Intimacy” by partnering with our customers in order to develop and deliver customer solutions or engineered products that provide higher levels of value-added technology-driven solutions to our customers.  This relationship generally provides us with the ability to sustain sales and profit growth over time and provide superior operating margins to enhance shareholder returns.  Further, we have made a priority in developing new sales




2


channels and leveraging strategic customer relationships.

·

We focus on operational excellence through continuous improvement in the cost structure of our businesses and recognize that our businesses are competing in a global economy that requires that we constantly strive to improve our competitive position.  We have deployed a number of management competencies including lean enterprise, the use of low cost manufacturing facilities in countries such as Mexico, India, 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 shop floor productivity, which drives improvements in the cost structure of our business units.

·

Our capital allocation strategy is to use cash flow generated from operations to fund the strategic growth programs above, including acquisitions, dividends, and capital investments for organic growth and cost reductions.  We recognize that cash flow is fundamental in our ability to invest in organic and acquisitive growth for our business units and return cash to our shareholders in the form of dividends to reflect the measure of quality from the earnings that we generate over time.


Please visit our website at www.standex.com to learn more about us or to review our most recent SEC filings.  The information on our website is for informational purposes only and is not incorporated into this Annual Report on Form 10-K.


Description of Segments


Food Service Equipment Group


Our Food Service Equipment businesses are leading, broad-line manufacturers of commercial food service equipment which include products on the “cold side” or in the refrigerated segment of food service applications and on the “hot side” or in the cooking, warming or holding segment of the market.  Our products are used throughout the entire commercial food service process; from storage, to preparation, to cooking and to display.  The equipment that we design and manufacture is utilized in restaurants, convenience stores, quick-service restaurants, supermarkets, drug stores and institutions such as hotels, casinos and both corporate and school cafeterias to meet the challenges of providing food and beverages that are fresh and appealing while at the same time providing for food safety, energy efficiency and reliability of the equipment performance.  The Food Service Equipment Group also applies technology and product expertise in the health science and medical markets.  Customers in this segment include laboratories, health care institutions, and blood banks.  Our products are sold direct, through dealers, and through industry representatives.  Through innovation and acquisition, we continue to expand this segment.  Our brands and products include:  


-

Master-Bilt® and Kool Star® refrigerated reach-in and under counter refrigerated cabinets, cases, display units, and walk-in coolers and freezers;

-

Nor-Lake, Incorporated walk-in coolers and freezers and reach-in and under counter refrigerated cabinets to meet food service and scientific needs;

-

APW Wyott®, American Permanent Ware, Bakers Pride®, Tri-Star and BevLes® commercial ranges, ovens, griddles, char broilers, holding cabinets, toasters and combination steam and convection ovens used in cooking, toasting, warming and merchandising food;

-

Ultrafryer Systems®, producer of commercial deep fryers for restaurant and commercial installations;

-

Barbecue King® and BKI® commercial cook and hold units, rotisseries, pressure fryers, ovens and baking equipment

-

Federal Industries merchandizing display cases for bakery, deli and confectionary products; and

-

Procon® pump systems used in beverage and industrial fluid handling applications.


Engraving Group


Our Engraving Group is a leader in providing texturizing services world-wide.  Our products and finishes are used in virtually every industry by the world’s largest manufacturers.  We shorten the supply chain for global OEMs as a single source texturing supplier. Our established worldwide network of manufacturing centers and design centers provide uniform engravings for countless applications and provide consumer products a distinct competitive advantage.  Texturizing molds used in the production of plastic components, giving the final product the cosmetic appearance and appeal that consumers require.  We provide texturizing services for molds used to produce plastic components, automotive applications, and consumer products including household items made of plastic, toys, computers, and electronic devices.  Our worldwide locations enable us to better serve our customers within key geographic areas, including the United States, Canada, Europe, China, India, Southeast Asia, Korea, Australia, South Africa, and South America.  We also produce specialized tooling used




3


in the manufacture of cores for consumer and medical products.  The Engraving Group also texturizes and produces embossed and engraved rolls, plates, process tooling, and machinery serving a wide variety of industries.


Through the development of proprietary digital based process technology, new “green field” facilities particularly focused on expansion through acquisitions and in emerging markets.  The Engraving Group continues to build its market leadership position through continuously expanding the breadth of products and services it provides to its customers on a global basis.  The companies and products and services within the Engraving Group include:


-

Mold-Tech® which texturizes molds used in manufacturing plastic injected components; Mullen® Burst Testers;

-

Roehlen®, Eastern Engraving and I R International which engrave and emboss rolls and plates used in manufacturing continuous length materials;

-

Innovent is an engineering and manufacturing company delivering innovative product and service solutions to core forming, aerospace, and industrial clients around the world; and

-

B.F. Perkins® providing customized texturing solution machinery for every application.


Our products are primarily sold direct through our global sales network.  The Engraving Group serves a number of industries including automotive, plastics, building products, synthetic materials, converting, textile and paper, computer, housewares, hygiene product tooling and aerospace industries.  


Engineering Technologies Group


The Company’s Engineering Technologies Group consists of the Spincraft unit, with locations in North Billerica, Massachusetts, New Berlin, Wisconsin, and in Newcastle, UK.  The group provides single-source customized solutions using a wide variety of world-class precision manufacturing capabilities, including metal spinning and metal forming, heat treating, machining, high speed milling, and other fabrication services in all thickness and size ranges for virtually all workable metal alloys.  Our components and assemblies can be found in a wide variety of advanced applications.  Sales are made directly to our customers in the manned and unmanned space, aviation, defense, energy, industrial, medical, marine, and oil and gas markets.   


Electronics Products Group


Our Electronics Products Group is a leading manufacturer of reed switches; reed relays; fluid level, flow, pressure, proximity, conductive and inductive sensors; electronic assemblies; and magnetic components such as toroid and planar transformers as well as providing other value added customer solutions.  Sales are made both directly to customers and through manufacturers’ representatives, dealers and distributors.  End user market segments include automotive, white goods, lighting, HVAC, space, military, medical, security, and general industrial applications.


Our investment in technology and resources to support profitable growth is a major focus for the business.  The fiscal 2013 investment in Meder more than doubled the size of our Electronics Products Group, allowed us to complement our existing electronics business with significantly broadened product line offerings, end-user markets, and manufacturing support that have enhanced our global footprint for sales coverage and profitable growth.  We are also expanding the product line by developing new products, further global expansion, and strategic acquisitions that will drive our growth initiatives.


Hydraulics Products Group


Our Hydraulics Products Group is a leader in mobile hydraulic cylinders including single or double acting telescopic and piston rod hydraulic cylinders.  Custom Hoists is a global supplier and manufacturer of hydraulic cylinders used in the production of both dump trucks and dump trailers, refuse vehicles, and other material handling applications.  Sales are made both directly to customers and through dealers and distributors.  The Group has also expanded its product line to include wet kits, which are complete hydraulic systems including pumps, hoses and fittings.


Raw Materials


Raw materials and components necessary for the manufacture of our products are generally available from numerous sources.  Generally, we are not dependent on a single source of raw materials and supplies.  We do not foresee unavailability of materials or supplies which would have a significant adverse effect on any of our businesses, nor any of our segments, in the near term.   





4


Seasonality


We are a diversified business with generally low levels of seasonality, however our fiscal third quarter is typically the period with the lowest level of sales volume.


Patents and Trademarks


We hold approximately 66 United States patents and patents pending covering processes, methods and devices and approximately 43 United States trademarks.  Many counterparts of these patents have also been registered in various foreign countries.  In addition, we have various foreign registered and common law trademarks.  


While we believe that many of our patents are important, we credit our competitive position in our niche markets to customer intimacy, engineering capabilities, manufacturing techniques and skills, marketing and sales promotions, service and the delivery of quality products.  


Due to the diversity of our businesses and the markets served, the loss of any single patent or trademark would not, in our opinion, materially affect any individual segment.  


Customers


Our business is not dependent upon a single customer or a few large customers, the loss of any one of which would have a material adverse effect on our operations.  No customer accounted for more than 5% of our consolidated revenue in fiscal 2014 or any of the years presented.  


Working Capital


Our primary source of working capital is the cash generated from continuing operations.  No segments require any special working capital needs outside of the normal course of business.  


Backlog


Backlog includes all active or open orders for goods and services that have a firm fixed customer purchase order with defined delivery dates.  Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules.  Backlog is not generally a significant factor in the Company’s businesses because of our relatively short delivery periods and rapid inventory turnover with the exception of Engineering Technologies.


Backlog orders believed to be firm at June 30, 2014 and 2013 are as follows (in thousands):  


 

 

2014

 

 

2013

Food Service Equipment

$

$51,516

 

$

          37,888

Engraving

 

          11,456

 

 

          11,116

Engineering Technologies

 

          64,083

 

 

          55,356

Electronics Products

 

          32,102

 

 

          28,671

Hydraulics Products

 

            5,678

 

 

            2,687

          Total

 

164,835

 

 

        135,718

Net realizable beyond one year

 

21,703

 

 

          10,322

Net realizable within one year

$

$143,132

 

$

        125,396

 

 

 

 

 

 


Competition


Standex manufactures and markets products many of which have achieved a unique or leadership position in their market.  However, we encounter competition in varying degrees in all product groups and for each product line.  Competitors include domestic and foreign producers of the same and similar products.  The principal methods of competition are product performance and technology, price, delivery schedule, quality of services, and other terms and conditions.







5


International Operations


We have international operations in all of our business segments.  International operations are conducted at 42 locations, in Europe, Canada, China, India, Singapore, Korea, Australia, Mexico, Brazil, and South Africa.  See the Notes to Consolidated Financial Statements for international operations financial data.  Our international operations contributed approximately 29% of operating revenues in 2014 and 28% in 2013.  International operations are subject to certain inherent risks in connection with the conduct of business in foreign countries including, exchange controls, price controls, limitations on participation in local enterprises, nationalizations, expropriation and other governmental action, restrictions of repatriation  of earnings, and changes in currency exchange rates.  


Research and Development


Developing new and improved products, broadening the application of established products, continuing efforts to improve our methods, processes, and equipment continues to drive our success.  However, due to the nature of our manufacturing operations and the types of products manufactured, expenditures for research and development are not significant to any individual segment or in the aggregate.  Research and development costs are quantified in the Notes to Consolidated Financial Statements.  We develop and design new products to meet customer needs in order to offer enhanced products or to provide customized solutions for customers.  


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.  


Financial Information about Geographic Areas


Information regarding revenues from external customers attributed to the United States, all foreign countries and any individual foreign country, if material, is contained in the Notes to Consolidated Financial Statements for “Industry Segment Information.”  


Number of Employees


As of June 30, 2014, we employed approximately 4,200 employees of which approximately 2,000 were in the United States.  About 300 of our U.S. employees were represented by unions.  Approximately 43% of our production workforce is situated in low-cost manufacturing regions such as Mexico, Brazil and Asia.  


Executive Officers of Standex


The executive officers of the Company as of June 30, 2014 were as follows:


Name

Age

Principal Occupation During the Past Five Years

David A. Dunbar

52

President and Chief Executive Officer of the Company since January 2014; President of the Valves and Controls global business unit of Pentair Ltd from 2009 through December 31, 2013.

Thomas D. DeByle

54

Vice President and Chief Financial Officer of the Company since March 2008.

Deborah A. Rosen

59

Chief Legal Officer of the Company since October 2001; Vice President of the Company since July 1999.

John Abbott

55

Group Vice President of the Food Service Group since December 2006.


The executive officers are elected each year at the first meeting of the Board of Directors subsequent to the annual meeting of stockholders, to serve for one-year terms of office.  There are no family relationships among any of the directors or executive officers of the Company.


Long-Lived Assets


Long-lived assets are described and discussed in the Notes to Consolidated Financial Statements under the caption “Long-Lived Assets.”  




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Available Information


Standex’s corporate headquarters are at 11 Keewaydin Drive, Salem, New Hampshire 03079, and our telephone number at that location is (603) 893-9701.



The U.S. Securities and Exchange Commission (the “SEC”) maintains an internet website at www.sec.gov that contains our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto.  All reports that we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information about the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.  Standex’s internet website address is www.standex.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto, are available free of charge on our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.  In addition, our code of business conduct, our code of ethics for senior financial management, our corporate governance guidelines, and the charters of each of the committees of our Board of Directors (which are not deemed filed by this reference), are available on our website and are available in print to any Standex shareholder, without charge, upon request in writing to “Chief Legal Officer, Standex International Corporation, 11 Keewaydin Drive, Salem, New Hampshire, 03079.”


The certifications of Standex’s Chief Executive Officer and Chief Financial Officer, as required by the rules adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, are filed as exhibits to this Form 10-K.  


Item 1A.  Risk Factors


An investment in the Company’s common shares involves various risks, including those mentioned below and those that are discussed from time to time in our other periodic filings with the SEC.  Investors should carefully consider these risks, along with the other information filed in this report, before making an investment decision regarding our common shares.  All of these risks could have a material adverse effect on our financial condition, results of operations and/or value of our common shares.


A deterioration in the domestic and international economic environment could adversely affect our operating results and financial condition.


Recessionary economic conditions coupled with a tightening of credit could adversely impact major markets served by our businesses, including cyclical markets such as automotive, heavy construction vehicle, general industrial and food service.  An economic recession could adversely affect our business by:


reducing demand for our products and services, particularly in markets where demand for our products and services is cyclical;

causing delays or cancellations of orders for our products or services;

reducing capital spending by our customers;

increasing price competition in our markets;

increasing difficulty in collecting accounts receivable;

increasing the risk of excess or obsolete inventories;

increasing the risk of impairment to long-lived assets due to reduced use of manufacturing facilities;

increasing the risk of supply interruptions that would be disruptive to our manufacturing processes; and

reducing the availability of credit for our customers.


We rely on our credit facility to provide us with sufficient capital to operate our businesses.


We rely on our revolving credit facility to provide us with sufficient capital to operate our businesses.  The availability of borrowings under our revolving credit facility is dependent upon our compliance with the covenants set forth in the facility, including the maintenance of certain financial ratios.  Our ability to comply with these covenants is dependent upon our future performance, which is subject to economic conditions in our markets along with factors that are beyond our control.  Violation of those covenants could result in our lenders restricting or terminating our borrowing ability under our credit facility, cause us to be liable for covenant waiver fees or other obligations, or trigger an event of default under the terms of our credit facility, which could result in acceleration of the debt under the facility and require prepayment of the debt before




7


its due date.  Even if new financing is available in the event of a default under our current credit facility, the interest rate charged on any new borrowing could be substantially higher than under the current credit facility, thus adversely affecting our overall financial condition.  If our lenders reduce or terminate our access to amounts under our credit facility, we may not have sufficient capital to fund our working capital needs or we may need to secure additional capital or financing to fund our working capital requirements or to repay outstanding debt under our credit facility.


Our credit facility contains covenants that restrict our activities.


Our revolving credit facility contains covenants that restrict our activities, including our ability to:


incur additional indebtedness;

make investments;

create liens;

pay cash dividends to shareholders unless we are in compliance with the financial covenants set forth in the credit facility; and

sell material assets.



Our global operations subject us to international business risks.


We operate in 42 locations outside of the United States in Europe, Canada, China, India, Singapore, Korea, Australia, Mexico, Brazil, and South Africa.  If we are unable to successfully manage the risks inherent to the operation and expansion of our global businesses, those risks could have a material adverse effect on our business, results of operations or financial condition.  Those international business risks include:


fluctuations in currency exchange rates;

restrictions on repatriation of earnings;

import and export controls;

political, social and economic instability or disruptions;

potential adverse tax consequences;

difficulties in staffing and managing multi-national operations;

difficulties in our ability to enforce legal rights and remedies; and

changes in regulatory requirements.


Failure to achieve expected savings and synergies could adversely impact our operating profits and cash flows.


We focus on improving profitability through lean enterprise, low cost sourcing and manufacturing initiatives, improving working capital management, developing new and enhanced products, consolidating factories where appropriate, automating manufacturing processes, diversification efforts and completing acquisitions which deliver synergies to supplement sales and growth.  If we were unable to successfully execute these programs, this failure could adversely affect our operating profits and cash flows.  In addition, actions we may take to consolidate manufacturing operations to achieve cost savings or adjust to market developments may result in restructuring charges that adversely affect our profits.


Violation of anti-bribery or similar laws by our employees, business partners or agents could result in fines, penalties, damage to our reputation or other adverse consequences.


We cannot assure that our internal controls, code of conduct and training of our employees will provide complete protection from reckless or criminal acts of our employees, business partners or agents that might violate US or international laws relating to anti-bribery or similar topics.  An action resulting in a violation of these laws could subject us to civil or criminal investigations that could result in substantial civil or criminal fines and penalties and which could damage our reputation.


We face significant competition in our markets and, if we are not able to respond to competition in our markets, our net sales, profits and cash flows could decline.


Our businesses operate in highly competitive markets.  In order to effectively compete, we must retain long standing relationships with significant customers, offer attractive pricing, develop enhancements to products that offer performance features that are superior to our competitors and which maintain our brand recognition, continue to automate our manufacturing capabilities, continue to grow our business by establishing relationships with new customers, diversify into emerging markets and penetrate new markets.  If we are unable to compete effectively, our net sales, profitability and cash flows could decline.  Pricing pressures resulting from competition may adversely affect our net sales and profitability.




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If we are unable to successfully introduce new products and product enhancements, our future growth could be impaired.


Our ability to develop new products and innovations to satisfy customer needs or demands in the markets we serve can affect our competitive position and often requires significant investment of resources.  Difficulties or delays in research, development or production of new products and services or failure to gain market acceptance of new products and technologies may significantly reduce future net sales and adversely affect our competitive position.


Increased prices or significant shortages of the commodities that we use in our businesses could result in lower net sales, profits and cash flows.


We purchase large quantities of steel, refrigeration components, freight services, foam insulation and other metal commodities for the manufacture of our products.  Historically, prices for commodities have fluctuated, and we are unable to enter into long term contracts or other arrangements to hedge the risk of price increases in many of these commodities.  Significant price increases for these commodities could adversely affect our operating profits if we cannot timely mitigate the price increases by successfully sourcing lower cost commodities or by passing the increased costs on to customers.  Shortages or other disruptions in the supply of these commodities could delay sales or increase costs.


An inability to identify or complete future acquisitions could adversely affect our future growth.


As part of our growth strategy, we intend to pursue acquisitions that provide opportunities for profitable growth for our businesses and which enable us to leverage our competitive strengths.  While we continue to evaluate potential acquisitions, we may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, obtain regulatory approval for certain acquisitions or otherwise complete acquisitions in the future.  An inability to identify or complete future acquisitions could limit our future growth.


We may experience difficulties in integrating acquisitions.


Integration of acquired companies involves a number of risks, including:


inability to operate acquired businesses profitably;

failure to accomplish strategic objectives for those acquisitions;

unanticipated costs relating to acquisitions or to the integration of the acquired businesses;

difficulties in achieving planned cost savings synergies and growth opportunities; and

possible future impairment charges for goodwill and non-amortizable intangible assets that are recorded as a result of acquisitions.


Additionally, our level of indebtedness may increase in the future if we finance acquisitions with debt, which would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing.  We cannot assure that future acquisitions will not have a material adverse effect on our financial condition, results of operations and cash flows.


Impairment charges could reduce our profitability.


We test goodwill and our other intangible assets with indefinite useful lives for impairment on an annual basis or on an interim basis if an event occurs that might reduce the fair value of the reporting unit below its carrying value.  Various uncertainties, including continued adverse conditions in the capital markets or changes in general economic conditions, could impact the future operating performance at one or more of our businesses which could significantly affect our valuations and could result in additional future impairments.  The recognition of an impairment of a significant portion of goodwill would negatively affect our results of operations and could be a material effect to us.  


Material adverse or unforeseen legal judgments, fines, penalties or settlements could have an adverse impact on our profits and cash flows.


We are and may, from time to time, become a party to legal proceedings incidental to our businesses, including, but not limited to, alleged claims relating to product liability, environmental compliance, patent infringement, commercial disputes and employment matters.  In accordance with United States generally accepted accounting principles, we have established reserves based on our assessment of contingencies.  Subsequent developments in legal proceedings may affect our assessment and estimates of loss contingencies recorded as reserves which could require us to record additional reserves or make




9


material payments which could adversely affect our profits and cash flows.  Even the successful defense of legal proceedings may cause us to incur substantial legal costs and may divert management's time and resources away from our businesses.


The costs of complying with existing or future environmental regulations, and of correcting any violations of these regulations, could increase our expenses and reduce our profitability.


We are subject to a variety of environmental laws relating to the storage, discharge, handling, emission, generation, use and disposal of chemicals, hazardous waste and other toxic and hazardous materials used to manufacture, or resulting from the process of manufacturing, our products.  We cannot predict the nature, scope or effect of regulatory requirements to which our operations might be subject or the manner in which existing or future laws will be administered or interpreted.  We are also exposed to potential legacy environmental risks relating to businesses we no longer own or operate.  Future regulations could be applied to materials, products or activities that have not been subject to regulation previously.  The costs of complying with new or more stringent regulations, or with more vigorous enforcement of these or existing regulations, could be significant.


