0001437749-21-011292.txt : 20210507 0001437749-21-011292.hdr.sgml : 20210507 20210507142926 ACCESSION NUMBER: 0001437749-21-011292 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 98 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210507 DATE AS OF CHANGE: 20210507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDEX INTERNATIONAL CORP/DE/ CENTRAL INDEX KEY: 0000310354 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 310596149 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07233 FILM NUMBER: 21901914 BUSINESS ADDRESS: STREET 1: 23 KEEWAYDIN DRIVE STREET 2: SUITE 300 CITY: SALEM STATE: NH ZIP: 03079 BUSINESS PHONE: 603-893-9701 MAIL ADDRESS: STREET 1: 23 KEEWAYDIN DRIVE STREET 2: SUITE 300 CITY: SALEM STATE: NH ZIP: 03079 10-Q 1 sxi20210331_10q.htm FORM 10-Q sxi20191231_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2021

 

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

 

Commission File Number 1-7233

 

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

 

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

 

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

 

Delaware

 

31-0596149

(State of incorporation)

(IRS Employer Identification No.)

 

23 KEEWAYDIN DRIVE, Salem, New Hampshire

03079

(Address of principal executive offices)

(Zip Code)

 

(603) 893-9701

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $1.50 Per Share

SXI

New York Stock Exchange

 

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

 

Large accelerated filer ☒

 

 

Accelerated filer ☐

 

Non-accelerated filer ☐  

Smaller reporting company 

 

   

Emerging growth company 

 

 

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

 

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

 

The number of shares of Registrant's Common Stock outstanding on May 5, 2021 was 12,261,096.

 

1

 

 

 

STANDEX INTERNATIONAL CORPORATION

 

 

INDEX

 

 

 

 

Page No.

PART I.  FINANCIAL INFORMATION:

 

 

 

 

Item 1.

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and June 30, 2020 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2021 and 2020 (unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended March 31, 2021 and 2020 (unaudited)

5

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended March 31, 2021 and 2020 (unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2021 and 2020 (unaudited)

8

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

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

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

38

 

 

 

Item 4.

Controls and Procedures

39

 

 

 

PART II.  OTHER INFORMATION:

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

     

Item 6.

Exhibits

41

 

2

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1

 

STANDEX INTERNATIONAL CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands, except per share data)

 

March 31, 2021

  

June 30, 2020

 

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $118,040  $118,809 

Accounts receivable, less allowance for credit losses of $2,440 and $2,113 at March 31, 2021 and June 30, 2020, respectively

  107,960   98,157 

Inventories

  90,868   85,031 

Prepaid expenses and other current assets

  22,647   18,870 

Income taxes receivable

  11,279   8,194 
Current Assets - Discontinued Operations  -   2,936 

Total current assets

  350,794   331,997 

Property, plant, and equipment, net

  129,725   132,533 

Intangible assets, net

  102,064   106,412 

Goodwill

  277,902   271,221 

Deferred tax asset

  16,941   17,322 

Operating lease right-of-use asset

  39,303   44,788 

Other non-current assets

  29,609   26,605 

Total non-current assets

  595,544   598,881 

Total assets

 $946,338  $930,878 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current Liabilities:

        

Accounts payable

 $66,619  $54,910 

Accrued liabilities

  59,664   59,929 

Income taxes payable

  5,658   7,428 

Current liabilities-Discontinued Operations

  -   610 

Total current liabilities

  131,941   122,877 

Long-term debt

  200,117   199,150 

Operating lease long-term liabilities

  30,488   36,293 

Accrued pension and other non-current liabilities

  101,139   110,926 

Total non-current liabilities

  331,744   346,369 
         
Commitments and Contingencies (Note 17)  -   - 
         

Stockholders' equity:

        

Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 issued, 12,091,579 and 12,235,786 outstanding at March 31, 2021 and June 30, 2020

  41,976   41,976 

Additional paid-in capital

  77,978   72,752 

Retained earnings

  841,491   827,656 

Accumulated other comprehensive loss

  (131,043)  (147,659)

Treasury shares: 15,892,699 shares at March 31, 2021 and 15,748,492 shares at June 30, 2020

  (347,749)  (333,093)

Total stockholders' equity

  482,653   461,632 

Total liabilities and stockholders' equity

 $946,338  $930,878 

 