In addition, properly permitted waste disposal facilities used by us as a legal and legitimate repository for hazardous waste may in the future become mismanaged or abandoned without our knowledge or involvement.  In such event, legacy landfill liability could attach to or be imposed upon us in proportion to the waste deposited at any disposal facility.


Environmental laws require us to maintain and comply with a number of permits, authorizations and approvals and to maintain and update training programs and safety data regarding materials used in our processes.  Violations of these requirements could result in financial penalties and other enforcement actions.  We could be required to halt one or more portions of our operations until a violation is cured.  Although we attempt to operate in compliance with these environmental laws, we may not succeed in this effort at all times.  The costs of curing violations or resolving enforcement actions that might be initiated by government authorities could be substantial.


Strategic divestitures could negatively affect our results and contingent liabilities from businesses that we have sold could adversely affect our results of operations and financial condition.


We have retained responsibility for some of the known and unknown contingent liabilities related to a number of businesses we have sold, such as lawsuits, tax liabilities, product liability claims, and environmental matters and have agreed to indemnify purchasers of these businesses for certain of those contingent liabilities.  


The trading price of our common stock has been volatile, and investors in our common stock may experience substantial losses.


The trading price of our common stock has been volatile and may become volatile again in the future.  The trading price of our common stock could decline or fluctuate in response to a variety of factors, including:


our failure to meet the performance estimates of securities analysts;

changes in financial estimates of our net sales and operating results or buy/sell recommendations by securities analysts;

fluctuations in our quarterly operating results;

substantial sales of our common stock;

changes in the amount or frequency of our payment of dividends or repurchases of our common stock;

general stock market conditions; or

other economic or external factors.


Decreases in discount rates and actual rates of return could require future pension contributions to our pension plans which could limit our flexibility in managing our company.


Key assumptions inherent in our actuarially calculated pension plan obligations and pension plan expense are the discount rate and the expected rate of return on plan assets.  If discount rates and actual rates of return on invested plan assets were to decrease significantly, our pension plan obligations could increase materially.  The size of future required pension contributions could require us to dedicate a greater portion of our cash flow from operations to making contributions, which could negatively impact our financial flexibility.





10


Our business could be negatively impacted by cybersecurity threats, information systems and network interruptions, and other security threats or disruptions.


Our information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations.  Cybersecurity threats in particular, are persistent, evolve quickly, and include, but are not limited to, computer viruses, attempts to access information, denial of service and other electronic security breaches.  These events could disrupt our operations or customers and other third party IT systems in which we are involved and could negatively impact our reputation among our customers and the public which could have a negative impact on our financial conditions, results of operations, or liquidity.


Various restrictions in our charter documents, Delaware law and our credit agreement could prevent or delay a change in control of us that is not supported by our board of directors.


We are subject to a number of provisions in our charter documents, Delaware law and our credit facility that may discourage, delay or prevent a merger, acquisition or change of control that a stockholder may consider favorable.  These anti-takeover provisions include:


maintaining a classified board and imposing advance notice procedures for nominations of candidates for election as directors and for stockholder proposals to be considered at stockholders' meetings;

a provision in our certificate of incorporation that requires the approval of the holders of 80% of the outstanding shares of our common stock to adopt any agreement of merger, the sale of substantially all of the assets of Standex to a third party or the issuance or transfer by Standex of voting securities having a fair market value of $1 million or more to a third party, if in any such case such third party is the beneficial owner of 10% or more of the outstanding shares of our common stock, unless the transaction has been approved prior to its consummation by all of our directors;

requiring the affirmative vote of the holders of at least 80% of the outstanding shares of our common stock for stockholders to amend our amended and restated by-laws;

covenants in our credit facility restricting mergers, asset sales and similar transactions; and

the Delaware anti-takeover statute contained in Section 203 of the Delaware General Corporation Law.


Section 203 of the Delaware General Corporation Law prohibits a merger, consolidation, asset sale or other similar business combination between Standex and any stockholder of 15% or more of our voting stock for a period of three years after the stockholder acquires 15% or more of our voting stock, unless (1) the transaction is approved by our board of directors before the stockholder acquires 15% or more of our voting stock, (2) upon completing the transaction the stockholder owns at least 85% of our voting stock outstanding at the commencement of the transaction, or (3) the transaction is approved by our board of directors and the holders of 66 2/3% of our voting stock, excluding shares of our voting stock owned by the stockholder.


Item 1B.  Unresolved Staff Comments


None.


Item 2.  Properties


We operate a total of 74 manufacturing plants and warehouses located throughout the United States, Europe, Canada, Australia, Singapore, Korea, China, India, Brazil, South Africa, and Mexico.  The Company owns 26 of the facilities and the balance are leased.  The approximate building space utilized by each product group is as follows (in thousands):  


 

Area in Square Feet

 

Owned

 

Leased

Food Service Equipment

1,059

 

401

Engraving

268

 

380

Engineering Technologies

171

 

145

Electronics Products

177

 

157

Hydraulics Products

101

 

40

Corporate and other

43

 

12

        Total

1,819

 

1,135

 

 

 

 




11





In general, the buildings are in sound operating condition and are considered to be adequate for their intended purposes and current uses.


We own substantially all of the machinery and equipment utilized in our businesses.


Item 3.  Legal Proceedings


Discussion of legal matters is incorporated by reference to Part II, Item 8, Note 12, “CONTINGENCIES,” in the Notes to the Consolidated Financial Statements.


Item 4.  Mine Safety Disclosures


Not Applicable


PART II


Item 5.  Market for Standex Common Stock


Related Stockholder Matters and Issuer Purchases of Equity Securities


The principal market in which the Common Stock of Standex is traded is the New York Stock Exchange under the ticker symbol “SXI”.  The high and low sales prices for the Common Stock on the New York Stock Exchange and the dividends paid per Common Share for each quarter in the last two fiscal years are as follows:


 

Common Stock Price Range

 

Dividends Per Share

 

2014

 

 

2013

 

 

 

 

Year Ended June 30

High

Low

 

High

Low

 

2014

2013

First quarter

 $  60.96

 $  52.00

 

 $  47.34

 $  41.29

 

 $    0.08

 $    0.07

Second quarter

     64.90

     56.15

 

     52.14

     43.00

 

       0.10

       0.08

Third quarter

     63.76

     52.29

 

     57.64

     51.28

 

       0.10

       0.08

Fourth quarter

     78.49

     53.82

 

     55.18

     49.18

 

       0.10

       0.08


The approximate number of stockholders of record on August 21, 2014 was 1,783.  


Additional information regarding our equity compensation plans is presented in the Notes to Consolidated Financial Statements under the caption “Stock-Based Compensation and Purchase Plans” and Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”


Issuer Purchases of Equity Securities (1)

 

 

 

 

 

Quarter Ended June 30, 2014

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

April 1 - April 30, 2014

 

             20,531

 

$55.06

 

                       20,531

 

                           501,862

May 1 - May 31, 2014

 

             14,752

 

$72.74

 

                       14,752

 

                           487,110

June 1 - June 30, 2014

 

                  521

 

$73.90

 

                            521

 

                           486,589

     TOTAL

 

             35,804

 

$62.62

 

                       35,804

 

                          486,589

 

 

 

 

 

 

 

 

 


(1)  The Company has a Stock Buyback Program (the “Program”) which was originally announced on January 30, 1985.  Under the Program, the Company may repurchase its shares from time to time, either in the open market or through private transactions,




12


whenever it appears prudent to do so.  The Program has no expiration date, and the Company from time to time may authorize additional increases of share increments for buyback authority so as to maintain the Program.  The Company authorized, on August 20, 2013, the repurchase of 0.5 million shares for repurchase pursuant to its Program.  All previously announced repurchases have been completed.














The following graph compares the cumulative total stockholder return on the Company’s Common Stock as of the end of each of the last five fiscal years, with the cumulative total stockholder return on the Standard & Poor’s Small Cap 600 (Industrial Segment) Index and on the Russell 2000 Index, assuming an investment of $100 in each at their closing prices on June 30, 2008 and the reinvestment of all dividends.






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13














Item 6.  Selected Consolidated Financial Data


Selected financial data for the five years ended June 30, is as follows:


See Item 7 for discussions on comparability of the below.


 

 

2014

 

2013

 

2012

 

2011

 

2010

SUMMARY OF OPERATIONS (in thousands)

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

     Food Service Equipment

 

 $  377,848

 

 $  367,008

 

 $  364,759

 

 $  343,150

 

 $  318,225

     Engraving

 

109,271

 

93,380

 

93,611

 

85,258

 

77,372

     Engineering Technologies

 

79,642

 

74,838

 

74,088

 

61,063

 

58,732

     Electronics Products

 

114,881

 

108,085

 

48,206

 

46,600

 

37,201

     Hydraulics Products

 

34,538

 

30,079

 

29,922

 

22,925

 

16,598

          Total

 

 $  716,180

 

 $  673,390

 

 $  610,586

 

 $  558,996

 

 $  508,128

Gross profit

 

 $  238,269

 

 $  218,191

 

 $  201,736

 

 $  185,858

 

 $  170,095

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

     Food Service Equipment

 

 $    38,203

 

 $    37,533

 

 $    38,389

 

 $    37,633

 

 $    39,732

     Engraving

 

22,145

 

15,596

 

17,896

 

14,182

 

9,395

     Engineering Technologies

 

12,676

 

13,241

 

14,305

 

12,606

 

13,843

     Electronics Products

 

19,732

 

16,147

 

8,715

 

7,551

 

4,074

     Hydraulics Products

 

5,781

 

4,968

 

4,403

 

2,436

 

963

     Restructuring (a)

 

(10,077)

 

(2,666)

 

(1,685)

 

(1,843)

 

(3,494)

     Gain on sale of real estate

 

             -   

 

               -   

 

4,776

 

3,368

 

1,405

     Other operating income (expense), net

        3,462

 

             -   

 

              -   

 

              -   

 

              -   

     Corporate and Other

 

(26,054)

 

(22,924)

 

(23,443)

 

(20,959)

 

(20,137)

          Total

 

 $    65,868

 

 $    61,895

 

 $    63,356

 

 $    54,974

 

 $    45,781

Interest expense

 

(2,249)

 

(2,469)

 

(2,280)

 

(2,107)

 

(3,624)

Other non-operating (loss) income

 

4,184

 

(128)

 

519

 

(199)

 

748

Provision for income taxes

 

(18,054)

 

(15,244)

 

(15,699)

 

(15,027)

 

(13,050)

Income from continuing operations

 

49,749

 

44,054

 

45,896

 

37,641

 

29,855

Income/(loss) from discontinued operations

(6,883)

 

794

 

(14,991)

 

(2,275)

 

(1,156)

Net income

 

 $    42,866

 

 $    44,848

 

 $    30,905

 

 $    35,366

 

 $    28,699

 

 

 

 

 

 

 

 

 

 

 

(a)

See discussion of restructuring activities in Note 16 of the consolidated financial statements.



 

 

2014

 

2013

 

2012

 

2011

 

2010

PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 $          3.94

 

 $        3.51

 

 $        3.67

 

 $          3.02

 

 $          2.40

Income/(loss) from discontinued operations

(0.55)

 

0.06

 

(1.20)

 

(0.18)

 

(0.09)

          Total

 

 $          3.39

 

 $        3.57

 

 $        2.47

 

 $          2.84

 

 $          2.31

Diluted

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 $          3.89

 

 $        3.45

 

 $        3.59

 

 $          2.95

 

 $          2.35

Income/(loss) from discontinued operations

(0.54)

 

0.06

 

(1.17)

 

(0.18)

 

(0.09)




14





          Total

 

 $          3.35

 

 $        3.51

 

 $        2.42

 

 $          2.77

 

 $          2.26

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 $          0.38

 

 $        0.31

 

 $        0.27

 

 $          0.23

 

 $          0.20









 

 

2014

 

2013

 

2012

 

2011

 

2010

BALANCE SHEET (in thousands)

 

 

 

 

 

 

 

 

 

Total assets

 

 $   578,160

 

 $   510,573

 

 $   479,811

 

 $   474,905

 

 $   446,279

Accounts receivable

 

107,674

 

97,995

 

96,493

 

92,032

 

83,890

Inventories

 

97,065

 

81,811

 

70,802

 

72,447

 

56,015

Accounts payable

 

85,206

 

67,552

 

60,229

 

66,103

 

48,289

Goodwill

 

125,965

 

111,905

 

100,633

 

102,439

 

87,870

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

 $               -   

 

 $               -   

 

 $               -   

 

 $       5,100

 

 $               -   

Long-term debt

 

45,056

 

50,072

 

50,000

 

46,500

 

93,300

Total debt

 

45,056

 

50,072

 

50,000

 

51,600

 

93,300

Less cash

 

74,260

 

51,064

 

54,749

 

14,407

 

33,630

Net debt (cash)

 

(29,204)

 

(992)

 

(4,749)

 

37,193

 

59,670

Stockholders' equity

 

340,726

 

290,988

 

242,907

 

245,613

 

192,063

 

 

 

 

 

 

 

 

 

 

 

KEY STATISTICS

 

2014

 

2013

 

2012

 

2011

 

2010

Gross profit margin

 

33.3%

 

32.4%

 

33.0%

 

33.2%

 

33.5%

Operating income margin

 

9.2%

 

9.2%

 

10.4%

 

9.8%

 

9.0%































15












Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations


Overview


We are a leading manufacturer of a variety of products and services for diverse commercial and industrial market segments. We have five reportable segments: Food Service Equipment Group, Engraving Group, Engineering Technologies Group, Electronics Products Group, and the Hydraulics Products Group. Our business objectives are to provide value-added, technology-driven solutions to our customers, grow our businesses, and increase our business profitability.  Our strategic business objective is to 1) identify those businesses which are best able to meet our objectives, and invest in them by taking advantage of both organic growth and acquisition opportunities and 2) pursue operational excellence in order to improve operating margins and working capital management.


Over the past 24 months, we invested in new strategic businesses that enhance and provide complementary products and services to our segments.  During June 2014, the Company acquired two companies.  The Company purchased Ultrafryer Systems, Inc., (“Ultrafryer”), a manufacturer of high quality commercial deep fryers for restaurant and commercial installations.  This investment complements our Food Service Equipment Group’s product line and allows us to provide broader solutions to restaurant chains and commercial food service installations.  The Company acquired planar technology from Planar Quality Corporation, a developer of transformers for commercial, military and space applications.  This investment will enhance our Electronics Production Group’s capabilities. In addition, July 2012, the Company acquired Meder electronic AG (“Meder”), a German manufacturer of magnetic reed switch, reed relay, and reed sensor products.  Meder’s products and geographic markets are complementary to Standex Electronics and the acquisition more than doubled the size of the Electronics Products Group.  This investment also substantially broadened the global footprint, product line offerings, and end-user markets of the Electronics segment.

We have successfully taken substantial measures over the same periods to reduce our cost structure and improve business profitability.  As part of this ongoing strategy, beginning in the first quarter of fiscal 2014, the Company, in our efforts to reduce cost and improve productivity across the Food Service Equipment Group, announced that we will consolidate operations in the Cooking Solutions Cheyenne, Wyoming plant into its Mexico facility and other Food Service operations in North America. As of June 30, 2014, the Cheyenne consolidation has been completed. During June 2014, the Company divested American Foodservice Company, a manufacturer of custom design and fabrication of counter systems and cabinets in our Food Service Equipment Group segment.  We continue to evaluate our products and production processes and expect to execute similar cost reductions and restructuring programs on an ongoing basis.   

We continue to strive for improved profitability in all aspects of our operations through low cost manufacturing and value-added engineering initiatives, plant consolidations, procurement savings, and improved productivity.  These measures have been the principal factors in allowing the Company to improve margins and profitability.  In addition to the focus on improving our cost structure, we have improved the Company’s liquidity through better working capital management, and the sale of excess land and buildings.  This additional liquidity has allowed us to increase dividends, increase capital investments, and expand through acquisitions.  Our net debt (cash) to capital ratio for June 2014 and 2013 was (9.4%) and (0.3%) respectively.

Our business units are actively engaged in initiating new product introductions, expansion of product offerings through private labeling and sourcing agreements, geographic expansion of sales coverage, the development of new sales channels, leveraging strategic customer relationships, development of energy efficient products, new applications for existing products and technology, and next generation products and services for our end-user markets.

Because of the diversity of the Company’s businesses, end user markets and geographic locations, management does not use specific external indices to predict the future performance of the Company, other than general information about broad macroeconomic trends.  Each of our individual business units serves niche markets and attempts to identify trends other than




16


general business and economic conditions which are specific to their businesses and which could impact their performance.  Those units report pertinent information to senior management, which uses it to the extent relevant to assess the future performance of the Company.  A description of any such material trends is described below in the applicable segment analysis.

We monitor a number of key performance indicators (“KPIs”) including net sales, income from operations, backlog, effective income tax rate, and gross profit margin.  A discussion of these KPIs is included within the discussion 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 the discussed KPI.  We believe that the discussion of these items provides enhanced information to investors by disclosing their consequence on the overall trend in order to provide a clearer comparative view of the KPI where 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 to the KPI amount that would have existed regardless of our acquisition. Sales resulting from synergies between the acquisition and existing operations of the Company are considered organic growth for the purposes of our discussion.

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

Consolidated Results from Continuing Operations (in thousands):


 

 

2014

 

2013

 

2012

Net sales

$

     716,180

$

     673,390

$

     610,586

Gross profit margin

 

33.3%

 

32.4%

 

33.0%

Restructuring costs

 

       10,077

 

         2,666

 

         1,685

Gain on sale of real estate

 

              -   

 

              -   

 

         4,776

Other income/(expense) operating

 

         3,462

 

              -   

 

              -   

Income from operations

 

       65,868

 

       61,895

 

       63,356

 

 

 

 

 

 

 

Backlog (realizable within 1 year)

$

     143,132

$

     125,396

$

     111,208

 

 

 

 

 

 

 

 

 

2014

 

2013

 

2012

Net sales

$

     716,180

 $

     673,390

 $

     610,586

Components of change in sales:

 

 

 

 

 

 

   Effect of acquisitions

 

            297

 

       55,129

 

       14,117

   Effect of exchange rates

 

         3,954

 

       (2,807)

 

          (888)

   Organic sales growth

 

       38,539

 

       10,482

 

       38,361

 

 

 

 

 

 

 


Net sales for the fiscal year 2014 increased by $42.8 million, or 6.4%, when compared to the prior year.  The increase is driven by $38.5 million or 5.7% of organic sales growth from all our segments and favorable foreign exchange of $4.0 million. Sales growth is a result of success of our top-line growth initiatives and improvements in end-user markets.   


Net sales in 2013 increased $62.8 million, or 10.3%, from 2012 levels.  Of the increase, $55.1 million, or 9.0% was attributable to the acquisition related to Electronics and $10.5 million, or 1.7% of organic growth, from all of our segments.  Sales growth was partially offset by unfavorable foreign exchange of $2.8 million.


Gross Profit Margin


During 2014, gross margin increased to 33.3% as compared to 32.4% in 2013.  This increase is primarily a result of sales volume and favorable sales mix, coupled with the absence of $1.5 million of purchase accounting charges incurred during 2013 associated with the Meder acquisition. Gross margin has increased at the Engraving Group due to strong automotive Mold-Tech sales.


During 2013, gross margin decreased to 32.4% as compared to 33.0% in 2012.  This decrease is primarily a result of $1.5 million in our Meder purchase accounting expenses primarily related to a step up of acquired inventory to fair value, and a




17


gross margin decline at Engineering Technologies offset by the improvement in Food Service Equipment Group and Hydraulics.


Selling, General, and Administrative Expenses


Selling, general, and administrative expenses for the fiscal year 2014 increased by $12.2 million, or 7.9%, when compared to the prior year.  The increase was driven by $3.9 million of management transition costs, and $3.4 million of compensation expense due to improved performance and increase of $3.1 million of increased selling and distribution expenses due to incremental sales volume.  The charge for management transition expense includes search fees, relocation and other costs associated with the hiring of a new chief executive officer (“CEO”) and the acceleration of stock incentive compensation expenses related to the retired CEO.


Selling, general, and administrative expenses for the fiscal year 2013 increased by $12.2 million, or 8.6%, when compared to the prior year.  The increase was driven by $9.6 million of Meder acquisition costs, $3.0 million related to our legacy defined benefit pension plans, and the settlement of a lawsuit related to our Refrigerated Solutions business.  



Income from Operations


Income from operations for the fiscal year 2014 increased by $4.0 million or 6.4%, when compared to the prior year.  The increase is primarily driven by $42.8 million of sales increases, gross profit improvement of $20.0 million, and a $3.5 million net gain from insurance proceeds, partially offset by increased operating expense and restructuring costs.


Income from operations for the fiscal year 2013 decreased by $1.5 million, or 2.3%, when compared to the prior year.  The decrease was primarily the result of 2012 gain on sale of real-estate of $4.8 million and $1.5 million of purchase accounting expense associated with the Meder acquisition during 2013.


Discussion of the performance of all of our Groups is more fully explained in the segment analysis that follows.  