See notes to unaudited condensed consolidated financial statements 

 

3

 
 

STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Operations

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31,

   

March 31,

 

(In thousands, except per share data)

 

2021

   

2020

   

2021

   

2020

 

Net sales

  $ 172,216     $ 155,474     $ 479,797     $ 465,150  

Cost of sales

    109,516       102,959       304,344       296,613  

Gross profit

    62,700       52,515       175,453       168,537  

Selling, general, and administrative expenses

    41,689       34,893       120,758       113,697  
Loss on sale of business     14,624       -       14,624       -  

Acquisition related costs

    255       120       850       1,650  

Restructuring costs

    482       593       2,478       2,792  

Total operating expenses

    57,050       35,606       138,710       118,139  

Income from operations

    5,650       16,909       36,743       50,398  

Interest expense

    1,317       1,774       4,403       5,820  

Other non-operating (income) expense

    306       (238 )     73       (566 )

Income from continuing operations before income taxes

    4,027       15,373       32,267       45,144  

Provision for income taxes

    2,269       3,321       8,155       10,229  

Net income from continuing operations

    1,758       12,052       24,112       34,915  

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

    (331 )     (18,375 )     (1,588 )     (16,562 )

Net income (loss)

  $ 1,427     $ (6,323 )   $ 22,524     $ 18,353  
                                 

Basic earnings (loss) per share:

                               

Continuing operations

  $ 0.14     $ 0.98     $ 1.98     $ 2.83  

Discontinued operations

    (0.03 )     (1.49 )     (0.13 )     (1.34 )

Total

  $ 0.11     $ (0.51 )   $ 1.85     $ 1.49  

Diluted earnings (loss) per share:

                               

Continuing operations

  $ 0.14     $ 0.97     $ 1.97     $ 2.81  

Discontinued operations

    (0.03 )     (1.48 )     (0.13 )     (1.33 )

Total

  $ 0.11     $ (0.51 )   $ 1.84     $ 1.48  
                                 
Weighted average number of shares:                                
Basic     12,136       12,337       12,185       12,348  
Diluted     12,253       12,397       12,267       12,413  

 

See notes to unaudited condensed consolidated financial statements 

 

4

 
 

STANDEX INTERNATIONAL CORPORATION 

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31,

   

March 31,

 

(In thousands)

 

2021

   

2020

   

2021

   

2020

 

Net income (loss)

  $ 1,427     $ (6,323 )   $ 22,524     $ 18,353  

Other comprehensive income (loss):

                               

Defined benefit pension plans:

                               

Actuarial gains (losses) and other changes in unrecognized costs

  $ 37     $ 278     $ (436 )   $ 273  

Amortization of unrecognized costs

    1,677       1,441       5,012       4,315  

Derivative instruments:

                               

Change in unrealized gains (losses)

    3,747       (1,595 )     3,532       (1,832 )

Amortization of unrealized gains (losses) into interest expense

    64       (2,110 )     1,185       (2,129 )

Foreign currency translation gains (losses)

    (11,299 )     (4,691 )     9,301       (5,860 )

Other comprehensive income (loss) before tax

  $ (5,774 )   $ (6,677 )   $ 18,594     $ (5,233 )
                                 

Income tax provision (benefit):

                               

Defined benefit pension plans:

                               

Actuarial gains (losses) and other changes in unrecognized costs

  $ (15 )   $ (50 )   $ 85     $ (28 )

Amortization of unrecognized costs

    (402 )     (348 )     (1,202 )     (1,041 )

Derivative instruments:

                               

Change in unrealized gains (losses)

    (562 )     588       (443 )     697  

Amortization of unrealized gains (losses) into interest expense

    (141 )     (25 )     (418 )     (33 )

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

  $ (1,120 )   $ 165     $ (1,978 )   $ (405 )
                                 

Other comprehensive income (loss), net of tax

    (6,894 )     (6,512 )     16,616       (5,638 )

Comprehensive income (loss)

  $ (5,467 )   $ (12,835 )   $ 39,140     $ 12,715  

 

See notes to unaudited condensed consolidated financial statements 

 

5

 
 

Unaudited Consolidated Statements of Stockholders' Equity 

Standex International Corporation and Subsidiaries 

 

              

Accumulated Other

             
      

Additional

      

Comprehensive

          

Total

 

For the Nine month period ended March 31, 2021

 

Common

  

Paid-in

  

Retained

  

Income

  

Treasury Stock

  

Stockholders’

 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, June 30, 2020

 $41,976  $72,752  $827,656  $(147,659)  15,748  $(333,093) $461,632 

Stock issued under incentive compensation plans and employee purchase plans

  -   (432)  -   -   (72)  1,549   1,117 

Stock-based compensation

  -   5,658   -   -   -   -   5,658 

Treasury stock acquired

  -   -   -   -   217   (16,205)  (16,205)
Comprehensive income:                            

Net income

  -   -   22,524   -   -   -   22,524 

Foreign currency translation adjustment

  -   -   -   9,301   -   -   9,301 

Pension, net of tax of $1.1 million

  -   -   -   3,459   -   -   3,459 

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

  -   -   -   3,856   -   -   3,856 

Dividends declared ($0.70 per share)

  -   -   (8,689)  -   -   -   (8,689)

Balance, March 31, 2021

 $41,976  $77,978  $841,491  $(131,043)  15,893  $(347,749) $482,653 
                             

For the Nine month period ended March 31, 2020

                            

(in thousands, except as specified)

                            

Balance, June 30, 2019

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

Stock issued under incentive compensation plans and employee purchase plans

  -   110   -   -   (71)  1,468   1,578 

Stock-based compensation

  -   5,285   -   -   -   -   5,285 

Treasury stock acquired

  -   -   -   -   142   (9,008)  (9,008)
Adoption of ASC 606  -   -   (55)  -   -   -   (55)

Comprehensive income:

                          - 

Net income

  -   -   18,353   -   -   -   18,353 

Foreign currency translation adjustment

  -   -   -   (5,860)  -   -   (5,860)

Pension, net of tax of $1.1 million

  -   -   -   3,519   -   -   3,519 

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

  -   -   -   (3,297)  -   -   (3,297)

Dividends declared ($0.64 per share)

  -   -   (8,024)  -   -   -   (8,024)

Balance, March 31, 2020

 $41,976  $70,910  $828,556  $(142,916)  15,721  $(331,722) $466,804 

 

6

 

 

Unaudited Consolidated Statements of Stockholders' Equity

Standex International Corporation and Subsidiaries

 

              

Accumulated Other

             
      

Additional

      

Comprehensive

          

Total

 

For the Three month period ended March 31, 2021

 

Common

  

Paid-in

  

Retained

  

Income

  

Treasury Stock

  

Stockholders’

 

(in thousands, except as specified)

 

Stock

  

Capital

  

Earnings

  

(Loss)

  

Shares

  

Amount

  

Equity

 

Balance, December 31, 2020

 $41,976  $76,548  $843,038  $(124,149)  15,803  $(339,223) $498,190 

Stock issued under incentive compensation plans and employee purchase plans

  -   60   -   -   (4)  86   146 

Stock-based compensation

  -   1,370   -   -   -   -   1,370 

Treasury stock acquired

  -   -   -   -   94   (8,612)  (8,612)
Comprehensive income:                            

Net income

  -   -   1,427   -   -   -   1,427 

Foreign currency translation adjustment

  -   -   -   (11,299)  -   -   (11,299)

Pension, net of tax of $0.4 million

  -   -   -   1,297   -   -   1,297 

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

  -   -   -   3,108   -   -   3,108 

Dividends declared ($0.24 per share)

  -   -   (2,974)  -   -   -   (2,974)

Balance, March 31, 2021

 $41,976  $77,978  $841,491  $(131,043)  15,893  $(347,749) $482,653 
                             

For the Three month period ended March 31, 2020

                            

(in thousands, except as specified)

                            

Balance, December 31, 2019

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

Stock issued under incentive compensation plans and employee purchase plans

  -   238   -   -   (10)  212   450 

Stock-based compensation

  -   466   -   -   -   -   466 

Treasury stock acquired

  -   -   -   -   129   (8,062)  (8,062)
Adoption of ASC 606  -   -   (55)  -   -   -   (55)
Comprehensive income:                            

Net income (loss)

  -   -   (6,323)  -   -   -   (6,323)