Income Taxes


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2014 was $18.1 million, or an effective rate of 26.6%, compared to $15.2 million, or an effective rate of 25.7% for the year ended June 30, 2013, and $15.7 million, or an effective rate of 25.5% for the year ended June 30, 2012.  Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, the amount of the Company's income or loss, the mix of income earned in the US versus outside the US, the effective tax rate in each of the countries in which we earn income, and any one time tax issues which occur during the period.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2014 was impacted by the following items: (i) a benefit of $0.5 million related to the R&D tax credit that expired during the fiscal year on December 31, (ii) a benefit of $0.5 million related to a decrease in the statutory tax rate in the United Kingdom on prior period deferred tax liabilities recorded during the first quarter during the fiscal year, (iii) a benefit of $1.1 million due to non-taxable life insurance proceeds received in the third quarter and (iv) a benefit of $3.8 million due to the mix of income earned in jurisdictions with beneficial tax rates.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2013 was impacted by the following items: (i) a benefit of $0.4 million related to the retroactive extension of the R&D credit recorded during the third quarter, (ii) a benefit of $0.3 million related to a decrease in the statutory tax rate in the United Kingdom on prior period deferred tax liabilities recorded during the first and fourth quarters, (iii) a benefit of $1.0 million from the reversal of a deferred tax liability that was determined to be no longer required during the third quarter and (iv) a benefit of $2.8 million due to the mix of income earned in jurisdictions with beneficial tax rates.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2012 was impacted by the following items: (i) a benefit of $1.3 million from the reversal of income tax contingency reserves that were determined to be no longer needed due to the lapsing of the statute of limitations and re-measurement of existing tax contingency reserves based on recently completed tax examinations, (ii) a benefit of $0.4 million related to a decrease in the statutory tax rate in the United Kingdom on prior period deferred tax liabilities recorded during the first quarter, and (iii) a benefit of $4.5 million due to the mix of income earned in jurisdictions with beneficial tax rates.





18


Capital Expenditures


In general, our capital expenditures over the longer term are expected to be approximately 2% to 3% of net sales but could increase to fund targeted sales growth initiatives and cost reduction programs.  During 2014, capital expenditures increased to $19.9 million compared to 2013 of $14.4 million.  The increase is primarily the result of the catastrophic failure of a large vertical machining center located at our Engineering Technologies facility in Massachusetts and support of our new long term customer contracts.  



Backlog


Backlog includes all active or open orders for goods and services that have a firm fixed customer purchase order with defined delivery dates. Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules.  Backlog is not generally a significant factor in the Company’s businesses because of our relatively short delivery periods and rapid inventory turnover with the exception of Engineering Technologies.


Backlog realizable within one year increased $17.7 million, or 14.1%, to $143.1 million at June 30, 2014 from $125.4 million at June 30, 2013.  Backlog realizable within one year has increased due to increase in customer demand and the acquisition of Ultrafryer.


Segment Analysis (in thousands)


Food Service Equipment


 

2014 compared to 2013

 

 

 

2013 compared to 2012

 

 

 

 

 

 

 

%

 

 

 

 

 

%

 

2014

 

2013

 

Change

 

2013

 

2012

 

Change

Net sales

 $   377,848

 

 $   367,008

 

3.0%

 

 $  367,008

 

 $   364,759

 

0.6%

Income from operations

        38,203

 

        37,533

 

1.8%

 

       37,533

 

        38,390

 

-2.2%

Operating income margin

10.1%

 

10.2%

 

 

 

10.2%

 

10.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales for fiscal year 2014 increased $10.8 million, or 3.0%, when compared to the prior year. The Refrigerated Solutions (walk-in coolers and freezers and refrigerated cabinets) and Specialty Solutions businesses  grew approximately 5.8% and 3.6%, respectively, year over year, while the Cooking Solutions Group net sales declined by 3.0% year over year.  The Refrigeration business continued to see penetration into the dollar store segment with its new line of “endless” merchandising products.  Also strong were the general dealer markets and specialty cabinets for the beverage industry.  This strength was partially offset by continued weakness in the drug retail segment as new store construction is at reduced levels compared to prior year, and to our quick-service restaurant chain customers that had reduced domestic capital spending due to customer changes in timing of deliveries.  The Specialty Solutions Group growth was driven by strong growth in the beverage pump business as demand returned in both the domestic and international markets, particularly with demand for new products in the European espresso market segment.  This growth was partial offset by a sales decline in the Specialty Merchandising segment due to soft demand in the middle of the fiscal year.  The sales decline in the Cooking Solutions Group was driven by weakness at several key dealers, lapping of a chain rollout in the prior year and reductions in inventories at parts distributors.  In addition, disruption late in the fiscal year due to the manufacturing realignment shifted some backlog out of the fourth quarter to 2015.  This was partially overcome by strengthening of the U.S. retail supermarket deli market segment, overcoming further softening of sales in the UK as capital spending in the UK supermarket segment continued to be weak.  In addition, the Cooking Group benefited from $0.3 million of sales from the Ultrafryer acquisition.


Income from operations for fiscal year 2014 increased $0.7 million, or 1.8%, when compared to the prior year.  The Group’s return on sales decreased from 10.2% to 10.1% in the current year.  The positive impact of the year over year volume increase was partially offset by a combination of adverse product and customer mix changes.  Additionally, productivity was negatively impacted by disruption related to the manufacturing realignment.  This disruption is expected to be resolved during 2015 as the benefits of the factory consolidation are realized.  In response to these margin challenges, the Group has implemented multiple productivity improvement actions, including cost reductions through capital investments and product redesign, and material cost reductions, coupled with selective price increases.


We have targeted a 200 basis point improvement to Food Service operating margins in the next 18 to 24 months.   During the fourth quarter of 2014 we took steps to achieve that goal with the closure of the Cheyenne facility, the sale of the American Food Service, (“AFS”) business, and the acquisition of Ultrafryer.  The Company expects that half of the targeted margin




19


improvements will be achieved through the Cheyenne consolidation, and that the AFS divestiture and the Ultrafryer acquisition to will substantially contribute to the remaining margin improvements. 


Net sales for fiscal year 2013 increased $2.2 million, or 0.6%, when compared to fiscal 2012. The top line growth included the negative effect of foreign exchange rates of $0.6 million in sales.  The Refrigerated Solutions (walk-in coolers and freezers and refrigerated cabinets) grew approximately 4.0% and the Specialty Solutions group grew 0.4%, while the Cooking Solutions Group net sales declined by 5.7% year over year.  The Refrigeration business experienced strong sales to our quick-service restaurant chain customers, and we saw continued traction in the dollar store segment.  This strength was offset by weakness in the Drug Retail segment as new store construction was at reduced levels.  The Specialty Solutions Group growth was driven by double digit growth in the specialty merchandising, partially offset by a 7% decline in the global beverage pump business due to soft demand, particularly in the European markets.  The sales decline in the Cooking Solutions group was driven by the BKI division which experienced weakness in both the US and UK which were negatively impacted by reduced capital spending in the supermarket segments, and a difficult year over year comparison due to a significant roll-out to a major US supermarket chain in fiscal 2012.  This decline was partially offset by 3.6% growth in the AAI segment of the Cooking Group which primarily serves the restaurant and convenience store markets.


Income from operations for fiscal year 2013 declined $0.9 million, or 2.2%, when compared to the prior year. This includes the negative effect of foreign exchange rates of $0.1 million.  The Group’s return on sales decreased from 10.5% in fiscal 2012 to 10.2% in fiscal 2013.  The positive impact of the year over year volume increase was partially offset by a combination of adverse product and customer mix changes, marketing cost increases and increased warranty costs in the beverage business.


Engraving


 

2014 compared to 2013

 

 

 

2013 compared to 2012

 

 

 

 

 

 

 

%

 

 

 

 

 

%

 

2014

 

2013

 

Change

 

2013

 

2012

 

Change

Net sales

 $ 109,271

 

 $   93,380

 

17.0%

 

 $   93,380

 

 $   93,611

 

-0.2%

Income from operations

      22,145

 

      15,596

 

42.0%

 

      15,596

 

      17,896

 

-12.9%

Operating income margin

20.3%

 

16.7%

 

 

 

16.7%

 

19.1%

 

 


Net sales for fiscal year 2014 increased by $15.9 million or 17.0%, compared to the prior year.  This growth is driven by record new model launches and refreshed platforms in the global automotive industry which we do not anticipate to continue in 2015.  Increased market share gained by our Mold-Tech business resulted in a 26% or $16.9 million increase in mold texturing sales as compared to the prior year.  Growth for Mold-Tech was strong in all markets we operate in worldwide.  Sales of core forming tooling grew 6% or $0.5 million as compared to prior year.  We continue to experience softness in our roll plate and machinery business, primarily in North America.

 

Income from operations in fiscal year 2014 increased by $6.5 million, or 42%, when compared to the prior year.  High margins associated with new automotive model platform launches and refreshed platforms worldwide drove higher profitability for the year.  During 2015, capital spending is expected to increase in order to support the increased demand for direct laser engraving capabilities worldwide.  We also intend to devote additional resources to our new design capability in order to further customer intimacy.


Net sales for the fiscal year 2013 remained flat, when compared to the prior year.  During the fourth quarter  sales to automotive OEM’s in the mold texturing market softened as compared to the very strong sales level achieved in the prior year quarter.  The decline in mold texturizing sales occurred primarily in North America mold texturizing while both the Europe and China markets showed year over year growth.  During the fourth quarter sales in the Innovent core forming tool and rolls, plates and machinery businesses also declined.  

 

Income from operations in fiscal year 2013 decreased by $2.3 million, or 12.9%, when compared to the prior year.  Unfavorable performance was primarily driven by one-time costs related to moving our Brazilian operations, start-up of our MT Korea operation and lower fourth quarter demand in North America.


Engineering Technologies


 

2014 compared to 2013

 

 

 

2013 compared to 2012

 

 

 

 

 

 

 

%

 

 

 

 

 

%




20





 

2014

 

2013

 

Change

 

2013

 

2012

 

Change

Net sales

 $     79,642

 

 $   74,838

 

6.4%

 

 $   74,838

 

 $     74,088

 

1.0%

Income from operations

        12,676

 

      13,241

 

-4.3%

 

      13,241

 

        14,305

 

-7.4%

Operating income margin

15.9%

 

17.7%

 

 

 

17.7%

 

19.3%

 

 


Net sales in the fiscal year 2014 increased $4.8 million, or 6.4%, when compared to the prior year.  Sales growth in the space, energy, aviation, and oil and gas markets was offset by declines in the medical and industrial market segments.  The space market segment increased from prior year levels due to continued strong demand on launch vehicle development programs and the satellite launch segment.  The land based gas turbine business improved year-over-year due to increased demand from our OEM customers.  Sales to the oil and gas segment increased year-over-year as a result of additional large offshore platform projects.  The aviation market was up from the prior year as a result of newly awarded programs and development contracts as well as increased market penetration.  New business development resources will be devoted to further penetrate key customer markets during 2015.   


Income from operations in the fiscal year 2014 decreased $0.6 million, or 4.3%, when compared to the prior year.  Volume and product mix improvements in the UK were offset by higher manufacturing and development costs in the U.S.  In 2015, capital spending is expected to increase to support strategic long term agreements primarily with aviation and space customers.


Net sales in the fiscal year 2013 increased $0.8 million, or 1.0%, when compared to the prior year.  Sale growth in the aerospace and energy markets was offset by declines in the oil and gas segment. The aerospace segment increased from prior year levels due to strong demand for unmanned space launch vehicles.  The land based gas turbine business improved significantly year over year due to strong demand from several of our OEM customers.  Sales to the oil and gas segment were down as the prior year benefited from several very large offshore platform projects which did not repeat in the current year.  The aviation market was down from prior year due to order phasing and the defense market was up slightly over the prior year.


Income from operations in the fiscal year 2013 decreased $1.1 million, or 7.4%, when compared to the prior year.  This decrease is primarily due to the impact of reduced sales in the higher margin oil and gas markets



Electronics Products


 

2014 compared to 2013

 

 

 

2013 compared to 2012

 

 

 

 

 

 

 

%

 

 

 

 

 

%

 

2014

 

2013

 

Change

 

2013

 

2012

 

Change

Net sales

 $   114,881

 

 $   108,085

 

6.3%

 

 $ 108,085

 

 $     48,206

 

124.2%

Income from operations

        19,732

 

        16,147

 

22.2%

 

      16,147

 

          8,715

 

85.3%

Operating income margin

17.2%

 

14.9%

 

 

 

14.9%

 

18.1%

 

 


Net sales in the fiscal year 2014 increased $6.8 million, or 6.3%, when compared to the prior year.  Much of the increase took place within the sensor product line both in North America and Europe.  Sales in various markets improved particularly in transportation, industrial, contract manufacturing and metering.  Sales were also helped by favorable exchange totaling roughly $2.6 million.  To drive strategic growth in 2015, we plan to increase business development initiatives in order to drive new business opportunities.


Income from operations in the fiscal year 2014 increased $3.6 million, or 22.2%, when compared to the prior year.  The improvement was driven by the sales increase as well as various cost savings both material and labor, product mix in sensors, a consolidation of the Tianjin manufacturing and Hong Kong distribution operations into the existing Shanghai operation, and the absence of $1.5 million of purchase accounting expenses related to the Meder acquisition incurred in 2013.  During 2015, we plan to increase capital spending to further automate our new Mexico factory and to further develop our planar and sensor technologies.


Net sales in the fiscal year 2013 increased $59.9 million, or 124.2%, when compared to the prior year.  This increase includes the impact of $55.1 million from the acquisition of Meder and $4.8 million of organic growth driven by increased sales from the new sensor programs launched over the past 18 months partially offset by lower sales in magnetic products.





21


Income from operations in the fiscal year 2013 increased $7.4 million, or 85.3%, when compared to the prior year.  This increase was primarily driven by the Meder acquisition.  The integration of the Meder acquisition continued successfully throughout the year with a focus on identifying and implementing both sales and cost synergies.  These cost synergies were primarily the result of procurement savings and the consolidation of our sales and production facilities in China into a single facility.  Income from the Meder acquisition was accretive to earnings inclusive of $1.5 million in purchase accounting expenses primarily related to a step up of inventory to fair value.








Hydraulics Products


 

2014 compared to 2013

 

 

 

2013 compared to 2012

 

 

 

 

 

 

 

%

 

 

 

 

 

%

 

2014

 

2013

 

Change

 

2013

 

2012

 

Change

Net sales

 $  34,538

 

 $  30,079

 

14.8%

 

 $  30,079

 

 $  29,922

 

0.5%

Income from operations

       5,781

 

       4,968

 

16.4%

 

       4,968

 

       4,403

 

12.8%

Operating income margin

16.7%

 

16.5%

 

 

 

16.5%

 

14.7%

 

 


Net sales in the fiscal year 2014 increased $4.5 million, or 14.8%, when compared to the prior year. Diversification of our OEM business into refuse and construction equipment along with the revitalization of the traditional North American dump truck and trailer and export markets drove the 14.8% growth in net sales.  The strategy to penetrate alternative markets either with new engineered cylinder designs or modifications to existing designs has proven to be very successful.  Several of these new products are being applied in North American refuse garbage trucks, roll off container handlers, and construction equipment.  Typically the telescopic cylinders for these new applications are being manufactured in the United States and the rod cylinders are built in our factory in Tianjin, China.  To support our global customer base, we completed another expansion of the factory in China. The geographic sales growth continues in Germany, South America, Australia, and Central America.


Income from operations in the fiscal year 2014 increased $0.8 million or 16.4% when compared to the prior year.  This increase in annual income from operations was primarily due to better factory expense absorption both in the North American and the Tianjin China factories in addition to very close monitoring of costs.


Net sales in the fiscal year 2013 increased $0.2 million, or 0.5%, when compared to the prior year.  Continued market share gains in the North American refuse market coupled with growth in the aftermarket segment was offset by softness in the traditional North American dump truck and trailer and export markets.  In many cases end users continue to hold off in making capital investments until absolutely necessary.  We have successfully penetrated several large roll off container refuse vehicle OEM’s by leveraging our engineering expertise and low cost manufacturing position provided by our factory in Tianjin, China.  We also have recently launched a new telescopic cylinder product line for the garbage truck refuse markets that two large OEM customers are now utilizing.  We are currently expanding the capacity of our Chinese facility as we expect to continue to drive sales growth by utilizing our low cost position to further penetrate both rod and telescopic cylinder product applications for our global customer base.  This expansion geographically includes Australia, South America, Germany, and Central America.


Income from operations in the fiscal year 2013 increased $0.6 million or 12.8% when compared to the prior year.  This increase in annual income from operations can be attributed to cost containment and improvements in both process and productivity during the year in both North America and China.


Corporate, Restructuring and Other


 

 

2014 compared to 2013

 

 

 

2013 compared to 2012

 

 

 

 

 

 

 

 

%

 

 

 

 

 

%

 

 

2014

 

2013

 

Change

 

2013

 

2012

 

Change

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 $    (26,054)

 

 $    (22,924)

 

13.7%

 

 $  (22,924)

 

 $(23,443)

 

-2.2%




22





 

Gain on sale of real estate

                  -

 

                  -

 

 

 

                -

 

        4,776

 

-100.0%

 

Restructuring

       (10,077)

 

         (2,666)

 

278.0%

 

       (2,666)

 

     (1,685)

 

58.2%

 

Other operating income (expense), net

            3,462

 

                    -   

 

     100.0%

 

                  -   

 

                  -

 

 


Corporate expenses in fiscal year 2014 increased $3.1 million or 13.7% when compared to the prior year.  The increase was driven by $3.9 million of management transition.  The charge for management transition expense includes search fees, relocation and other costs associated with the hiring of a new chief executive officer (“CEO”) and the acceleration of stock incentive compensation expenses related to the retired CEO.


Corporate expenses in the fiscal year 2013 decreased $0.5 million, or 2.2% when compared to the prior year.  The decrease is primarily driven by a gain of $2.3 million resulting from the termination of the retiree life insurance benefit and lower incentive compensation expense of $2.3 million partially offset by an increase of $1.3 million in pension expense and $2.8 million of legal settlement costs.


Restructuring expenses reflect costs associated with the Company’s efforts to continuously improve operational efficiency and expand globally in order to remain competitive in the end-user markets we serve.  Each year the Company incurs costs for actions to size its businesses to a level appropriate for current economic conditions and to improve its cost structure to improve our competitive position and operating margins.  Such expenses include costs for moving facilities to low-cost locations, starting up plants after relocation, curtailing/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, moving, and relocation costs.  Vacant facility costs include maintenance, utilities, property taxes, and other costs.

Restructuring expenses of $10.1 million in the fiscal year 2014 are composed of $9.2 million at Food Service Equipment primarily related to the announced closure of the Cheyenne, Wyoming facility, which includes a non-cash impairment charge of $5.4 million.

Restructuring expense of $2.7 million in the fiscal year 2013 is primarily composed of $2.0 million in the Engraving Group for ongoing headcount reductions in our European operations and the relocation of our Brazil facility, and $0.4 million in Electronics, where we are eliminating redundant positions due to the Meder acquisition.


The Company currently expects to incur between $4.0 and $5.0 million of restructuring expense in 2015, including the cost to complete actions initiated during 2014 and actions anticipated to be approved and initiated during 2015.


During fiscal year 2014, other operating income (expense), net includes a $3.5 million net gain from insurance proceeds we received related to a catastrophic failure of a large vertical machining center located at our Engineering Technologies facility in Massachusetts.  Insurance proceeds of $4.5 million were partially offset by the write-off of the net book value of the machine of $1.0 million.  We have acquired a replacement machine for approximately $2.9 million and anticipate being operational in the first half of the first quarter of 2015.



Discontinued Operations


In June 2014, the Company divested the American Foodservice Company, a manufacturer of custom design and fabrication of counter systems and cabinets, in our Food Service Equipment Group segment.  In connection with this sale, the Company received proceeds of $3.1 million and recorded a net loss on disposal of $3.2 million.   


In December 2011, the Company divested the Air Distribution Products Group, (“ADP”).  In connection with this sale, the Company adjusted the carrying value of ADP’s assets to their net realizable value based on a range of expected sale prices.  As a result, the Company recorded goodwill impairment charges of $14.9 million and impairment charges of $5.0 million to fixed assets.


On March 30, 2012, ADP was sold to a private equity buyer for consideration of $16.1 million consisting of $13.1 million in cash and a $3.0 million note secured by first mortgages on three ADP facilities.  During the quarter ended March 31, 2012, additional pre-tax charges of $2.6 million were taken in connection with the closing of the sale.  These charges related primarily to the impairment of a non-cancellable lease liability that the buyer elected not to assume as part of the purchase.


During 2014, the Company received notice that its obligations under a guarantee provided to the buyers of ADP were triggered as a result of its withdrawal from both of the multi-employer pension plans in which ADP previously participated. 




23


As a result, the Company has recorded charges of $1.6 million in excess of the value of the guarantee previously recorded in order to fully settle these obligations. 











The following table summarizes the Company’s discontinued operations activity, by operation, for the years ended June 30, 2014, 2013 and 2012 (in thousands):


 

Year Disposed

2014

 

 

2013

 

 

2012

Sales:

 

 

 

 

 

 

 

 

 

 

American Foodservice  Company

2014

 

$

      20,556

 

$

      27,870

 

$

       24,054

Air Distribution Products Group

2012

 

 

             -   

 

 

             -   

 

 

       43,537

 

 

 

 

      20,556

 

 

      27,870

 

 

       67,591

Income (loss) before taxes:

 

 

 

 

 

 

 

 

 

 

American Foodservice  Company (1)

2014

 

 

     (8,339)

 

 

        1,934

 

 

        1,220

Air Distribution Products Group

2012

 

 

     (1,849)

 

 

        (451)

 

 

     (24,871)

Other loss from discontinued operations

 

 

 

        (387)

 

 

        (207)

 

 

         (453)

Income (loss) before taxes from discontinued operations

 

 

   (10,575)

 

 

        1,276

 

 

     (24,104)

(Provision) benefit for tax

 

 

 

        3,692

 

 

        (482)

 

 

        9,113

Net income (loss) from discontinued operations

 

 

 $

       (6,883)

 

 $

               794

 

 $

                (14,991)

 

 

 

 

 

 

 

 

 

 

 

(1)  American Foodservice Company incurred a pretax operational loss of $3.5 million and pretax loss on sale of $4.8 million.


Liquidity and Capital Resources


At June 30, 2014, our total cash balance was $74.3 million, of which $64.0 million was held by foreign subsidiaries.  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.  Our current plans are not expected to require a repatriation of cash to fund our U.S. operations and as a result, we intend to indefinitely reinvest our foreign earnings to fund our overseas growth.  If the undistributed earnings of our foreign subsidiaries are needed for operations in the United States we would be required to accrue and pay U.S. taxes upon repatriation.  


Cash Flow


Net cash provided by operating activities from continuing operations for the year ended June 30, 2014 was $72.0 million, compared to $64.2 million for the same period in 2013.  The increase of $7.8 million in net cash provided by operating activities from continuing operations is primarily due to $5.7 million of increases to net income from continuing operations, $4.2 million of cash provided by income taxes payable offset by increased pension contributions of $1.5 million and $1.5 million of increased working capital.


Net cash used in investing activities from continuing operations for the year ended June 30, 2014 was $35.6 million, consisting primarily of $23.1 million for the acquisitions of Ultrafryer and Planar, $18.8 million for capital expenditures, offset by $3.2 million of insurance proceeds received from corporate owned life insurance policies.


Net cash used in financing activities for continuing operations for the year ended June 30, 2014, was $15.0 million consisting primarily of dividends paid of $4.8 million, repurchased treasury stock of $7.8 million, and net debt payments of $5.0 million.




24



Capital Structure


On January 5, 2012, the Company entered into a five-year $225 million unsecured Revolving Credit Facility (“Credit Agreement”, or “facility”), which can be increased by the Company by an amount of up to $100 million, in accordance with specified conditions contained in the agreement.  The facility also includes a $10 million sublimit for swing line loans and a $30 million sublimit for letters of credit.  


Under the terms of the Credit Agreement, we will pay a variable rate of interest and a commitment fee on available, but unused, amounts under the facility.  The amount of the commitment fee will depend upon both the undrawn amount remaining available under the facility and the Company’s funded debt to EBITDA (as defined in the agreement) ratio at particular points in time.  As our funded debt to EBITDA ratio increases, the commitment fee will increase.  Amounts borrowed under the facility may be in the form of either Base Rate or Eurodollar Rate loans.  The rate of interest on Base Rate loans shall be the higher of (i) the Federal Funds rate plus ½ of 1%, (ii) the “prime rate” announced by Citizens Bank, N. A. or (iii) the London interbank offered rate (“LIBOR”) plus ½ of 1% (the rate in effect shall be referred to as the “Base Rate”), plus an additional amount based upon the Company’s debt to EBITDA ratio.  The rate of interest on Eurodollar Rate loans shall be the LIBOR rate which corresponds to the interest period (either one, two, three or six months) selected by the Company, plus an additional amount based upon the Company’s funded debt to EBITDA ratio.  Swing Line loans shall bear interest at the Base Rate, plus an additional amount based upon the Company’s funded debt to EBITDA ratio.  As the Company’s funded debt to EBITDA ratio increases, the additional amount will also increase.


The facility expires in January 2017, and contains customary representations, warranties and restrictive covenants, as well as specific financial covenants.  The Company’s current financial covenants under the facility are as follows:


Interest Coverage Ratio - The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Agreement”), to interest expense for the trailing twelve months of at least 3:1.  Adjusted EBIT per the Credit Agreement specifically excludes extraordinary and certain other defined items such as non-cash restructuring and acquisition-related charges up to $2.0 million, and goodwill impairment.  At June 30, 2014, the Company’s Interest Coverage Ratio was 35.58:1.


Leverage Ratio - The Company’s ratio of funded debt to trailing twelve month Adjusted EBITDA per the credit agreement, calculated as Adjusted EBIT per the Credit Agreement plus Depreciation and Amortization, may not exceed 3.5:1.  At June 30, 2014, the Company’s Leverage Ratio was 0.59:1.


As of June 30, 2014, we had borrowings under the facility of $45.0 million.  As of June 30, 2014, the effective rate of interest for outstanding borrowings under the facility was 3.87%.


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.


Our primary cash requirements in addition to day-to-day operating needs include interest payments, capital expenditures, and dividends.  Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility.  We expect to spend between $24.0 and $26.0 million on capital expenditures during 2015, and expect that depreciation and amortization expense will be between $13.0 and $14.0 million and $2.5 and $3.0 million, respectively.


In order to manage our interest rate exposure, we are party to $45.0 million of floating to fixed rate swaps.  These swaps convert our interest payments from LIBOR to a weighted average rate of 2.40%.


The following table sets forth our capitalization at June 30, (in thousands):


 

 

2014

 

 

2013

Long-term debt

$

45,056

 

$

50,072

Less cash

 

74,260

 

 

51,064

   Net (cash) debt

 

(29,204)

 

 

(992)

Stockholders’ equity

 

340,726

 

 

290,988

Total capitalization

$

     311,522

 

$

     289,996




25





 

 

 

 

 

 

Stockholders’ equity increased year over year primarily as a result of current year net income of $42.9 million partially offset by dividends paid of $4.8 million.  The Company's net (cash) debt to capital percentage increased from -0.3% to -9.4% in 2014 due to the aforementioned, net income to retained earnings, debt reduction and increase availability of cash.


We sponsor a number of defined benefit and defined contribution retirement plans.  The fair value of the Company's U.S. pension plan assets was $216.0 million at June 30, 2014 and the projected benefit obligation in the U.S. was $240.4 million at that time.   In June 2012, the Moving Ahead for Progress in the 21st Century (“MAP 21”) bill was signed into law by Congress.  Based on changes in pension funding provisions under MAP 21, we made a $3.25 million contribution during July 2012 due to its favorable treatment under the bill and retroactive treatment under the Pension Protection Act (“PPA”).  As a result of this contribution and an additional $6 million contribution made in June 2012, the plan is 100% funded under PPA rules at June 30, 2014, and we do not expect to make mandatory contributions to the plan until 2019.  We do not expect contributions to our other defined benefit plans to be material in 2015.


The Company’s pension plan for U.S. salaried employees was frozen as of December 31, 2007, and participants in the plan ceased accruing future benefits.  The Company’s pension plan for U.S. hourly employees was frozen for substantially all participants as of July 31, 2013, and replaced with a defined contribution benefit plan.  We have frozen benefits for substantially all participants in our U.S. defined benefit pension plan as of July 31, 2013.  These actions contributed to a decrease of $2.6 million, or $0.13 per diluted share, of reduced expense related to our legacy U.S. plan in 2014 compared to 2013.


We have evaluated the current and long-term cash requirements of our defined benefit and defined contribution plans as of June 30, 2014 and determined our operating cash flows from continuing operations and available liquidity are expected to be sufficient to cover the required contributions under ERISA and other governing regulations.  


We have an insurance program for certain retired key executives that have underlying policies with a cash surrender value at June 30, 2014 of $17.7 million and are reported net of loans of $9.8 million for which we have the legal right of offset.  These policies have been purchased to fund supplemental retirement income benefits.




Contractual obligations of the Company as of June 30, 2014 are as follows (in thousands):


 

 

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

 

 

 

Less

 

 

 

 

 

 

 

 

More

 

 

 

 

 

than 1

 

 

1-3

 

 

3-5

 

 

than 5

Contractual Obligations

 

Total

 

 

Year

 

 

Years

 

 

Years

 

 

Years

Long-term debt obligations

$

   45,056

 

$

          18

 

$

   45,030

 

$

            8

 

$

             -   

Operating lease obligations

 

   25,936

 

 

     6,053

 

 

     9,108

 

 

     4,941

 

 

     5,834

Estimated interest payments (1)

 

     2,583

 

 

     1,477

 

 

     1,106

 

 

            -   

 

 

             -   

Post-retirement benefit payments (2)

   28,108

 

 

578

 

 

1,141

 

 

1,096

 

 

25,293

     Total

$

101,683

 

$

8,126

 

$

56,385

 

$

6,045

 

$

31,127


(1)

Estimated interest payments are based upon effective interest rates as of June 30, 2014, and include the impact of interest rate swaps.  See Item 7A for further discussions surrounding interest rate exposure on our variable rate borrowings.  

(2)

Post-retirement benefits and pension plan contribution payments are based upon current benefit payment levels.


At June 30, 2014, we had $0.6 million of non-current liabilities for uncertain tax positions.  We are not able to provide a reasonable estimate of the timing of future payments related to these obligations.


Off Balance Sheet Items


In March 2012, the Company sold substantially all of the assets of the ADP business.  In connection with the divestiture, the Company remained the lessee of ADP’s Philadelphia, PA facility and administrative offices, with the purchaser subleasing a fractional portion of the building at current market rates.  In connection with the transaction, the Company recognized a lease impairment charge of $2.3 million for the remaining rental expense.  The Company’s aggregate obligation with respect to the




26


lease is $1.8 million, of which $1.3 million was recorded as a liability at June 30, 2014.  Additionally, the Company remained an obligor on an additional facility lease that was assumed in full by the buyer, for which our aggregate obligation in the event of default by the buyer is $0.8 million.  With the exception of the impaired portion of the Philadelphia lease, the Company does not expect to make any payments with respect to these obligations.  The buyer’s obligations under the respective sublease and assumed lease are secured by a cross-default provision in the purchaser’s promissory note for a portion of the purchase price which is secured by mortgages on the ADP real estate sold in the transaction.


At June 30, 2014, and 2013, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $11.3 million and $10.7 million, respectively.


We had no other material off balance sheet items at June 30, 2014, other than the operating leases summarized above.   


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 reserves 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 manage medical costs inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit the maximum exposure for us.  


Foreign Currency Translation – Our primary functional currencies used by our non-U.S. subsidiaries are the Euro, British Pound Sterling (Pound), Mexican (Peso), and Chinese (Yuan).  During the current year, the Pound and Euro have experienced increases but the Yuan and Peso have decreased in value related to the U.S. Dollar, our reporting currency.  Since June 30, 2013 the Pound and Euro have appreciated by 12.5% and 5.2%, respectively, the Yuan and Peso have depreciated by 0.2% and 0.1%, respectively (all relative to the U.S. Dollar).  These exchange values were used in translating the appropriate non-U.S. subsidiaries’ balance sheets into U.S. Dollars at the end of the current year.  


Defined Benefit Pension Plans – We record expenses related to these plans based upon various actuarial assumptions such as discount rates and assumed rates of returns.  We have frozen benefits for substantially all participants in our U.S. defined benefit pension plan as of July 31, 2014.  These actions contributed to a decrease of $2.6 million, or $0.13 per diluted share, of reduced expense related to our legacy U.S. plan in 2014 compared to 2013.


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 is typically the period with the lowest level of activity.


Employee Relations – The Company has labor agreements with a number of union locals in the United States and a number of European employees belong to European trade unions.  There are three union contracts in the U.S expiring during fiscal year 2015.


Critical Accounting Policies


The Consolidated Financial Statements include accounts of the Company and all of our 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 Consolidated Financial Statements.  Although, we believe that materially different amounts would not be reported due to the accounting policies described below, the application of these 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.  We have listed a number of accounting policies which we believe to be the most critical.  


Collectability of Accounts Receivable – Accounts Receivable are reduced by an allowance for amounts that may become uncollectible in the future.  Our estimate for the allowance for doubtful accounts related to trade receivables includes evaluation of specific accounts where we have information that the customer may have an inability to meet its financial obligation together with a general provision for unknown but existing doubtful accounts.  


Realizability of Inventories – Inventories are valued at the lower of cost or market.  The Company regularly reviews inventory values on hand using specific aging categories, and records a provision for obsolete and excess inventory based on




27


historical usage and estimated future usage.  As actual future demand or market conditions may vary from those projected by management, adjustments to inventory valuations may be required.


Realization of Goodwill - Goodwill and certain indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount of the asset.  The Company’s annual test for impairment is performed using a May 31st measurement date.


We have identified our reporting units for impairment testing as our eleven operating segments, which are aggregated into our five reporting segments as disclosed in Note 18 – Industry Segment Information.  


The test for impairment is a two-step process.  The first step compares the carrying amount of the reporting unit to its estimated fair value (Step 1).  To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value is compared to the implied fair value (Step 2).  To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.

 

As quoted market prices are not available for the Company’s reporting units, the fair value of the reporting units is determined using a discounted cash flow model (income approach).  This method uses various assumptions that are specific to each individual reporting unit in order to determine the fair value.  In addition, the Company compares the estimated aggregate fair value of its reporting units to its overall market capitalization.


Our annual impairment testing at each reporting unit relied on assumptions surrounding general market conditions, short-term growth rates, a terminal growth rate of 2.5%, and detailed management forecasts of future cash flows prepared by the relevant reporting unit.  Fair values were determined primarily by discounting estimated future cash flows at a weighted average cost of capital of 10.59%.   An increase in the weighted average cost of capital of approximately 350 basis points in the analysis would not result in the identification of any impairments.


While we believe that our estimates of future cash flows are reasonable, changes in assumptions could significantly affect our valuations and result in impairments in the future.  The most significant assumption involved in the Company’s determination of fair value is the cash flow projections of each reporting unit.  Certain reporting units have been significantly impacted by the current global economic downturn and if the effects of the current global economic environment are protracted or the recovery is slower than we have projected estimates of future cash flows for each reporting unit may be insufficient to support the carrying value of the reporting units, requiring the Company to re-assess its conclusions related to fair value and the recoverability of goodwill.


As a result of our annual assessment, the Company determined that the fair value of the reporting units and indefinite-lived intangible assets substantially exceeded their respective carrying values.  Therefore, no impairment charges were recorded in connection with our assessments during 2014.


In connection with the divestiture of ADP, the Company determined that based on the net realizable value of the business in the transaction, the goodwill of the ADP reporting unit was impaired.  As such, the Company recognized $14.9 million in impairment charges in discontinued operations during the second quarter of 2012.


Cost of Employee Benefit Plans – We provide a range of benefits to our employees, including pensions and some postretirement benefits.  We record expenses relating to these plans based upon various actuarial assumptions such as discount rates, assumed rates of return, compensation increases, turnover rates, and health care cost trends.  The expected return on plan assets assumption of 7.25% in the U.S. is based on our expectation of the long-term average rate of return on assets in the pension funds and is reflective of the current and projected asset mix of the funds and considers the historical returns earned on the funds.  We have analyzed the rates of return on assets used and determined that these rates are reasonable based on the plans’ historical performance relative to the overall markets as well as our current expectations for long-term rates of returns for our pension assets.  The U.S. discount rate of 4.5% reflects the current rate at which pension liabilities could be effectively settled at the end of the year.  The discount rate is determined by matching our expected benefit payments from a stream of AA- or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions.  We review our actuarial assumptions, including discount rate and expected long-term rate of return on plan assets, on at least an annual basis and make modifications to the assumptions based on current rates and trends when appropriate.  Based on information provided by our actuaries and other relevant sources, we believe that our assumptions are reasonable.


The cost of employee benefit plans includes the selection of assumptions noted above.  A twenty-five basis point change in the expected return on plan assets assumptions, holding our discount rate and other assumptions constant, would increase or




28


decrease pension expense by approximately $0.5 million per year.  A twenty-five basis point change in our discount rate, holding all other assumptions constant, would increase or decrease pension expense by approximately $0.3 million annually.  See the Notes to the Consolidated Financial Statements for further information regarding pension plans.


Business Combinations - The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair values for assets acquired and liabilities assumed.  The fair values assigned to tangible and intangible assets acquired and liabilities assumed, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.  If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.


Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocation.  During this measurement period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date.  All changes that do not qualify as measurement period adjustments are included in current period earnings.


Recently Issued Accounting Pronouncements


In June 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standard update (“ASU”) 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.  The update provides guidance on how to account for certain share-based payment awards where employees would be eligible to vest in the award regardless of whether the employee is still rendering service on the date the performance target is achieved.  The standard is effective for annual and interim periods with those annual periods beginning after December 15, 2015.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2014-12 to have a material impact to its consolidated results of operation.

 

In May 2014, the FASB and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard, ASU 2014-09, Revenue from Contract with Customers, that will supersede nearly all existing revenue recognition guidance under US GAAP and IFRS.  The standard’s primary principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. We expect to adopt this standard in the quarter ending September 30, 2017.  The Company is still evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements.

 

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  ASU 2014-08 revised guidance to only allow disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations.  The revised guidance also requires expanded disclosure in the financial statements for discontinued operations, as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation.  ASU 2014-08 is effective for interim and annual reporting periods beginning after December 15, 2014.  The Company is still evaluating the impact of adopting ASU 2014-08 on its consolidated financial statements.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk


Risk Management


We are exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency exchange.  To reduce these risks, we selectively use, from time to time, financial instruments and other proactive management techniques.  We have internal policies and procedures that place financial instruments under the direction of the Treasurer and restrict all derivative transactions to those intended for hedging purposes only.  The use of financial instruments for trading purposes (except for certain investments in connection with the non-qualified defined contribution plan) or speculation is strictly prohibited.  The Company has no majority-owned subsidiaries that are excluded from the consolidated financial statements.  Further, we have no interests in or relationships with any special purpose entities.  


Exchange Risk





29


We are exposed to both transactional risk and translation risk associated with exchange rates.  The transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts.  We also mitigate certain of our foreign currency exchange rate risks by entering into forward foreign currency contracts from time to time.  The contracts are used as a hedge against anticipated foreign cash flows, such as 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 June 30, 2014 and 2013, the fair value, in the aggregate, of the Company’s open foreign exchange was $1.2 million and $1.4 million respectively.  


Our primary translation risk is with the Euro, British Pound Sterling, and Chinese Yuan.  A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at June 30, 2014, would not result in a material change in our operations, financial position, or cash flows.  We do not hedge our translation risk. As a result, fluctuations in currency exchange rates can affect our stockholders’ equity.


Interest Rate


The Company’s effective rate on variable-rate borrowings under the revolving credit agreement is 3.87% and 3.65% at June 30, 2014 and 2013, respectively.  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.  We currently have a $45.0 million of floating to fixed rate swaps with terms ranging from two to five years.  These swaps convert our interest payments from LIBOR to a weighted average rate of 2.40%.  Due to the impact of the swaps, an increase in interest rates would not materially impact our annual interest expense at June 30, 2014.  


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 June 30, 2014, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.


Commodity Prices


The Company is exposed to fluctuating market prices for all commodities used in its manufacturing processes.  Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements.  In general, we do not enter into purchase contracts that extend beyond one operating cycle.  While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.


The Engineering Technologies, 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 divisions’ respective competitors and the timing of their price increases.




















30












Item 8.  Financial Statements and Supplementary Data

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

As of June 30 (in thousands, except share data)

2014

 

 

2013

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

  Cash and cash equivalents

 

$

               74,260

 

$

          51,064

  Accounts receivable, net

 

 

              107,674

 

 

          97,995

  Inventories

 

 

               97,065

 

 

          81,811

  Prepaid expenses and other current assets

                 7,034

 

 

            7,286

  Income taxes receivable

 

 

                    922

 

 

                 -   

  Deferred tax asset

 

 

               12,981

 

 

          12,237

  Current assets - discontinued operations

 

                      -   

 

 

            7,909

    Total current assets

 

 

              299,936

 

 

         258,302

 

 

 

 

 

 

 

Property, plant, equipment, net

 

 

               96,697

 

 

          92,542

Intangible assets, net

 

 

               31,490

 

 

          24,632

Goodwill

 

 

              125,965

 

 

         111,905

Deferred tax asset

 

 

                    878

 

 

                 -   

Other non-current assets

 

 

               23,194

 

 

          19,401

Non-current assets - discontinued operations

                      -   

 

 

            3,791

    Total non-current assets

 

 

              278,224

 

 

         252,271

 

 

 

 

 

 

 

Total assets

 

$

              578,160

 

$

         510,573

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

 

 

 

  Accounts payable

 

$

               85,206

 

$

          67,552

  Accrued liabilities

 

 

               51,038

 

 

          46,497

  Income taxes payable

 

 

                 4,926

 

 

            1,638

  Current liabilities – discontinued operations

                      -   

 

 

            2,786

    Total current liabilities

 

 

              141,170

 

 

         118,473

 

 

 

 

 

 

 

Long-term debt

 

 

               45,056

 

 

          50,072

Deferred income taxes

 

 

               10,853

 

 

            7,838

Pension obligations

 

 

               31,815

 

 

          33,538

Other non-current liabilities

 

 

                 8,540

 

 

            9,664

    Total non-current liabilities

 

 

               96,264

 

 

         101,112

 

 

 

 

 

 

 

Commitments and Contingencies (Notes 11 and 12)

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

  Common stock, par value $1.50 per share -

 

 

 

 

    60,000,000 shares authorized, 27,984,278

 

 

 

 

    issued, 12,639,615 and 12,549,806 shares

 

 

 

 

    outstanding in 2014 and 2013

 

 

               41,976

 

 

          41,976

  Additional paid-in capital

 

 

               43,388

 

 

          37,199




31





  Retained earnings

 

 

              584,014

 

 

         546,031

  Accumulated other comprehensive loss

 

              (55,819)

 

 

         (65,280)

  Treasury shares (15,344,663 shares in 2014

 

 

 

 

    and 15,434,472 shares in 2013)

 

 

            (272,833)

 

 

       (268,938)

    Total stockholders' equity

 

 

              340,726

 

 

         290,988

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

$

              578,160

 

$

         510,573

 

 

 

 

See notes to consolidated financial statements.