Foreign currency translation adjustment

  -   -   -   (4,691)  -   -   (4,691)

Pension, net of tax of $0.3 million

  -   -   -   1,321   -   -   1,321 

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

  -   -   -   (3,142)  -   -   (3,142)

Dividends declared ($0.22 per share)

  -   -   (2,764)  -   -   -   (2,764)

Balance, March 31, 2020

 $41,976  $70,910  $828,556  $(142,916)  15,721  $(331,722) $466,804 

 

7

 
 

STANDEX INTERNATIONAL CORPORATION

 Unaudited Condensed Consolidated Statements of Cash Flows

 

   

Nine Months Ended

 
   

March 31,

 

(In thousands)

 

2021

   

2020

 

Cash flows from operating activities

               

Net income

  $ 22,524     $ 18,353  

Income (loss) from discontinued operations

    (1,588 )     (16,562 )

Income from continuing operations

    24,112       34,915  

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

               

Depreciation and amortization

    24,843       24,301  

Stock-based compensation

    5,658       5,285  

Non-cash portion of restructuring charge

    (538 )     (87 )

Life insurance benefit

    -       (1,302 )
Loss on sale of business     14,624       -  

Contributions to defined benefit plans

    (7,962 )     (3,454 )

Net changes in operating assets and liabilities

    (11,399 )     (30,168 )

Net cash provided by operating activities - continuing operations

    49,338       29,490  

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

    2,225       (3,559 )

Net cash provided by operating activities

    51,563       25,931  

Cash flows from investing activities

               

Expenditures for property, plant, and equipment

    (15,612 )     (15,806 )

Expenditures for acquisitions, net of cash acquired

    (27,406 )     -  
Proceeds from sale of business     11,678       -  

Other investing activity

    (1,449 )     1,515  

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

    (32,789 )     (14,291 )

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

    -       9,414  

Net cash provided by (used in) investing activities

    (32,789 )     (4,877 )

Cash flows from financing activities

               

Borrowings on revolving credit facility

    17,000       106,500  

Payments of revolving credit facility

    (17,000 )     (92,300 )

Contingent consideration payment

    -       (872 )

Activity under share-based payment plans

    1,117       1,577  

Purchases of treasury stock

    (16,205 )     (9,008 )

Cash dividends paid

    (8,547 )     (7,911 )

Net cash provided by (used in) financing activities

    (23,635 )     (2,014 )

Effect of exchange rate changes on cash and cash equivalents

    4,092       (2,888 )

Net change in cash and cash equivalents

    (769 )     16,152  

Cash and cash equivalents at beginning of year

    118,809       93,145  

Cash and cash equivalents at end of period

  $ 118,040     $ 109,297  
                 

Supplemental Disclosure of Cash Flow Information:

               

Cash paid during the year for:

               

Interest

  $ 3,754     $ 5,028  

Income taxes, net of refunds

  $ 5,466     $ 16,194  

 

See notes to unaudited condensed consolidated financial statements

 

8

 

 

STANDEX INTERNATIONAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1)     Management Statement

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations for the three and nine months ended March 31, 2021 and 2020, the cash flows for the nine months ended March 31, 2021 and 2020 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at March 31, 2021. The interim results are not necessarily indicative of results for a full year. The following unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 2020. The condensed consolidated balance sheet at June 30, 2020 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The financial statements contained herein should be read in conjunction with the Annual Report on Form 10-K and in particular the audited consolidated financial statements for the year ended June 30, 2020. Unless otherwise noted, references to years are to the Company’s fiscal years.

 

Certain prior period amounts have been reclassified to conform to the current period presentation. In pursuing our business strategy, we have divested certain businesses and recorded activities of some of these businesses as discontinued operations. During the third quarter of 2020, the Company decided to divest its Refrigerated Solutions Group which consisted of two operating segments in order to focus its financial assets and managerial resources on its remaining portfolio of businesses. Results of the Refrigerated Solutions Group in prior periods have been classified as discontinued operations in the Condensed Consolidated Financial Statements and excluded from the results of continuing operations. In the fourth quarter of fiscal year 2020, the Company reviewed the quantitative and qualitative characteristics of its remaining businesses and determined that it has seven operating segments that aggregate to five reportable segments. Please refer to Note 18 Industry Segment Information for further information regarding reportable segments. All periods presented have been revised to reflect the new reportable segments.