 

 

 


Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

 

 

 

For the Years Ended June 30 (in thousands, except per share data)

 

2014

 

 

2013

 

 

2012

Net sales

 

$

      716,180

 

$

     673,390

 

$

     610,586

Cost of sales

 

 

      477,911

 

 

     455,199

 

 

     408,850

Gross profit

 

 

      238,269

 

 

     218,191

 

 

     201,736

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

      165,786

 

 

     153,630

 

 

     141,471

Gain on sale of real estate

 

 

              -   

 

 

             -   

 

 

       (4,776)

Restructuring costs

 

 

        10,077

 

 

         2,666

 

 

        1,685

Other operating (income) expense, net

 

 

        (3,462)

 

 

             -   

 

 

             -   

Income from operations

 

 

        65,868

 

 

       61,895

 

 

       63,356

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

          2,249

 

 

         2,469

 

 

        2,280

Other, net

 

 

        (4,184)

 

 

           128

 

 

         (519)

Total

 

 

        (1,935)

 

 

         2,597

 

 

        1,761

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

 

        67,803

 

 

       59,298

 

 

       61,595

Provision for income taxes

 

 

        18,054

 

 

       15,244

 

 

       15,699

Income from continuing operations

 

 

        49,749

 

 

       44,054

 

 

       45,896

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

 

 

        (6,883)

 

 

           794

 

 

     (14,991)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

        42,866

 

$

       44,848

 

$

       30,905

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

           3.94

 

$

          3.51

 

$

          3.67

Income (loss) from discontinued operations

 

 

          (0.55)

 

 

          0.06

 

 

        (1.20)

Total

 

$

           3.39

 

$

          3.57

 

$

          2.47

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

           3.89

 

$

          3.45

 

$

          3.59

Income (loss) from discontinued operations

 

 

          (0.54)

 

 

          0.06

 

 

        (1.17)

Total

 

$

           3.35

 

$

          3.51

 

$

          2.42

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 













32












Consolidated Statements of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended June 30, 2014 (in thousands)

 

2014

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

Net income (loss)

$

      42,866

 

$

      44,848

 

$

      30,905

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

   Defined benefit pension plans:

 

 

 

 

 

 

 

 

      Actuarial gains (losses) and other changes in unrecognized costs

$

        (604)

 

$

      12,640

 

$

   (38,283)

      Amortization of unrecognized costs

 

        4,855

 

 

        8,701

 

 

        5,603

   Derivative instruments:

 

 

 

 

 

 

 

 

      Change in unrealized gains and losses

 

        (194)

 

 

        (195)

 

 

     (1,987)

      Amortization of unrealized gains and losses into interest expense

 

        1,031

 

 

        1,050

 

 

          820

   Foreign currency translation adjustments

 

        6,055

 

 

     (4,025)

 

 

     (7,847)

Other comprehensive income (loss) before tax

$

      11,143

 

$

      18,171

 

$

   (41,694)

 

 

 

 

 

 

 

 

 

Income tax provision (benefit):

 

 

 

 

 

 

 

 

   Defined benefit pension plans:

 

 

 

 

 

 

 

 

      Actuarial gains (losses) and other changes in unrecognized costs

$

           362

 

$

     (4,836)

 

$

     13,848

      Amortization of unrecognized costs

 

     (1,724)

 

 

     (3,165)

 

 

     (2,793)

   Derivative instruments:

 

 

 

 

 

 

 

 

      Change in unrealized gains and losses

 

             74

 

 

             75

 

 

          752

      Amortization of unrealized gains and losses into interest expense

 

        (394)

 

 

        (400)

 

 

        (310)

Income tax provision benefit to other comprehensive income (loss)

$

     (1,682)

 

$

     (8,326)

 

$

      11,497

Other comprehensive income (loss), net of tax

 

        9,461

 

 

        9,845

 

 

   (30,197)

Comprehensive income (loss)

$

      52,327

 

$

      54,693

 

$

           708

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.























33













34





Consolidated Statements of Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

Total

 

Common

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

Treasury Stock

 

Stockholders’

For the Years Ended June 30 (in thousands)

 

Stock

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

Shares

 

Amount

 

Equity

Balance, June 30, 2011

$

  41,976

 

$

       33,228

 

$

     477,726

 

$

         (44,928)

15,536

 

$

 (262,389)

$

      245,613

Stock issued for employee stock option and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

purchase plans, including related income tax benefit

 

 

     (2,156)

 

 

 

 

 

 

(229)

 

 

      3,875

 

          1,719

Stock-based compensation

 

 

 

 

        3,856

 

 

 

 

 

 

 

 

 

 

 

          3,856

Treasury stock acquired

 

 

 

 

 

 

 

 

 

 

 

154

 

 

    (5,521)

 

       (5,521)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net Income

 

 

 

 

 

 

 

      30,905

 

 

 

 

 

 

 

 

        30,905

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

           (7,847)

 

 

 

 

 

      (7,847)

Pension and OPEB adjustments, net of tax of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   $11.1 million

 

 

 

 

 

 

 

 

 

 

        (21,625)

 

 

 

 

 

     (21,625)

Change in fair value of derivatives, net of tax of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   $0.4 million

 

 

 

 

 

 

 

 

 

 

             (725)

 

 

 

 

 

         (725)

Dividends paid ($.27 per share)

 

 

 

 

 

 

 

             (3,468)

 

 

 

 

 

 

 

 

       (3,468)

Balance, June 30, 2012

$

 41,976

 

$

     34,928

 

$

    505,163

 

$

   (75,125)

15,461

 

$

(264,035)

$

     242,907

Stock issued for employee stock option and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

purchase plans, including related income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   and other

 

 

 

 

     (1,072)

 

 

 

 

 

 

(210)

 

 

    3,606

 

         2,534

Stock-based compensation

 

 

 

 

 3,343

 

 

 

 

 

 

 

 

 

 

 

         3,343

Treasury stock acquired

 

 

 

 

 

 

 

 

 

 

 

184

 

 

   (8,509)

 

      (8,509)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

     44,848

 

 

 

 

 

 

 

 

       44,848

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

          (4,025)

 

 

 

 

 

      (4,025)

Pension and OPEB adjustments, net of tax of ($8.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   million

 

 

 

 

 

 

 

 

 

 

          13,340

 

 

 

 

 

       13,340

Change in fair value of derivatives, net of tax of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   ($0.3) million

 

 

 

 

 

 

 

 

 

 

               530

 

 

 

 

 

           530

Dividends paid ($.31 per share)

 

 

 

 

 

 

 

     (3,980)

 

 

 

 

 

 

 

 

     (3,980)

Balance, June 30, 2013

$

 41,976

 

$

     37,199

 

$

   546,031

 

$

       (65,280)

15,435

 

$

(268,938)

$

     290,988

Stock issued for employee stock option and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

purchase plans, including related income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   benefit and other

 

 

 

 

       (441)

 

 

 

 

 

 

(222)

 

 

    3,895

 

         3,454

Stock-based compensation

 

 

 

 

       6,630

 

 

 

 

 

 

 

 

 

 

 

         6,630

Treasury stock acquired

 

 

 

 

 

 

 

 

 

 

 

132

 

 

    (7,790)

 

     (7,790)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

   42,866

 

 

 

 

 

 

 

 

      42,866

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

            6,055

 

 

 

 

 

        6,055

Pension and OPEB adjustments, net of tax of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   ($1.3) million

 

 

 

 

 

 

 

 

 

 

            2,889

 

 

 

 

 

        2,889

Change in fair value of derivatives, net of tax of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   ($0.3) million

 

 

 

 

 

 

 

 

 

 

              517

 

 

 

 

 

         517

Dividends paid ($.38 per share)

 

 

 

 

 

 

 

    (4,883)

 

 

 

 

 

 

 

 

    (4,883)

Balance, June 30, 2014

$

  41,976

 

$

      43,388

 

$

   584,014

 

$

              (55,819)

15,345

 

$

(272,833)

$

           340,726



See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 







35




Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

 

 

 

 

For the Years Ended June 30 (in thousands)

 

 

2014

 

 

2013

 

 

2012

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

   42,866

 

$

 44,848

 

$

   30,905

 

Income (loss) from discontinued operations

 

 

 (6,883)

 

 

      794

 

 

  (14,991)

 

Income (loss) from continuing operations

 

 

   49,749

 

 

 44,054

 

 

   45,896

 

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

 

    Depreciation and amortization

 

 

  14,591

 

 

  15,235

 

 

13,142

 

    Stock-based compensation

 

 

    6,630

 

 

    3,343

 

 

3,768

 

    Deferred income taxes

 

 

  (3,343)

 

 

  (2,416)

 

 

     2,342

 

    Non-cash portion of restructuring charge

 

 

    5,982

 

 

       (31)

 

 

          81

 

    (Gain)/loss on sale of real estate

 

 

            -   

 

 

          -   

 

 

(4,776)

 

    Disposal of real estate and equipment

 

 

       925

 

 

             -   

 

 

            -   

 

    Life insurance benefit

 

 

  (3,353)

 

 

             -   

 

 

             -   

 

Increase/(decrease) in cash from changes in assets and liabilities, net of effects from discontinued operations and business acquisitions:

    Accounts receivables, net

 

 

  (6,614)

 

 

    4,335

 

 

    (6,628)

 

    Inventories

 

 

(10,041)

 

 

       656

 

 

        792

 

    Contributions to defined benefit plans

 

 

 (1,527)

 

 

  (4,578)

 

 

    (7,268)

 

    Prepaid expenses and other

 

 

  (6,388)

 

 

 (2,889)

 

 

    (2,666)

 

    Accounts payable

 

 

  15,166

 

 

   3,414

 

 

      (433)

 

    Accrued payroll, employee benefits and other liabilities

     6,192

 

 

    2,372

 

 

      4,317

 

    Income taxes payable

 

 

    4,023

 

 

       710

 

 

    (3,078)

 

Net cash provided by operating activities from continuing operations

   71,992

 

 

  64,205

 

 

   45,489

 

Net cash used for operating activities from discontinued operations

  (1,693)

 

 

  (4,024)

 

 

    (1,823)

 

Net cash provided by operating activities

 

 

   70,299

 

 

 60,181

 

 

    43,666

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

 

    Expenditures for capital assets

 

 

(18,832)

 

 

(14,104)

 

 

    (9,741)

 

    Expenditures for acquisitions, net of cash acquired

 

(23,075)

 

 

(39,613)

 

 

            -   

 

    Expenditures for executive life insurance policies

 

 

    (444)

 

 

     (435)

 

 

       (476)

 

    Proceeds withdrawn from life insurance policies

 

 

    3,654

 

 

    1,480

 

 

         152

 

    Proceeds from sale of real estate and equipment

 

 

       118

 

 

        28

 

 

      5,207

 

    Other investing activity

 

 

    2,964

 

 

          -   

 

 

    (2,367)

 

Net cash provided by (used for) investing activities from continuing operations

(35,615)

 

 

(52,644)

 

 

    (7,225)

 

Net cash provided by (used for) investing activities from discontinued operations

    2,452

 

 

      (43)

 

 

    15,809

 

Net cash provided by (used for) investing activities

 

 

(33,163)

 

 

(52,687)

 

 

      8,584

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

 

    Proceeds from borrowings

 

 

  71,000

 

 

121,000

 

 

  210,500

 

    Payments of debt

 

 

(76,000)

 

 

(121,785)

 

 

(210,300)

 

    Short-term borrowings, net

 

 

             -   

 

 

             -   

 

 

    (1,800)

 

    Stock issued under employee stock option and purchase plans

    1,098

 

 

           279

 

 

        316

 

    Excess tax benefit associated with stock option exercises

    1,650

 

 

        1,990

 

 

        649

 

    Cash dividends paid

 

 

 (4,793)

 

 

    (3,891)

 

 

   (3,383)

 

    Purchase of treasury stock

 

 

 (7,790)

 

 

    (8,509)

 

 

    (5,521)

 

Net cash used for financing activities

 

 

(14,835)

 

 

  (10,916)

 

 

   (9,539)

 

    Effect of exchange rate changes on cash

 

 

       895

 

 

      (263)

 

 

    (2,369)

 

Net change in cash and cash equivalents

 

 

  23,196

 

 

    (3,685)

 

 

   40,342

 

Cash and cash equivalents at beginning of year

 

 

   51,064

 

 

      54,749

 

 

    14,407

 

Cash and cash equivalents at end of year

 

$

   74,260

 

$

      51,064

 

$

    54,749

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

    Cash paid during the year for:

 

 

 

 

 

 

 

 

 

 

        Interest

 

$

    1,834

 

$

        2,193

 

$

      1,792

 

        Income taxes, net of refunds

 

$

   14,048

 

$

      14,018

 

$

   13,377

 

 

 

 

 

 

 

 

 

 

 

 




36





See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 


STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  SUMMARY OF ACCOUNTING POLICIES


Basis of Presentation and Consolidation


Standex International Corporation (“Standex” or the “Company”) is a diversified manufacturing company with operations in the United States, Europe, Asia, Africa, and Latin America.  The accompanying consolidated financial statements include the accounts of Standex International Corporation and its subsidiaries and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  All intercompany accounts and transactions have been eliminated in consolidation.


During the year ended June 30, 2014, the Company completed the divestiture of American Foodservice, “AFS” a custom-fabricated food service counter systems, buffet tables and cabinets division.  During the year ended June 30, 2012, the Company completed the divestiture of Air Distribution Products, “ADP” a manufacture of metal and fittings for residential heating ventilating and air conditioning applications business.  As a result, the Statement of Operations for all periods has been restated to reflect the operations of AFS and ADP as discontinued operations.  The June 30, 2013, Consolidated Balance Sheet has been revised to present the assets and liabilities of AFS as the assets and liabilities of a discontinued operation. For further information, please see Note 15 – Discontinued Operations.


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 consolidated financial statements were issued.  


Accounting Estimates


The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended.  Estimates are based on historical experience, actuarial estimates, current conditions and various other assumptions that are believed to be reasonable under the circumstances.  These estimates form the basis for making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources.  These estimates assist in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies.  Actual results may differ from these estimates under different assumptions or conditions.


Cash and Cash Equivalents


Cash and cash equivalents include highly liquid investments purchased with a maturity of three months or less.  These investments are carried at cost, which approximates fair value.  At June 30, 2014 and 2013, the Company’s cash was comprised solely of cash on deposit.


Trading Securities


The Company purchases investments in connection with the KEYSOP Plan for certain retired executives and for its non-qualified defined contribution plan for employees who exceed certain thresholds under our traditional 401(k) plan.  These investments are classified as trading and reported at fair value.  The investments generally consist of mutual funds, are included in other non-current assets and amounted to $3.1 million and $2.5 million at June 30, 2014 and 2013, respectively.  Gains and losses on these investments are recorded as other non-operating income (expense), net in the Consolidated Statements of Operations.


Accounts Receivable Allowances


The Company has provided an allowance for doubtful accounts reserve which represents the best estimate of probable loss inherent in the Company’s account receivables portfolio.  This estimate is derived from the Company’s knowledge of its end markets, customer base, products, and historical experience.





37




The changes in the allowances for uncollectible accounts during 2014, 2013, and 2012 were as follows (in thousands):


 

 

2014

 

 

2013

 

 

2012

Balance at beginning of year

$

        2,325

 

$

        1,974

 

$

        2,166

Acquisitions

 

             93

 

 

           190

 

 

              -   

Provision charged to expense

 

           375

 

 

           268

 

 

           389

Write-offs, net of recoveries

 

        (511)

 

 

        (107)

 

 

        (581)

Balance at end of year

$

        2,282

 

$

        2,325

 

$

        1,974

 

 

 

 

 

 

 

 

 

Inventories


Inventories are stated at the lower of (first-in, first-out) cost or market.  


Long-Lived Assets


Long-lived assets that are used in operations, excluding goodwill and identifiable intangible assets, are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Recognition and measurement of a potential impairment loss is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities.  An impairment loss is the amount by which the carrying amount of a long-lived asset (asset group) exceeds its estimated fair value.  Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets.


Property, Plant and Equipment


Property, plant and equipment are reported at cost less accumulated depreciation.  Depreciation is recorded on assets over their estimated useful lives, generally using the straight-line method.  Lives for property, plant and equipment are as follows:




Routine maintenance costs are expensed as incurred.  Major improvements are capitalized.  Major improvements to leased buildings are capitalized as leasehold improvements and depreciated over the lesser of the lease term or the life of the improvement.


Goodwill and Identifiable Intangible Assets


All business combinations are accounted for using the acquisition method.  Goodwill and identifiable intangible assets with indefinite lives, are not amortized, but are reviewed annually for impairment or more frequently if impairment indicators arise.  Identifiable intangible assets that are not deemed to have indefinite lives are amortized on an accelerated basis over the following useful lives:  




See discussion of the Company’s assessment of impairment in Note 5 – Goodwill, and Note 6 – Intangible Assets.


Fair Value of Financial Instruments





38


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 Company’s deferred compensation plan assets consist of shares in various mutual funds (for the deferred compensation plan, investments are participant-directed) which invest in a broad portfolio of debt and equity securities.  These assets are valued based on publicly quoted market prices for the funds’ shares as of the balance sheet dates.  For pension assets (see Note 17 – Employee Benefit Plans), securities are valued based on quoted market prices for securities held directly by the trust.


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.  For pension assets held in commingled funds (see Note 17 – Employee Benefit Plans) the Company values investments based on the net asset value of the funds, which are derived from the quoted market prices of the underlying fund holdings. The Company has considered the creditworthiness of counterparties in valuing all assets and liabilities.


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


We did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy at June 30, 2014 and 2013.


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


The fair values of our financial instruments at June 30, 2014 and 2013 were (in thousands):


 

 

 

2014

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities - deferred compensation plan

$

      3,114

 

$

      3,114

 

$

            -   

 

$

            -   

 

Foreign Exchange contracts

 

        356

 

 

 

 

 

         356

 

 

            -   

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange contracts

$

     1,552

 

$

            -   

 

$

      1,552

 

$

            -   

 

Interest rate swaps

 

     1,061

 

 

            -   

 

 

      1,061

 

 

            -   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities - deferred compensation plan

$

      2,478

 

$

     2,478

 

$

            -   

 

$

            -   

 

Foreign Exchange contracts

 

          37

 

 

 

 

 

           37

 

 

            -   

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange contracts

$

      1,443

 

$

            -   

 

$

     1,443

 

$

            -   

 

Interest rate swaps

 

     1,875

 

 

            -   

 

 

      1,875

 

 

            -   


Concentration of Credit Risk





39


The Company is subject to credit risk through trade receivables and short-term cash investments.  Concentration of risk with respect to trade receivables is minimized because of the diversification of our operations, as well as our large customer base and our geographical dispersion.  No individual customer accounts for more than 5% of revenues or accounts receivable in the periods presented.


Short-term cash investments are placed with high credit-quality financial institutions.  The Company monitors the amount of credit exposure in any one institution or type of investment instrument.  



Revenue Recognition


The Company’s product sales are recorded when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectability is reasonably assured.  For products that include installation, and if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and installation revenue is recognized when the installation is complete.  Revenues under certain fixed price contracts are generally recorded when deliveries are made.


Sales and estimated profits under certain long-term contracts are recognized under the percentage-of-completion methods of accounting, whereby profits are recorded pro rata, based upon current estimates of costs to complete such contracts.  Losses on contracts are provided for in the period in which the losses become determinable.  Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known. Any excess of the billings over cost and estimated earnings on long-term contracts is included in deferred revenue.


Cost of Goods Sold and Selling, General and Administrative Expenses


The Company includes expenses in either cost of goods sold or selling, general and administrative categories based upon the natural classification of the expenses.  Cost of goods sold includes expenses associated with the acquisition, inspection, manufacturing and receiving of materials for use in the manufacturing process.  These costs include inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs as well as depreciation, amortization, wages, benefits and other costs that are incurred directly or indirectly to support the manufacturing process.  Selling, general and administrative includes expenses associated with the distribution of our products, sales effort, administration costs and other costs that are not incurred to support the manufacturing process.  The Company records distribution costs associated with the sale of inventory as a component of selling, general and administrative expenses in the Consolidated Statements of Operations.  These expenses include warehousing costs, outbound freight charges and costs associated with distribution personnel.  Our gross profit margins may not be comparable to those of other entities due to different classifications of costs and expenses.


Research and Development


Research and development expenditures are expensed as incurred.  Total research and development costs, which are classified under selling, general, and administrative expenses, were $4.8 million, $4.4 million, and $4.4 million for the years ended June 30, 2014, 2013, and 2012, respectively.


Warranties


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


The changes in warranty reserve, which are recorded as accrued liabilities, during 2014, 2013, and 2012 were as follows (in thousands):

 

 

2014

 

 

2013

 

 

2012

Balance at beginning of year

$

        6,782

 

$

        5,767

 

$

        4,840

Acquisitions

 

           274

 

 

           795

 

 

              -   

Warranty expense

 

        3,937

 

 

        4,282

 

 

        4,434

Warranty claims

 

     (4,052)

 

 

     (4,062)

 

 

     (3,507)




40





Balance at end of year

$

        6,941

 

$

        6,782

 

$

        5,767

 

 

 

 

 

 

 

 

 


Stock-Based Compensation Plans


Restricted stock awards generally vest over a three-year period.  Compensation expense associated with these awards is recorded based on their grant-date fair values and is generally recognized on a straight-line basis over the vesting period except for awards with performance conditions, which are recognized on a graded vesting schedule.  Compensation cost for an award with a performance condition is based on the probable outcome of that performance condition.  The stated vesting period is considered non-substantive for retirement eligible participants.  Accordingly, the Company recognizes any remaining unrecognized compensation expense upon participant reaching retirement eligibility.


Foreign Currency Translation


The functional currency of our non-U.S. operations is generally the local currency.  Assets and liabilities of non-U.S. operations are translated into U.S. Dollars on a monthly basis using period-end exchange rates.  Revenues and expenses of these operations are translated using average exchange rates.  The resulting translation adjustment is reported as a component of comprehensive income (loss) in the consolidated statements of stockholders’ equity and comprehensive income.  Gains and losses from foreign currency transactions are included in results of operations and were not material for any period presented.


Derivative Instruments and Hedging Activities


The Company recognizes all derivatives on its balance sheet at fair value.


Forward foreign currency exchange contracts are periodically used to limit the impact of currency fluctuations on certain anticipated foreign cash flows, such as foreign purchases of materials and loan payments from subsidiaries.  The Company enters into such contracts for hedging purposes only.  For hedges of intercompany loan payments, the Company records derivative gains and losses directly to the statement of operations due to the general short-term nature and predictability of the transactions.


The Company also uses interest rate swaps to manage exposure to interest rates on the Company’s variable rate indebtedness.  The Company values the swaps based on contract prices in the derivatives market for similar instruments.  The Company has designated the swaps as cash flow hedges, and changes in the fair value of the swaps are recognized in other comprehensive income (loss) until the hedged items are recognized in earnings.  Hedge ineffectiveness, if any, associated with the swaps will be reported by the Company in interest expense.


The Company does not hold or issue derivative instruments for trading purposes.


Income Taxes


Deferred assets and liabilities are recorded for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Deferred tax assets and liabilities are determined based on the differences between the financial statements and the tax bases of assets and liabilities using enacted tax rates.  Valuation allowances are provided when the Company does not believe it more likely than not the benefit of identified tax assets will be realized.


The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues.  The Company accounts for uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit, assuming that the matter in question will be raised by the tax authorities.  Interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense.


Earnings Per Share


(share amounts in thousands)

 

2014

 

2013

 

2012

Basic – Average Shares Outstanding

 

12,613

 

12,561

 

12,517

Effect of Dilutive Securities – Stock Options and

 

 

 

 

 

   Restricted Stock Awards

 

165

 

219

 

270




41





Diluted – Average Shares Outstanding

 

12,778

 

12,780

 

12,787

 

 

 

 

 

 

 

Both basic and dilutive income is the same for computing earnings per share.  There were no outstanding instruments that had an anti-dilutive effect at June 30, 2014, 2013 and 2012.


Recently Issued Accounting Pronouncements


In June 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standard update (“ASU”) 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.  The update provides guidance on how to account for certain share-based payment awards where employees would be eligible to vest in the award regardless of whether the employee is still rendering service on the date the performance target is achieved.  The standard is effective for annual and interim periods with those annual periods beginning after December 15, 2015.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2014-12 to have a material impact to its consolidated results of operation.


In May 2014, the FASB and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard, ASU 2014-09, Revenue from Contract with Customers, that will supersede nearly all existing revenue recognition guidance under US GAAP and IFRS.  The standard’s primary principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  The standard is effective for public entities for annual and interim periods beginning after December 15, 2016.  The Company expects to adopt this standard in the quarter ending September 30, 2017.  The Company is still evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements.


In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  ASU 2014-08 revised guidance to only allow disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations.  The revised guidance also requires expanded disclosure in the financial statements for discontinued operations, as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. ASU 2014-08 is effective for interim and annual reporting periods beginning after December 15, 2014.  The Company is still evaluating the impact of adopting ASU 2014-08 on its consolidated financial statements.


2.  ACQUISITIONS


In June 2014, the Company acquired Ultrafryer Systems, Inc. (“Ultrafryer”) a producer of commercial deep fryers for restaurant and commercial installations.  This investment complements our Food Service Equipment Group’s product line and allows us to provide broader solutions to restaurant chains and commercial food service installations.  


The Company paid $20.7 million in cash for 100% of the stock of Ultrafryer and has preliminarily recorded intangible assets of $7.6 million, consisting of $2.4 million of trademarks which are indefinite-lived, $4.9 million of customer relationships, and $0.3 million of other intangible assets which are expected to be amortized over a period of fifteen and three to five years, respectively.  Acquired goodwill of $10.9 million is not deductible for income tax purposes due to the nature of the transaction.  The Company anticipates finalizing the purchase price allocation, primarily as it relates to acquired tangible assets, during the quarter ended September 30, 2014.


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


 

 

 


Ultrafryer

Fair value of business combination:

 

 

 

Cash payments

$

        20,745

 

Less: cash acquired

 

            (20)

 

Total

$

        20,725

Identifiable assets acquired and liabilities assumed

 

 

 

Current assets

$

          5,871




42




 

Property, plant, and equipment

 

          1,259

 

Identifiable intangible assets

 

          7,612

 

Goodwill

 

        10,930

 

Liabilities assumed

 

       (1,733)

 

Deferred taxes

 

       (3,214)

 

Total

$

        20,725


In addition, during June 2014, the Company also purchased the assets of Planar Quality Corporation, producer of transformers for commercial, military and space applications.  This investment will enhance our Electronics Group’s transformer product group capabilities.  The company paid $2.4 million in cash, recorded intangible assets of $1.0 million consisting of $0.4 million of patents and $0.7 million of other intangible assets, which are expected to be amortized over a period of seven and five years, respectively.  Acquired goodwill of $1.2 million is fully deductible for income tax purposes.


In July 2012, the Company acquired Meder electronic AG (“Meder”), a German manufacturer of magnetic reed switch, reed relay, and reed sensor products.  Meder, whose products and geographic markets are complementary to Standex Electronics, is reported under the Electronics Products Group.  This investment substantially broadens the global footprint, product line offerings, and end-user markets of the Electronics segment.


The Company paid $43.2 million in cash for 100% of the equity of Meder.  Acquired intangible assets of $8.2 million consist of $3.4 million of trademarks, which are indefinite-lived, and $4.8 million of customer relationships, which are expected to be amortized over a period of 10 years.  Acquired goodwill of $12.1 million is not deductible for income tax purposes due to the nature of the transaction.  The Company finalized the purchase price allocation during the quarter ended December 31, 2012.  


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


 

 

 

Meder Electronic

Fair value of business combination:

 

 

 

Cash payments

$

         43,181

 

Less: cash acquired

 

        (3,568)

 

Total

$

        39,613

Identifiable assets acquired and liabilities assumed

 

 

 

Current assets

$

         20,246

 

Property, plant, and equipment

 

         11,060

 

Identifiable intangible assets

 

           8,200

 

Goodwill

 

         12,063

 

Other non-current assets

 

              222

 

Liabilities assumed

 

        (8,642)

 

Deferred taxes

 

        (3,536)

 

Total

$

         39,613


3.  INVENTORIES


Inventories are comprised of (in thousands):


June 30

 

2014

 

 

2013

Raw materials

$

           44,273

 

$

            36,526

Work in process

 

            24,551

 

 

            22,886

Finished goods

 

            28,241

 

 

            22,399

     Total

$

            97,065

 

$

            81,811

 

 

 

 

 

 




43





Distribution costs associated with the sale of inventory are recorded as a component of selling, general and administrative expenses and were $20.8 million, $20.1 million, and $19.9 million in 2014, 2013, and 2012, respectively.



4.  PROPERTY, PLANT AND EQUIPMENT


Property, plant and equipment consist of the following (in thousands):


June 30

 

 

2014

 

 

2013

     Land, buildings and

 

 

 

 

 

 

       leasehold improvements

 

$

          78,596

 

$

          75,635

     Machinery, equipment and  other

 

 

        171,238

 

 

        154,376

     Total

 

 

        249,834

 

 

        230,011

     Less accumulated depreciation

 

 

       153,137

 

 

        137,469

Property, plant and equipment - net

 

$

          96,697

 

$

          92,542

 

 

 

 

 

 

 

Depreciation expense for the years ended June 30, 2014, 2013, and 2012 totaled $12.2 million, $12.7 million, and $10.6 million, respectively.



5.  GOODWILL


Goodwill and certain indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount of the asset.  The Company’s annual test for impairment is performed using a May 31st measurement date.


The Company has identified our reporting units for impairment testing as its eleven operating segments, which are aggregated into five reporting segments as disclosed in Note 18 – Industry Segment Information.  


As quoted market prices are not available for the Company’s reporting units, the fair value of the reporting units is determined using a discounted cash flow model (income approach).  This method uses various assumptions that are specific to each individual reporting unit in order to determine the fair value.  In addition, the Company compares the estimated aggregate fair value of its reporting units to its overall market capitalization.


While the Company believes that estimates of future cash flows are reasonable, changes in assumptions could significantly affect valuations and result in impairments in the future.  The most significant assumption involved in the Company’s determination of fair value is the cash flow projections of each reporting unit.  If the estimates of future cash flows for each reporting unit may be insufficient to support the carrying value of the reporting units, requiring the Company to re-assess its conclusions related to fair value and the recoverability of goodwill.


As a result of our annual assessment, the Company determined that the fair value of the reporting units and indefinite-lived intangible assets substantially exceeded their respective carrying values.  Therefore, no impairment charges were recorded in connection with our assessments during 2014 and 2013.


Changes to goodwill during the years ended June 30, 2014 and 2013 are as follows (in thousands):


 

 

2014

 

 

2013

Balance at beginning of year

$

      129,844

 

$

      118,572

Accumulated impairment losses

 

        17,939

 

 

        17,939

Balance at beginning of year, net

 

      111,905

 

 

      100,633

Acquisitions

 

        12,132

 

 

        12,063

Foreign currency translation

 

          1,928

 

 

          (791)

Balance at end of year

$

      125,965

 

$

      111,905

 

 

 

 

 

 






44



6.  INTANGIBLE ASSETS


Intangible assets consist of the following (in thousands):


 

 

Customer

 

 

Trademarks

 

 

 

 

 

 

 

 

Relationships

 

 

(Indefinite-lived)

 

 

Other

 

 

Total

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Cost

$

          36,145

 

$

           14,508

 

$

        4,061

 

$

            54,714

Accumulated amortization

 

       (21,137)

 

 

                    -   

 

 

     (2,087)

 

 

          (23,224)

Balance, June 30, 2014

$

          15,008

 

$

           14,508

 

$

        1,974

 

$

            31,490

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Cost

$

           30,289

 

$

            11,977

 

$

         4,228

 

$

            46,494

Accumulated amortization

 

        (18,272)

 

 

                    -   

 

 

      (3,590)

 

 

          (21,862)

Balance, June 30, 2013

$

          12,017

 

$

            11,977

 

$

            638

 

$

            24,632

 

 

 

 

 

 

 

 

 

 

 

 


Amortization expense from continuing operations for the years ended June 30, 2014, 2013, and 2012 totaled $2.6 million, $2.6 million, and $2.6 million, respectively.  At June 30, 2014, aggregate amortization expense is estimated to be $2.8 million in fiscal 2015, $2.7 million in fiscal 2016, $2.2 million in fiscal 2017, $2.0 million in fiscal 2018, $1.9 million in fiscal 2019, and $5.4 million thereafter.



7.  DEBT


Long-term debt is comprised of the following at June 30 (in thousands):


 

 

2014

 

 

2013

Bank credit agreements

$

        45,000

 

$

        50,000

Other

 

               56

 

 

               72

      Total long-term debt

$

        45,056

 

$

        50,072

 

 

 

 

 

 

Long-term debt is due as follows (in thousands):  


2015

$

            18

2016

 

            15

2017

 

     45,015

2018

 

              8

2019

 

             -   

Thereafter

 

             -   


Bank Credit Agreements


On January 5, 2012, the Company entered into a five-year $225 million unsecured Revolving Credit Facility (“Credit Agreement”, or “facility”), which can be increased by the Company by an amount of up to $100 million, in accordance with specified conditions contained in the agreement.  The facility also includes a $10 million sub-facility for swing line loans and a $30 million sub-facility for letters of credit.  Interest is payable on borrowings at either a LIBOR or base rate benchmark rate plus an applicable margin, which will fluctuate based on financial performance.  The Credit Agreement requires a ratio of funded debt to EBITDA (as defined in the Credit Agreement) of no greater than 3.5:1, an interest coverage ratio of no less than 3:1, as well as customary affirmative and negative covenants and events of default.  The Credit Agreement also includes certain requirements related to acquisitions and dispositions.  Borrowings under the Credit Agreement are guaranteed by the Company’s domestic subsidiaries and are unsecured.  The Company intends to use this Credit Agreement to fund potential acquisitions, to support organic growth initiatives, working capital needs, and for general corporate purposes.


As of June 30, 2014, the Company had the ability to borrow $168.6 million under this facility.  The carrying value of the current borrowings under the facility approximated fair value.




45


The facility expires in January 2017 and contains customary representations, warranties and restrictive covenants, as well as specific financial covenants.  The terms of the Credit Agreement limited the ability of the Company to pay dividends to shareholders unless the Company is in compliance with the specific financial covenants under the facility.  The Company’s current financial covenants under the facility are as follows:

Interest Coverage Ratio - The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Agreement”), to interest expense for the trailing twelve months of at least 3:1.  Adjusted EBIT per the Credit Agreement specifically excludes extraordinary and certain other defined items such as non-cash restructuring and acquisition-related charges up to $2.0 million, and goodwill impairment.  At June 30, 2014, the Company’s Interest Coverage Ratio was 35.58:1.


Leverage Ratio - The Company’s ratio of funded debt to trailing twelve month Adjusted EBITDA per the credit agreement, calculated as Adjusted EBIT per the Credit Agreement plus Depreciation and Amortization, may not exceed 3.5:1.  At June 30, 2014, the Company’s Leverage Ratio was 0.59:1.


Other Long-Term Borrowings


At June 30, 2014, and 2013, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $11.3 million and $10.7 million, respectively.


8.  ACCRUED LIABILITIES


Accrued expenses consist of the following (in thousands):


 

 

2014

 

 

2013

Payroll and employee benefits

$

       26,736

 

$

       25,403

Workers' compensation

 

          2,610

 

 

          2,489

Warranty

 

          7,401

 

 

         6,995

Other

 

        14,291

 

 

        11,610

  Total

$

        51,038

 

$

        46,497

 

 

 

 

 

 

9.  DERIVATIVE FINANCIAL INSTRUMENTS


Interest Rate Swaps

In order to manage our interest rate exposure, we are party to $45.0 million of floating to fixed rate swaps.  These swaps convert our interest payments from LIBOR to a weighted average rate of 2.40% at June 30, 2014.


The fair value of the swaps recognized in accrued liabilities and in other comprehensive income (loss) at June 30, 2014 and 2013 is as follows (in thousands):

 

 

 

 

 

 

Fair Value at June 30,

Effective Date

 

Notional Amount

Fixed Interest Rate

Maturity

 

2014

 

 

2013

June 1, 2010

$

5,000

2.495%

May 26, 2015

$

   (108)

 

$

   (205)

June 1, 2010

 

5,000

2.495%

May 26, 2015

 

    (108)

 

 

   (205)

June 4, 2010

 

10,000

2.395%

May 26, 2015

 

   (206)

 

 

  (389)

June 9, 2010

 

5,000

2.34%

May 26, 2015

 

   (100)

 

 

  (190)

June 18, 2010

 

5,000

2.38%

May 26, 2015

 

   (103)

 

 

  (194)

September 21, 2011

5,000

1.28%

September 21, 2013

      -   

 

 

   (14)

September 21, 2011

5,000

1.60%

September 22, 2014

    (18)

 

 

  (83)

March 15, 2012

 

10,000

2.75%

March 15, 2016

 

   (418)

 

 

  (595)

 

 

 

 

 

$

  (1,061)

 

$

 (1,875)

 

 

 

 

 

 

 

 

 

 

The Company reported no losses for the years ended June 30, 2014, 2013, and 2012, 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.




46


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 foreign purchases of materials and loan payments to and from subsidiaries.  The Company enters into such contracts for hedging purposes only.  For hedges of intercompany loan payments, the Company has not elected hedge accounting due to the general short-term nature and predictability of the transactions, and records derivative gains and losses directly to the consolidated statement of operations.  At June 30, 2014 and 2013 the Company had outstanding forward contracts related to hedges of intercompany loans with net unrealized (losses) of ($1.2) million and ($1.4) million, respectively, which approximate the unrealized gains or losses on the related loans.  The contracts have maturity dates ranging from 2014-2016, which correspond to the related intercompany loans.  The notional amounts of these instruments, by currency, are as follows:


Currency

 

2014

 

2013

Euro

 

24,289,064

 

       48,349,064

Canadian Dollar

 

         3,600,000

 

         3,600,000

Pound Sterling

 

         3,975,192

 

         2,580,289

 

 

 

 

 

The table below presents the fair value of derivative financial instruments as well as their classification on the balance sheet at June 30, (in thousands):


 

Asset Derivatives

 

2014

 

 

 

 

2013

 

 

 

Derivative designated as

Balance

 

 

 

 

Balance

 

 

 

hedging instruments

Sheet

 

 

 

 

Sheet

 

 

 

 

Line Item

 

 

Fair Value

 

Line Item

 

 

Fair Value

Foreign exchange contracts

Other Assets

 

$

           356

 

Other Assets

 

$

             37


 

Liability Derivatives

 

2014

 

 

 

 

2013

 

 

 

Derivative designated as

Balance

 

 

 

 

Balance

 

 

 

hedging instruments

Sheet

 

 

 

 

Sheet

 

 

 

 

Line Item

 

 

Fair Value

 

Line Item

 

 

Fair Value

Interest rate swaps

Accrued Liabilities

 

$

        1,061

 

Accrued Liabilities

 

$

           1,875

Foreign exchange contracts

Accrued Liabilities

 

 

      1,552

 

Accrued Liabilities

 

 

           1,443

 

 

 

$

      2,613

 

 

 

$

           3,318

 

 

 

 

 

 

 

 

 

 

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


 

 

 

2014

 

 

2013

 

 

2012

Interest rate swaps

 

$

          (194)

 

$

          (195)

 

$

       (1,987)


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


Details about Accumulated

 

 

 

 

 

 

 

 

 

 

Affected line item

Other Comprehensive

 

 

 

 

 

 

 

 

 

 

in the Statements

Income (Loss) Components

 

 

2014

 

 

2013

 

 

2012

 

of Operations

Interest rate swaps

 

$

         1,031

 

$

         1,050

 

$

             820

 

Interest expense






47


10.  INCOME TAXES


The components of income from continuing operations before income taxes are as follows (in thousands):


 

 

2014

 

 

2013

 

 

2012

U.S. Operations

$

      26,965

 

$

       35,805

 

$

        26,366

Non-U.S. Operations

 

      40,838

 

 

       23,493

 

 

       35,229

     Total

$

       67,803

 

$

       59,298

 

$

        61,595

 

 

 

 

 

 

 

 

 

The Company utilizes the asset and liability method of accounting for income taxes.  Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the provisions of the enacted tax laws.  The components of the provision for income taxes on continuing operations (in thousands) were as shown below:

 

 

2014

 

 

2013

 

 

2012

Current:

 

 

 

 

 

 

 

 

Federal

$

         9,653

 

$

          9,099

 

$

          5,176

State

 

             415

 

 

           1,382

 

 

             403

Non-U.S.

 

        11,329

 

 

           7,179

 

 

           7,778

     Total Current

 

         21,397

 

 

         17,660

 

 

         13,357

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

Federal

$

        (2,017)

 

$

            (454)

 

$

          2,109

State

 

           (376)

 

 

               18

 

 

            640

Non-U.S.