 

The estimates and assumptions used in the preparation of the consolidated financial statements have considered the implications on the Company as a result of the onset of the COVID-19 pandemic and its related economic impacts. As a result of the COVID-19 pandemic,  there is heightened volatility and uncertainty in customer demand and the worldwide economy. However, the magnitude of such impact on the Company’s business and its duration is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of  March 31, 2021 and the issuance date of the Quarterly Report on Form 10-Q.

 

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

 

Recently Issued Accounting Pronouncements

 

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2020-04 is effective for all entities as of  March 12, 2020 through  December 31, 2022. The Company adopted ASU 2020-04 and ASU 2021-01 in fiscal year 2021.  The adoption did not have a material impact on the consolidated financial statements. 

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an “incurred loss” method to “an expected loss” method. In  November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13. This amendment provides clarity and improves the codification to ASU 2016-13. The pronouncements are concurrently effective for fiscal years beginning after  December 15, 2019 and interim periods therein. The Company adopted ASU 2016-13 in fiscal year 2021. The adoption did not have a material impact on the consolidated financial statements.

 

9

 

As a result of the adoption of ASU 2016-13, the Company has updated its critical accounting policy related to trade account receivables and allowances for credit losses as of September 30, 2020 from what was previously disclosed in its audited financial statements for the year ended June 30, 2020 as follows:

 

All trade account receivables are reported net of allowances for expected credit losses. The allowances for expected credit losses represent management’s best estimate of the credit losses expected from our trade account receivables over the life of the underlying assets. Assets with similar risk characteristics are pooled together for determination of their current expected credit losses. The Company regularly performs detailed reviews of its pooled assets to evaluate the collectability of receivables based on a combination of past, current, and future financial and qualitative factors that may affect customers’ ability to pay. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected.

 

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20). The amendments in ASU 2018-14 remove, modify and add various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. This ASU is effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2020 with early adoption permitted. The amendments must be applied on a retrospective basis for all periods presented. The Company is currently evaluating the impacts the adoption of this ASU will have on its Consolidated Financial Statements.

 

 

2)     Acquisitions

 

The Company’s recent acquisitions are strategically significant to the future growth prospects of the Company. At the time of the acquisition and March 31, 2021, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.

 

Renco Electronics

 

During the first quarter of fiscal year 2021, the Company acquired Renco Electronics, a designer and manufacturer of customized standard magnetics components and products including transformers, inductors, chokes and coils for power and RF applications.  Renco’s end markets and customer base in areas such as consumer and industrial applications are highly complementary to our existing business with the potential to further expand key account relationships and capitalize on cross selling opportunities between the two companies.  Renco operates one manufacturing facility in Florida and is supported by contract manufacturers in Asia. Renco’s results are reported within our Electronics segment.

 

The Company paid $27.4 million in cash for all of the issued and outstanding equity interests of Renco Electronics. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary estimate of their fair values on the closing date.  The Company has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible assets based on the preliminary valuation results. Goodwill recorded from this transaction is attributable to Renco’s significant engineering and technical expertise in end markets supported by strong engineer-to-engineer relationships. In addition, Renco’s end markets and customer base in areas such as consumer and industrial are highly complementary to the Company’s existing business.

 

Intangible assets of $10.4 million are preliminarily recorded, consisting primarily of $3.6 million for indefinite lived trademarks, and $6.8 million of customer relationships to be amortized over 12 years. The Company’s assigned fair values are preliminary as of March 31, 2021 until such time as the valuation can be finalized. The goodwill of $14.0 million created by the transaction is deductible for income tax purposes.

 

In connection with the acquisition, the Company entered into two lease arrangements and recorded right-of-use assets and short-term and long-term liabilities at inception. The Company signed a new lease agreement with a related party, an entity in which the Renco Electronics President is a shareholder, on July 15, 2020. The lease is for three years and is subject to renewal, at the Company’s option under similar terms and conditions. The Company recorded a fair value adjustment of $0.1 million in connection with this lease, which is included in other acquired assets in the table below.


At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company recorded right of use assets of $3.3 million, current lease liabilities of $1.8 million and non-current lease liabilities of $1.5 million, related to two operating leases in connection with the acquisition of Renco. Renco does not have material financing leases.