 

           (950)

 

 

        (1,980)

 

 

         (407)

     Total Deferred

 

        (3,343)

 

 

        (2,416)

 

 

        2,342

     Total

$

        18,054

 

$

         15,244

 

$

        15,699

 

 

 

 

 

 

 

 

 

A reconciliation from the U.S. Federal income tax rate on continuing operations to the total tax provision is as follows (in thousands):

 

2014

 

2013

 

2012

Provision at statutory tax rate

35.0%

 

35.0%

 

35.0%

State taxes

0.0%

 

1.5%

 

1.1%

Impact of Foreign Operations

-5.6%

 

-6.5%

 

-6.3%

Federal tax credits

-0.7%

 

-2.2%

 

-0.7%

Life Insurance Proceeds

-1.7%

 

0.0%

 

0.0%

Other

-0.4%

 

-2.1%

 

-3.6%

Effective income tax provision

26.6%

 

25.7%

 

25.5%

 

 

 

 

 

 


Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, size of the Company’s income or loss and any one-time activities occurring during the period.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2014 was impacted by the following items: (i) a benefit of $0.5 million related to the R&D tax credit that expired during the fiscal year on December 31, (ii) a benefit of $0.5 million related to a decrease in the statutory tax rate in the United Kingdom on prior period deferred tax liabilities recorded during the first quarter during the fiscal year, (iii) a benefit of $1.1 million due to non-taxable life insurance proceeds received in the third quarter and (iv) a benefit of $3.8 million due to the mix of income earned in jurisdictions with beneficial tax rates.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2013 was impacted by the following items: (i) a benefit of $0.4 million related to the retroactive extension of the R&D credit recorded during the third quarter, (ii) a benefit of $0.3 million related to a decrease in the statutory tax rate in the United Kingdom on prior period deferred tax liabilities recorded during the first and fourth quarters, (iii) a benefit of $1.0 million from the reversal of a




48


deferred tax liability that was determined to be no longer required during the third quarter and (iv) a benefit of $2.8 million due to the mix of income earned in jurisdictions with beneficial tax rates.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2012 was impacted by the following items: (i) a benefit of $1.3 million from the reversal of income tax contingency reserves that were determined to be no longer needed due to the lapsing of the statute of limitations and re-measurement of existing tax contingency reserves based on recently completed tax examinations, (ii) a benefit of $0.4 million related to a decrease in the statutory tax rate in the United Kingdom on prior period deferred tax liabilities recorded during the first quarter, and (iii) a benefit of $4.5 million due to the mix of income earned in jurisdictions with beneficial tax rates.


Significant components of the Company’s deferred income taxes are as follows (in thousands):


 

 

2014

 

 

2013

Deferred tax liabilities:

 

 

 

 

 

     Depreciation and amortization

$

        (20,934)

 

$

          (18,778)

Total deferred tax liability

$

     (20,934)

 

$

         (18,778)

 

 

 

 

 

 

Deferred tax assets:

 

 

 

 

 

     Accrued compensation

$

            4,463

 

$

            3,464

     Accrued expenses and reserves

 

            3,040

 

 

            2,429

     Pension

 

          10,975

 

 

           12,246

     Inventory

 

             1,549

 

 

             1,588

     Other

 

               758

 

 

                  806

     Net operating loss and

 

 

 

 

 

       credit carry forwards

 

            3,685

 

 

             3,164

Total deferred tax asset

$

          24,470

 

$

             23,697

 

 

 

 

 

 

Less:  Valuation allowance

 

            (530)

 

 

              (520)

     Net deferred tax asset (liability)

$

               3,006

 

$

           4,399

 

 

 

 

 

 


The Company estimates the degree to which deferred tax assets, including net operating loss and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction and provides a valuation allowance for tax assets and loss carry forwards that it believes will more likely than not go unrealized.  The valuation allowances at June 30, 2014 apply to the tax benefit of state loss carry forwards, which management has concluded that it is more likely than not that these tax benefits will not be realized.  The increase (decrease) in the valuation allowance from the prior year was less than $0.1 million, ($0.3) million, and $0.6 million in 2014, 2013, and 2012, respectively.

As of June 30, 2014, the Company had gross state net operating loss ("NOL") and credit carry forwards of approximately $40.7 million and $2.8 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates from 2015 through 2034.  In addition, the Company had foreign NOL carry forwards of approximately $2.6 million, $1.4 million of which carry forward indefinitely, $1.0 million that carry forward for 10 years and $0.2 million that carry forward for 5 years.

The Company’s income taxes currently payable for federal and state purposes have been reduced by the benefit of the tax deduction in excess of recognized compensation cost from employee stock compensation transactions.  The provision for income taxes that is currently payable has not been adjusted by approximately $1.7 million and $2.0 million of such benefits of the Company that have been allocated to additional paid in capital in 2014 and 2013, respectively.  


A provision has not been made for U.S. or additional non-U.S. taxes on $127.9 million of undistributed earnings of international subsidiaries that could be subject to taxation if remitted to the U.S.  It is not practicable to estimate the amount of tax that might be payable on the remaining undistributed earnings.  Our intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. Accordingly, we believe that U.S. tax on any earnings that might be repatriated would be substantially offset by U.S. foreign tax credits.








49


The total provision for income taxes included in the consolidated financial statements was as follows (in thousands):


 

 

2014

 

 

2013

 

 

2012

Continuing operations

$

       18,054

 

$

     15,244

 

$

        15,699

Discontinued operations

 

       (3,692)

 

 

             482

 

 

        (9,109)

 

$

       14,362

 

$

       15,726

 

$

        6,590


The changes in the amount of gross unrecognized tax benefits during 2014, 2013 and 2012 were as follows (in thousands):


 

 

2014

 

 

2013

 

 

2012

Beginning Balance

$

    1,286

 

$

   1,298

 

$

      2,146

   Additions based on tax positions related to the current year

 

        25

 

 

        77

 

 

           64

   Additions for tax positions of prior years

 

         -

 

 

         19

 

 

         394

   Reductions for tax positions of prior years

 

      (278)

 

 

      (108)

 

 

   (1,306)

Ending Balance

$

   1,033

 

$

    1,286

 

$

     1,298

 

 

 

 

 

 

 

 

 


If the unrecognized tax benefits in the table above were recognized in a future period, $0.6 million of the unrecognized tax benefit would impact the Company’s effective tax rate.


Within the next twelve months, the statute of limitations will close in various U.S., state and non-U.S. jurisdictions.  As a result, it is reasonably expected that net unrecognized tax benefits from these various jurisdictions would be recognized within the next twelve months.  The recognition of these tax benefits is not expected to have a material impact to the Company's financial statements.  The Company does not reasonably expect any other significant changes in the next twelve months.  The following tax years, in the major tax jurisdictions noted, are open for assessment or refund:


Country    

Years Ending June 30,

United States

2011 to 2014

Canada

2010 to 2014

Germany

2010 to 2014

Ireland

2011 to 2014

Portugal

2010 to 2014

United Kingdom

2013 to 2014


The Company’s policy is to include interest expense and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations.  At both June 30, 2014 and June 30, 2013, the company had less than $0.1 million for accrued interest expense on unrecognized tax benefits.



11.  COMMITMENTS


The Company leases certain property and equipment under agreements with initial terms ranging from one to twenty years. Rental expense related to continuing operations for the years ended June 30, 2014, 2013, and 2012 was approximately $5.5 million, $4.9 million and $4.8 million, respectively.


The gross minimum annual rental commitments under non-cancelable operating leases, principally real-estate at June 30, 2014:


(in thousands)

 

Lease

 

 

Sublease

 

 

Net obligation

2015

 

$

    6,053

 

$

      666

 

$

     5,387

2016

 

 

    4,960

 

 

         356

 

 

      4,604

2017

 

 

   4,148

 

 

         338

 

 

     3,810

2018

 

 

      2,813

 

 

      185

 

 

         2,628

2019

 

 

   2,128

 

 

     -   

 

 

     2,128

Thereafter

 

 

  5,834

 

 

   -   

 

 

   5,834





50


In March 2012, the Company sold substantially all of the assets of its ADP business.  In connection with the divestiture, the Company remained the lessee of ADP’s Philadelphia, PA facility and administrative offices, with the purchaser subleasing a fractional portion of the building at current market rates.  In connection with the transaction, the Company recognized a lease impairment charge of $2.3 million for the remaining rental expense.  The Company’s aggregate obligation with respect to the lease is $1.8 million, of which $1.3 million was recorded as a liability at June 30, 2014.  Additionally, the Company remained an obligor on an additional facility lease that was assumed in full by the buyer, for which our aggregate obligation in the event of default by the buyer is $0.8 million.  With the exception of the impaired portion of the Philadelphia lease, the Company does not expect to make any payments with respect to these obligations.  The buyer’s obligations under the respective sublease and assumed lease are secured by a cross-default provision in the purchaser’s promissory note for a portion of the purchase price which is secured by mortgages on the ADP real estate sold in the transaction.



12.  CONTINGENCIES


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



13.  STOCK-BASED COMPENSATION AND PURCHASE PLANS


Stock-Based Compensation Plans


Under incentive compensation plans, the Company is authorized to make grants of stock options, restricted stock and performance share units to provide equity incentive compensation to key employees and directors.  In fiscal 2004, the Company began granting stock awards instead of stock options.  The stock award program offers employees and directors the opportunity to earn shares of our stock over time, rather than options that give the employees and directors the right to purchase stock at a set price.  The Company has stock plans for directors, officers and certain key employees.  


Total compensation cost recognized in income for equity based compensation awards was $6.6 million, $3.3 million, and $3.8 million for the years ended June 30, 2014, 2013 and 2012, respectively, primarily within Selling, General, and Administrative Expenses.  The total income tax benefit recognized in the consolidated statement of operations for equity-based compensation plans was $2.3 million, $1.2 million, and $1.3 million for the years ended June 30, 2014, 2013 and 2012, respectively.


458,513 shares of common stock were reserved for issuance under various compensation plans at June 30, 2014.  



Restricted Stock Awards


The Company may award shares of restricted stock to eligible employees and non-employee directors of the Company at no cost, giving them in most instances all of the rights of stockholders, except that they may not sell, assign, pledge or otherwise encumber such shares and rights during the restriction period.  Such shares and rights are subject to forfeiture if certain employment conditions are not met.  During the restriction period, recipients of the shares are entitled to dividend equivalents on such shares, providing that such shares are not forfeited.  Dividends are accumulated and paid out at the end of the restriction period.  During 2014, 2013 and 2012, the Company granted 62,698, 44,388, and 52,884 shares, respectively, of restricted stock to eligible participants.  Restrictions on the stock awards generally lapse between fiscal 2015 and fiscal 2017.  For the years ended June 30, 2014, 2013 and 2012, $3.3 million, $1.5 million, and $1.4 million, respectively, was recognized as compensation expense related to restricted stock awards.  Substantially all awards are expected to vest.













51


A summary of restricted stock awards activity during the year ended June 30, 2014 is as follows:


 

Restricted Stock Awards

 

Number

 

Aggregate

 

of

 

Intrinsic

 

Shares

 

Value

 

 

 

 

 

Outstanding, June 30, 2013

172,490

 

$

           9,098,848

Granted

62,698

 

 

 

Exercised / vested

(88,826)

 

 

           4,932,618

Canceled

(2,267)

 

 

 

Outstanding, June 30, 2014

144,095

 

$

         10,732,196

 

 

 

 

 


Performance stock units during 2014, 2013 and 2012 had a weighted average grant date fair value of $58.84, $44.59, and $29.05, respectively.  The grant date fair value of restricted stock awards is determined based on the closing price of the Company’s common stock on the date of grant.  The total intrinsic value of awards exercised during the years ended June 30, 2014, 2013, and 2012 was $3.1 million, $3.5 million, and $2.4 million, respectively.  


As of June 30, 2014, there was $2.4 million of unrecognized compensation costs related to awards expected to be recognized over a weighted-average period of 1.22 years.


Executive Compensation Program


The Company operates a compensation program for key employees.  The plan contains both an annual component as well as long-term component.  Under the annual component, participants may elect to defer up to 50% of their annual incentive compensation in restricted stock which is purchased at a discount to the market.  Additionally, non-employee directors of the Company may defer a portion of their director’s fees in restricted stock units which is purchased at a discount to the market.  During the restriction period, recipients of the shares are entitled to dividend equivalents on such units, providing that such shares are not forfeited.  Dividend equivalents are accumulated and paid out at the end of the restriction period.  The restrictions on the units expire after three years.  At June 30, 2014 and 2013 respectively, 52,431 and 105,967 shares of restricted stock units are outstanding and subject to restrictions that lapse between fiscal 2014 and fiscal 2016.  The compensation expense associated with this incentive program is charged to income over the restriction period.  The Company recorded compensation expense related to this program of $0.7 million, $0.6 million, and $0.4 million for the years ended June 30, 2014, 2013 and 2012, respectively.


As of June 30, 2014, there was $0.2 million of unrecognized compensation costs related to awards expected to be recognized over a weighted-average period of 1.00 years


The fair value of the awards under the annual component of this incentive program is measured using the Black-Scholes option-pricing model.  Key assumptions used to apply this pricing model are as follows:


 

 

2014

 

 

2013

 

 

2012

Risk-free interest rates

 

0.70%

 

 

0.25%

 

 

0.25%

Expected life of option grants (in years)

 

3

 

 

3

 

 

3

Expected volatility of underlying stock

 

38.9%

 

 

47.4%

 

 

63.2%

Expected quarterly dividends (per share)

$

        0.08

 

$

        0.07

 

$

                0.06

 

 

 

 

 

 

 

 

 


Under the long-term component, grants of performance share units (“PSUs”) are made annually to key employees and the share units are earned based on the achievement of certain overall corporate financial performance targets over the performance period.  At the end of the performance period, the number of shares of common stock issued will be determined by adjusting upward or downward from the target in a range between 50% and 200%.  No shares will be issued if the minimum performance threshold is not achieved.  The final performance percentage, on which the payout will be based, considering the performance metrics established for the performance period, will be certified by the Compensation Committee of the Board of Directors.  




52



The awards granted by the Committee provided that the PSUs will be converted to shares of common stock if the Company’s EBITDA (earnings before interest, taxes, depreciation and amortization) and return on assets meet specified levels approved by the Committee.  A participant’s right to any shares that are earned will vest in three equal installments.  An executive whose employment terminates prior to the vesting of any installment for a reason other than death, disability, retirement, or following a change in control, will forfeit the shares represented by that installment. In certain circumstances, such as death, disability, or retirement, PSUs are paid on a pro-rata basis.  In the event of a change in control, vesting of the awards granted is accelerated.


A summary of the awards activity under the executive compensation program during the year ended June 30, 2014 is as follows:


 

Annual Component

 

 

 

 

Performance Stock Units

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Number

 

Average

 

Aggregate

 

Number

 

Aggregate

 

of

 

Exercise

 

Intrinsic

 

of

 

Intrinsic

 

Shares

 

Price

 

Value

 

Shares

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested, June 30, 2013

105,967

 

$

    23.68

 

$

 1,683,260

 

41,003

 

$

 2,162,926

Granted

15,608

 

 

    39.56

 

 

 

 

87,220

 

 

 

Vested

(68,504)

 

 

     22.49

 

 

 2,308,140

 

(58,584)

 

 

  2,386,361

Forfeited

(639)

 

 

     28.78

 

 

 

 

(29,273)

 

 

 

Non-vested, June 30, 2014

52,432

 

$

   29.91

 

$

  1,360,566

 

40,366

 

$

  2,156,759

 

 

 

 

 

 

 

 

 

 

 

 

 


Restricted stock awards granted under the annual component of this program in fiscal 2014, 2013, and 2012 had a grant date fair value of $69.47, $55.61, and $40.78, respectively.  The PSUs granted in fiscal 2014, 2013 and 2012 had a grant date fair value of $54.48, $44.20, and $26.60, respectively.  The total intrinsic value of awards vested under the executive compensation program during the years ended June 30, 2014, 2013 and 2012 was $2.2 million, $3.1 million, and $5.4 million, respectively.


The Company recognized compensation expense related to the PSUs of $2.7 million, $1.3 million, and $2.1 million for the years ended June 30, 2014, 2013 and 2012, respectively.  The total unrecognized compensation costs related to non-vested performance share units was $1.3 million at June 30, 2014, which is expected to be recognized over a weighted average period of 1.90 years.   


Employee Stock Purchase Plan


The Company has an Employee Stock Purchase Plan that allows employees to purchase shares of common stock of the Company at a discount from the market each quarter.  Shares of our stock may be purchased by employees quarterly at 95% of the fair market value on the last day of each quarter.  Shares of stock reserved for the plan were 97,890 at June 30, 2014.  Shares purchased under this plan aggregated 4,473, 5,813, and 9,185 in 2014, 2013 and 2012, respectively, at an average price of $58.54, $48.16, and $34.48, respectively.  



14.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


The components of the Company’s accumulated other comprehensive income (loss) at June 30 are as follows (in thousands):


 

 

 

2014

 

 

2013

Foreign currency translation adjustment

 

$

         9,800

 

$

         3,745

Unrealized pension losses, net of tax

 

 

      (64,968)

 

 

      (67,857)

Unrealized losses on derivative instruments, net of tax

 

 

           (651)

 

 

        (1,168)

Total

 

$

      (55,819)

 

$

      (65,280)

 

 

 

 

 

 

 






53


15.  DISCONTINUED OPERATIONS


In June 2014, the Company divested the American Foodservice Company, a manufacturer of custom design and fabrication of counter systems and cabinets, in our Food Service Equipment Group segment.  In connection with this sale, the Company received proceeds of $3.1 million and recorded a net loss on disposal of $3.2 million.   


In December 2011, the Company divested the Air Distribution Products Group, (“ADP”).  In connection with this sale, the Company adjusted the carrying value of ADP’s assets to their net realizable value based on a range of expected sale prices.  As a result, the Company recorded goodwill impairment charges of $14.9 million and impairment charges of $5.0 million to fixed assets.


On March 30, 2012, ADP was sold to a private equity buyer for consideration of $16.1 million consisting of $13.1 million in cash and a $3.0 million note secured by first mortgages on three ADP facilities.  During the quarter ended March 31, 2012, additional pre-tax charges of $2.6 million were taken in connection with the closing of the sale.  These charges related primarily to the impairment of a non-cancellable lease liability that the buyer elected not to assume as part of the purchase.


During 2014, the Company received notice that its obligations under a guarantee provided to the buyers of ADP were triggered as a result of its withdrawal from both of the multi-employer pension plans in which ADP previously participated.  As a result, the Company has recorded charges of $1.6 million in excess of the value of the guarantee previously recorded in order to fully settle these obligations. 


The following table summarizes the Company’s discontinued operations activity, by operation, for the years ended June 30, 2014, 2013 and 2012 (in thousands):


 

Year Disposed

2014

 

 

2013

 

 

2012

Sales:

 

 

 

 

 

 

 

 

 

 

American Foodservice  Company

2014

 

$

  20,556

 

$

  27,870

 

$

   24,054

Air Distribution Products Group

2012

 

 

          -   

 

 

         -   

 

 

  43,537

 

 

 

 

  20,556

 

 

  27,870

 

 

   67,591

Income (loss) before taxes:

 

 

 

 

 

 

 

 

 

 

American Foodservice  Company (1)

2014

 

 

   (8,339)

 

 

     1,934

 

 

    1,220

Air Distribution Products Group

2012

 

 

    (1,849)

 

 

    (451)

 

 

 (24,871)

Other loss from discontinued operations

 

 

 

    (387)

 

 

    (207)

 

 

    (453)

Income (loss) before taxes from discontinued operations

 

 

 (10,575)

 

 

     1,276

 

 

 (24,104)

(Provision) benefit for tax

 

 

 

     3,692

 

 

   (482)

 

 

    9,113

Net income (loss) from discontinued operations

 

 

$

  (6,883)

 

$

     794

 

$

 (14,991)

 

 

 

 

 

 

 

 

 

 

 


(1) American Foodservice Company incurred a pretax operational loss of $3.5 million and pretax loss on sale of $4.8 million.


Assets and liabilities related to discontinued operations to be retained by the Company are recorded in the Consolidated Balance Sheets at June 30 under the following captions (in thousands):


 

 

2014

 

2013

Current assets

$

            199

$

            483

Non-current assets

 

         3,014

 

         3,000

Current liabilities

 

         2,340

 

            795

Non-current liabilities

 

         1,791

 

         3,219



16.  RESTRUCTURING


The Company has undertaken a number of initiatives that have resulted in severance, restructuring, and related charges.  A summary of charges by initiative is as follows (in thousands):





54





 

 

Involuntary

 

 

 

 

 

 

 

 

Employee

 

 

 

 

 

 

 

 

Severance and

 

 

 

 

 

 

Year Ended June 30,

 

Benefit Costs

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

  2014 Restructuring Initiatives

 

$

          1,528

 

$

    8,477

 

$

      10,005

  Prior Year Initiatives

 

 

               72

 

 

             -

 

 

           72

    Total expense

 

$

          1,600

 

$

       8,477

 

$

     10,077

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

 

 

 

 

 

 

 

 

 

  2013 Restructuring Initiatives

 

$

          1,299

 

$

      1,367

 

$

       2,666

  Prior Year Initiatives

 

 

                 -

 

 

             -

 

 

              -

    Total expense

 

$

         1,299

 

$

      1,367

 

$

       2,666

 

 

 

2012

 

 

 

 

 

 

 

 

 

 

  2012 Restructuring Initiatives

 

$

             901

 

$

         206

 

$

        1,107

  Prior Year Initiatives

 

 

                87

 

 

       491

 

 

          578

    Total expense

 

$

            988

 

$

        697

 

$

      1,685

 

 

 

 

 

 

 

 

 

 

2014 Restructuring Initiatives

On August 23, 2013 the Company announced a consolidation of its Cheyenne, Wyoming plant into its Mexico facility and other cooking solutions operations in North America. Restructuring expenses of $10.1 million in the fiscal year 2014 are composed of $9.2 million at Food Service Equipment primarily related to the announced closure of the Cheyenne, Wyoming facility, which includes a non-cash impairment charge of $5.4 million.