 

10

 

Please refer to Note 4 Fair Value Measurements for further information about the valuation of the $3.0 million contingent consideration liability.

 

The components of the fair value of the Renco Electronics acquisition, including the preliminary allocation of the purchase price at March 31, 2021, are as follows (in thousands):

 

  

Preliminary Allocation September 30, 2020

  

Adjustments

  

Adjusted Preliminary Allocation March 31, 2021

 

Fair value of business combination:

            

Cash payments

 $29,530  $83  $29,613 

Less, cash acquired

  (2,132)  (75)  (2,207)

Fair value of contingent consideration

  3,000   -   3,000 

Total

 $30,398  $8  $30,406 

 

  

Preliminary Allocation September 30, 2020

  

Adjustments

  

Adjusted Preliminary Allocation March 31, 2021

 

Identifiable assets acquired and liabilities assumed:

            

Other acquired assets

 $4,762  $(240) $4,522 

Inventories

  5,446   -   5,446 
Property, plant, & equipment  -   410   410 

Identifiable intangible assets

  10,400   -   10,400 

Goodwill

  14,153   (162)  13,991 
Debt assumed  (712)  -   (712)

Liabilities assumed

  (3,651)  -   (3,651)

Total

 $30,398  $8  $30,406 

 

Acquisition-Related Costs

 

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

 

Contingent consideration payable to the seller of Horizon Scientific is based on continued employment of the seller on the second and third anniversary of the closing date of the acquisition. The Company was contractually obligated to pay contingent consideration payments in connection with the Horizon Scientific acquisition based on the criteria of continued employment of the seller on the second and third anniversary of the closing date of the acquisition. The seller of Horizon remained employed on the second and third anniversaries of the closing date and payments were made to the seller in the second quarters of fiscal year 2019 and 2020. This obligation is considered settled as of  June 30, 2020.

 

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

 

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

 

  

Three Months Ended

  

Nine Months Ended

 
  

March 31,

  

March 31,

 
  

2021

  

2020

  

2021

  

2020

 

Contingent consideration arrangements

 $-  $-  $-  $1,170 

Other acquisition-related costs

  255   120   850   480 

Total

 $255  $120  $850  $1,650 

 

11

 
 

3)     Revenue From Contracts With Customers

 

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

 

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

 

Disaggregation of Revenue from Contracts with Customers

 

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

 

  

Three Months Ended

 

Revenue by Product Line

 

March 31, 2021

  

March 31, 2020

 
         

Electronics

 $65,085  $48,069 
         

Engraving Services

  33,655   31,893 

Engraving Products

  2,371   3,538 

Total Engraving

  36,026   35,431 
         

Scientific

  24,221   14,670 
         

Engineering Technologies

  19,951   26,730 
         

Hydraulics Cylinders and Systems

  13,629   13,549 

Merchandising & Display

  6,276   7,719 

Pumps

  7,028   9,306 

Total Specialty Solutions

  26,933   30,574 
         

Total Revenue by Product Line

 $172,216  $155,474 

 

12

 
 

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

 

  

Nine Months Ended

 

Revenue by Product Line

 

March 31, 2021

  

March 31, 2020

 
         

Electronics

 $180,524  $140,521 
         

Engraving Services

  102,950   103,630 

Engraving Products

  7,427   8,488 

Total Engraving

  110,377   112,118 
         

Scientific

  58,777   44,834 
         

Engineering Technologies

  55,091   77,869 
         

Hydraulics Cylinders and Systems

  36,583   38,613 

Merchandising & Display

  19,515   26,234 

Pumps

  18,930   24,961 

Total Specialty Solutions

  75,028   89,808 
         

Total Revenue by Product Line

 $479,797  $465,150 

 

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

 

 

  

Three Months Ended

  

Three Months Ended

  

Nine Months Ended

  

Nine Months Ended

 

Net sales

 

March 31, 2021

  

March 31, 2020

  

March 31, 2021

  

March 31, 2020

 

United States

 $103,005  $95,643  $286,522  $282,146 

Asia Pacific

  31,715   22,583   89,189   71,495 

EMEA (1)

  34,367   33,781   93,549   100,543 

Other Americas

  3,129   3,467   10,537   10,966 

Total

 $172,216  $<