Activity in the reserves related to 2014 restructuring initiatives is as follows (in thousands):


 

Involuntary

 

 

 

 

 

 

 

Employee

 

 

 

 

 

 

 

Severance

 

 

 

 

 

 

 

and Benefit

 

 

 

 

 

 

 

Costs

 

Other

 

Total

Restructuring Liabilities at June 30, 2013

$

       10

 

$

          -   

 

$

         10

     Additions

 

     1,528

 

 

     3,051

 

 

     4,579

     Payments

 

      (983)

 

 

   (3,051)

 

 

   (4,034)

Restructuring Liabilities at June 30, 2014

$

      555

 

$

      -   

 

$

       555

 

 

 

 

 

 

 

 

 



Prior Year Initiatives


During the first half of 2013, the Company began a new headcount reduction program in its European Engraving Group operations as part of the realignment of the Group’s global footprint.  Restructuring cost of $0.6 million related to this activity was substantially completed for the year ended June 30, 2013.  During the third quarter, the Company completed the move and startup of the Sao Paolo, Brazil, Engraving Group facility to a location more suited to the Group’s operational needs. Restructuring expenses for the year ended June 30, 2013 related to these activities were $1.5 million.  Also during the year as redundant positions due to the Meder acquisition are being eliminated the Company incurred $0.4 million of restructuring costs in China, which was substantially completed for the year ended June 30, 2013.

Activity in the reserves related to prior year restructuring initiatives is as follows (in thousands):







55





 

Involuntary

 

 

 

 

 

 

 

Employee

 

 

 

 

 

 

 

Severance

 

 

 

 

 

 

 

and Benefit

 

 

 

 

 

 

 

Costs

 

Other

 

Total

Restructuring Liabilities at June 30, 2012

$

     41

 

$

      -   

 

$

          41

     Additions

 

 

 

 

       -   

 

 

          -   

     Payments

 

      (41)

 

 

       -   

 

 

          (41)

Restructuring Liabilities at June 30, 2013

$

     -   

 

$

        -   

 

$

         -   

     Additions

 

       72

 

 

      -   

 

 

          72

     Payments

 

        (72)

 

 

        -   

 

 

         (72)

Restructuring Liabilities at June 30, 2014

$

       -   

 

$

          -   

 

$

        -   

 

 

 

 

 

 

 

 

 

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


 

 

Involuntary

 

 

 

 

 

 

Employee

 

 

 

 

 

 

Severance

 

 

 

 

 

 

and Benefit

 

 

 

 

Year Ended June 30,

 

Costs

 

Other

 

Total

 

 

 

 

 

 

 

 

 

2014

Food Service Equipment Group

 

 $             746

 

 $          8,408

 

 $          9,154

Engraving Group

 

           667

 

           21

 

              688

Electronics Products Group

 

          187

 

           48

 

              235

    Total expense

 

 $          1,600

 

 $          8,477

 

 $        10,077

 

 

 

 

 

 

 

 

 

2013

Food Service Equipment Group

 

 $           183

 

 $               25

 

 $             208

Engineering Technologies Group

 

               44

 

         -

 

               44

Engraving Group

 

          776

 

        1,253

 

          2,029

Electronics Products Group

 

           296

 

        89

 

             385

    Total expense

 

 $          1,299

 

 $          1,367

 

 $          2,666

 

 

 

 

 

 

 

 

 

2012

Food Service Equipment Group

 

 $             279

 

 $             647

 

 $             926

Engraving Group

 

          683

 

           50

 

        733

Corporate

 

           26

 

         -

 

            26

    Total expense

 

 $          988

 

 $             697

 

 $        1,685

 

 

 

 

 

 

 



17.  EMPLOYEE BENEFIT PLANS


Retirement Plans


The Company has defined benefit pension plans covering certain current and former employees both inside and outside of the U.S.   The Company’s pension plan for U.S. salaried employees was frozen as of December 31, 2007, and participants in the plan ceased accruing future benefits.  The Company’s pension plan for U.S. hourly employees was frozen for substantially all participants as of July 31, 2013, and replaced with a defined contribution benefit plan.  Based on changes to the plan, the Company recorded a reduction in U.S. non-cash pension plan expense of $2.6 million as compared to 2013, which was partially offset by increased expenses associated with the implementation of the defined contribution benefit program. 





56



Net periodic benefit cost for U.S. and non-U.S. plans included the following components (in thousands):



Components of Net Periodic Benefit Cost

Pension Benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Plans

 

 

Foreign Plans

 

 

Year Ended June 30,

 

 

Year Ended June 30,

 

 

2014

 

 

2013

 

 

2012

 

 

2014

 

 

2013

 

 

2012

Service Cost

$

   233

 

$

    702

 

$

        447

 

$

        46

 

$

          40

 

$

    34

Interest Cost

 

11,241

 

 

 10,941

 

 

   11,975

 

 

   1,723

 

 

     1,667

 

 

   1,758

Expected return on plan assets

 

(13,513)

 

 

(14,790)

 

 

(15,333)

 

 

(1,532)

 

 

   (1,339)

 

 

(1,527)

Recognized net actuarial loss

 

   3,941

 

 

   7,577

 

 

    4,814

 

 

      819

 

 

        901

 

 

 527

Amortization of prior service cost (benefit)

 

                    57

 

 

                       98

 

 

                    111

 

 

            (60)

 

 

            (57)

 

 

                  (59)

Amortization of transition

   Obligation (asset)

             -   

 

 

             2

 

 

              2

 

 

             -   

 

 

               -   

 

 

             -   

Curtailment

 

        -   

 

 

        52

 

 

        -   

 

 

          -   

 

 

          -   

 

 

          -   

Net periodic benefit cost (benefit)

 $

     1,959

 

 $

     4,582

 

 $

       2,016

 

 $

        996

 

 $

        1,212

 

 $

        733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



The following table sets forth the funded status and amounts recognized as of June 30, 2014 and 2013 for our U.S. and foreign defined benefit pension plans (in thousands):



 

U.S. Plans

 

Foreign Plans

 

Year Ended June 30,

 

Year Ended June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

Change in benefit obligation

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation at beginning of year

$

  227,874

 

$

    45,212

 

$

   37,897

 

$

  37,527

Service cost

 

         233

 

 

         702

 

 

         46

 

 

          40

Interest cost

 

    11,241

 

 

   10,941

 

 

    1,723

 

 

     1,667

Actuarial loss (gain)

 

    16,317

 

 

  (12,366)

 

 

    2,161

 

 

        705

Benefits paid

 

  (15,239)

 

 

  (14,776)

 

 

   (1,662)

 

 

   (1,361)

Curtailment

 

             -   

 

 

    (1,839)

 

 

          -   

 

 

            -   

Foreign currency exchange rate

 

             -   

 

 

           -   

 

 

    4,113

 

 

   (681)

Projected benefit obligation at end of year

$

  240,426

 

$

 227,874

 

$

  44,278

 

$

   37,897

 

 

 

 

 

 

 

 

 

 

 

 

Change in plan assets

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year

$

  200,174

 

$

 198,718

 

$

   30,889

 

$

   29,138

Actual return on plan assets

 

   30,956

 

 

  12,825

 

 

   3,034

 

 

     2,805

Employer contribution

 

        152

 

 

    3,407

 

 

   1,375

 

 

     1,171

Benefits paid

 

  (15,239)

 

 

 (14,776)

 

 

   (1,662)

 

 

    (1,361)

Foreign currency exchange rate

 

           -   

 

 

              -   

 

 

     3,851

 

 

       (864)

Fair value of plan assets at end of year

$

 216,043

 

$

 200,174

 

$

   37,487

 

$

   30,889

 

 

 

 

 

 

 

 

 

 

 

 

Funded Status

$

  (24,383)

 

$

 (27,700)

 

$

   (6,791)

 

$

    (7,008)




 

 

 

 

 

 

 

 

 

 

 




 

 

 




57



Amounts recognized in the consolidated balance sheets

 

 

 

 

 

 

 

 

 

   consist of:

 

 

 

 

 

 

 

 

 

 

 

Prepaid Benefit Cost

$

              -   

 

$

              -   

 

$

    1,167

 

$

         99

Current liabilities

 

       (199)

 

 

      (149)

 

 

       (327)

 

 

   (1,120)

Non-current liabilities

 

  (24,184)

 

 

  (27,551)

 

 

   (7,631)

 

 

   (5,987)

Net amount recognized

$

  (24,383)

 

$

  (27,700)

 

$

   (6,791)

 

$

    (7,008)

 

 

 

 

 

 

 

 

 

 

 

 

Unrecognized net actuarial loss

 

   92,036

 

 

   97,103

 

 

   10,506

 

 

    9,651

Unrecognized prior service cost

 

        312

 

 

        370

 

 

       (220)

 

 

      (267)

Accumulated other comprehensive income, pre-tax

$

    92,348

 

$

   97,473

 

$

   10,286

 

$

    9,384

 

 

 

 

 

 

 

 

 

 

 

 


The accumulated benefit obligation for all defined benefit pension plans was $283.7 million and $264.9 million at June 30, 2014 and 2013, respectively.


The estimated actuarial net loss and prior service benefit for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $4.8 million and less than $0.1 million, respectively.


Plan Assets and Assumptions


The fair values of the Company’s pension plan assets at June 30, 2014 and 2013 by asset category, as classified in the three levels of inputs described in Note 1 under the caption Fair Value of Financial Instruments, are as follows (in thousands):


 

 

 June 30, 2014

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

     3,078

 

$

         287

 

$

    2,791

 

$

            -   

 

Common and preferred stocks

 

 107,498

 

 

     16,754

 

 

   90,744

 

 

          -   

 

U.S. Government securities

 

   13,334

 

 

            -   

 

 

   13,334

 

 

          -   

 

Corporate bonds and other fixed income securities

 

 118,131

 

 

       7,297

 

 

 110,834

 

 

          -   

 

Other

 

   11,488

 

 

             -   

 

 

   11,488

 

 

           -   

 

 

$

 253,529

 

$

      24,338

 

$

 229,191

 

$

          -   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 June 30, 2013

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

        726

 

$

          439

 

$

        287

 

$

        -   

 

Common and preferred stocks

 

 107,130

 

 

     18,824

 

 

   88,306

 

 

       -   

 

U.S. Government securities

 

  13,018

 

 

            -   

 

 

   13,018

 

 

        -   

 

Corporate bonds and other fixed income securities

 

  101,990

 

 

          775

 

 

101,215

 

 

        -   

 

Other

 

      8,196

 

 

             -   

 

 

    8,196

 

 

        -   

 

 

$

 231,060

 

$

     20,038

 

$

211,022

 

$

       -   

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset allocation at June 30, 2014 and 2013 and target asset allocations for 2014 are as follows:


 

U.S. Plans

 

 

Foreign Plans

 

Year Ended June 30,

 

Year Ended June 30,

 

2014

 

2013

 

2014

 

2013

Asset Category

 

 

 

 

 

 

 

Equity securities

32%

 

38%

 

26%

 

35%

Debt securities

28%

 

25%

 

73%

 

64%

Global balanced securities

28%

 

27%

 

         -   

 

       -   

Other

12%

 

10%

 

1%

 

1%

Total

100%

 

100%

 

100%

 

100%




58





 


2014

Asset Category – Target

U.S.

 

U.K.

Equity securities

32%

 

25%

Debt and market neutral securities

33%

 

75%

Global balanced securities

25%

 

0%

Other

10%

 

0%

Total

100%

 

100%


Our investment policy for the U.S. pension plans targets a range of exposure to the various asset classes.  Standex rebalances the portfolio periodically when the allocation is not within the desired range of exposure.  The plan seeks to provide returns in excess of the various benchmarks.  The benchmarks include the following indices:  S&P 500; Citigroup PMI EPAC; Citigroup World Government Bond and Barclays Aggregate Bond.  A third party investment consultant tracks the plan’s portfolio relative to the benchmarks and provides quarterly investment reviews which consist of a performance and risk assessment on all investment managers and on the portfolio.  


Certain managers within the plan use, or have authorization to use, derivative financial instruments for hedging purposes, the creation of market exposures and management of country and asset allocation exposure.  Currency speculation derivatives are strictly prohibited.


Year Ended June 30

2014

 

2013

 

2012

Plan assumptions - obligation

 

 

 

 

 

Discount rate

2.90 - 4.50%

 

3.50 - 5.10%

 

4.00 - 4.60%

Rate of compensation increase

3.80%

 

3.50 - 3.90%

 

3.40 - 3.50%

 

 

 

 

 

 

Plan assumptions - cost

 

 

 

 

 

Discount rate

3.50 - 5.10%

 

4.00 - 4.60%

 

5.50 - 6.00%

Expected return on assets

4.60 - 7.25%

 

4.80 - 7.80%

 

5.40 - 8.10%

Rate of compensation increase

3.90%

 

3.40 - 3.50%

 

3.50 - 4.00%


Included in the above are the following assumptions relating to the obligations for defined benefit pension plans in the United States at June 30, 2014; a discount rate of 4.5% and expected return on assets of 7.25%.  The U.S. defined benefit pension plans represent the majority of our pension obligations.  The expected return on plan assets assumption is based on our expectation of the long-term average rate of return on assets in the pension funds and is reflective of the current and projected asset mix of the funds.  The discount rate reflects the current rate at which pension liabilities could be effectively settled at the end of the year.  The discount rate is determined by matching our expected benefit payments from a stream of AA- or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions.


Expected benefit payments for the next five years are as follows: 2015, $16.6 million; 2016, $16.6 million; 2017, $16.8 million; 2018, $16.9 million; 2019, $17.1 million and thereafter, $87.0 million.  The Company expects to make $1.7 million of contributions to its pension plans in 2015.


The Company operates a defined benefit plan in Germany which is unfunded.


Multi-Employer Pension Plans


We contribute to a number of multiemployer defined benefit plans under the terms of collective bargaining agreements that cover our union-represented employees.  These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods and benefit formulas.  The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:


·

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

·

If a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may be borne by the remaining participating employers.




59


·

If we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.  However, cessation of participation in a multiemployer plan and subsequent payment of any withdrawal liability is subject to the collective bargaining process.


The following table outlines the Company’s participation in multiemployer pension plans for the periods ended June 30, 2014, 2013, and 2012, and sets forth the yearly contributions into each plan.  The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit plan number.  The most recent Pension Protection Act zone status available in 2014 and 2013 relates to the plans’ two most recent fiscal year-ends.  The zone status is based on information that we received from the plans’ administrators and is certified by each plan’s actuary.  Among other factors, plans certified in the red zone are generally less than 65% funded, plans certified in the orange zone are both less than 80% funded and have an accumulated funding deficiency or are expected to have a deficiency in any of the next six plan years, plans certified in the yellow zone are less than 80% funded, and plans certified in the green zone are at least 80% funded.  The “FIP/RP Status Pending/Implemented” column indicates whether a financial improvement plan (“FIP”) for yellow/orange zone plans, or a rehabilitation plan (“RP”) for red zone plans, is either pending or has been implemented.  For all plans, the Company’s contributions do not exceed 5% of the total contributions to the plan in the most recent year.



 

 

Pension Protection Act Zone Status

Contributions

 

 

 

 

 

 

 

Pension Fund

EIN/Plan Number

2014

2013

FIP/RP Status

2014

 

2013

 

2012

 

Surcharge Imposed?

Expiration Date of Collective Bargaining Agreement

New England Teamsters and Trucking Industry Pension Fund

04-6372430-001

Red

Red

Yes/ Implemented

$

541

 

$

427

 

$

367

 

No

 

4/15/2015

IAM National Pension Fund, National Pension Plan

51-6031295-002

Green

Green

No

 

659

 

 

623

 

 

584

 

No

 

5/31/2015 - 10/14/16

 

 

 

 

 

$

 1,200

 

$

1,050

 

$

    951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Retirement Savings Plans


The Company has two primary employee savings plans, one for salaried employees and one for hourly employees.  Substantially all of our full-time domestic employees are covered by these savings plans.  Under the provisions of the plans, employees may contribute a portion of their compensation within certain limitations.  The Company, at the discretion of the Board of Directors, may make contributions on behalf of our employees under the plans.  Company contributions were $4.0 million, $4.1 million, and $4.1 million for the years ended June 30, 2014, 2013, and 2012, respectively.  At June 30, 2014, the salaried plan holds approximately 120,000 shares of Company common stock, representing approximately 10% of the holdings of the plan.


Postretirement Benefits Other Than Pensions


The Company sponsors an unfunded postretirement medical plan covering certain full-time employees who retire and have attained the requisite age and years of service.  Retired employees are required to contribute toward the cost of coverage according to various established rules.


The accumulated benefit obligation of the post-retirement medical plan was less than $0.2 million at both June 30, 2014 and June 30, 2013.  The plan holds no assets as the Company makes contributions as benefits are due.  Contributions for each of the last two fiscal years were less than $0.1 million.  The assumed weighted average discount rate was 4.50% and 5.10% as of June 30, 2014 and 2013, respectively.  A 1% increase in the assumed health care cost trend rate does not impact either the accumulated benefit obligation or the net postretirement cost, as the employer contribution for each participant is a fixed amount.





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Effective January 1, 2013, the Company terminated its life insurance benefit provided to certain current and future retirees, resulting in a curtailment and settlement of the plan’s obligations.  The Company recorded a $2.3 million benefit of the settlement and curtailment as a component of selling general and administrative expenses during the third quarter of 2013.  


The following table sets forth the postretirement benefit cost reflected in the consolidated income statement sheet at year end (in thousands):


Components of Net Periodic Benefit Cost (in thousands)


 

Year Ended June 30,

 

 

 

 

 

2014

 

 

2013

 

 

2012

Service Cost

$

            -   

 

$

        13

 

$

        19

Interest Cost

 

   9

 

 

       49

 

 

      101

Recognized net actuarial gain

 

    (7)

 

 

     (24)

 

 

      (55)

Curtailment

 

            -   

 

 

        51

 

 

         -   

Plan Settlement

 

            -   

 

 

(2,329)

 

 

         -   

Amortization of transition obligation

 

            -   

 

 

      112

 

 

     223

Net periodic benefit cost

$

         2

 

$

 (2,128)

 

$

      288

 

 

 

 

 

 

 

 

 



18.  INDUSTRY SEGMENT INFORMATION


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


Food Service Equipment Group– an aggregation of seven operating segments that manufacture and sell commercial food service equipment;

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

Engineering Technologies Group – provides customized solutions in the fabrication and machining of engineered components for the aerospace, aviation, energy, aviation, medical, oil and gas, and general industrial markets.

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

Hydraulics Products Group – manufacturing and selling of single- and double-acting telescopic and piston rod hydraulic cylinders.


Net sales include only transactions with unaffiliated customers and include no significant intersegment or export sales.  Operating income by segment and geographic area excludes general corporate and interest expenses.  Assets of the Corporate segment consist primarily of cash, office equipment, and other non-current assets.


Given the nature of our corporate expenses, management has concluded that it would not be appropriate to allocate the expenses associated with corporate activities to our operating segments.  These corporate expenses include the costs for the corporate headquarters, salaries and wages for the personnel in corporate, professional fees related to corporate matters and compliance efforts, stock-based compensation and post-retirement benefits related to our corporate executives, officers and directors, and other compliance related costs.  The Company has a process to allocate and recharge certain direct costs to the operating segments when such direct costs are administered and paid at corporate.  Such direct expenses that are recharged on an intercompany basis each month include such costs as insurance, workers’ compensation programs, audit fees and pension expense.  The accounting policies applied by the reportable segments are the same as those described in the Summary of Accounting Policies footnote to the consolidated financial statements.  There are no differences in accounting policies which would be necessary for an understanding of the reported segment information.










61





Industry Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Net Sales

 

Depreciation and Amortization

 

 

2014

 

 

2013

 

 

2012

 

 

2014

 

 

2013

 

 

2012

Food Service Equipment

$

  377,848

 

$

  367,008

 

$

64,759

 

$

   4,485

 

$

      4,930

 

$

   4,994

Engraving

 

  109,271

 

 

    93,380

 

 

 93,611

 

 

   3,342

 

 

      3,226

 

 

   3,293

Engineering Technologies

 

    79,642

 

 

    74,838

 

 

 74,088

 

 

   3,063

 

 

      3,288

 

 

   3,188

Electronics Products

 

  114,881

 

 

  108,085

 

 

 48,206

 

 

   2,807

 

 

      2,986

 

 

       878

Hydraulics Products

 

    34,538

 

 

    30,079

 

 

 29,922

 

 

   625

 

 

   566

 

 

      518

Corporate and Other