PART I. FINANCIAL INFORMATION

ITEM 1

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

 

 

See notes to unaudited condensed consolidated financial statements

 

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

 

 

See notes to unaudited condensed consolidated financial statements

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

 

 

See notes to unaudited condensed consolidated financial statements

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Stockholders' Equity 

 

 

See notes to unaudited condensed consolidated financial statements

 

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Stockholders' Equity 

 

 

See notes to unaudited condensed consolidated financial statements

 

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES

 Unaudited Condensed Consolidated Statements of Cash Flows

 

 

See notes to unaudited condensed consolidated financial statements

 

 

STANDEX INTERNATIONAL CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

 

1)     Management Statement

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations for the three and nine months ended March 31, 2024 and 2023, the cash flows for the nine months ended March 31, 2024 and 2023 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at March 31, 2024. The interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 2023. The condensed consolidated balance sheet at June 30, 2023 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, 2023. Unless otherwise noted, references to years are to the Company’s fiscal years. Currently our fiscal year end is June 30.  For further clarity, our fiscal year 2024 includes the twelve-month period from July 1, 2023 to June 30, 2024.

 

The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. Estimates are based on historical experience, actuarial estimates, current conditions and various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources. These estimates assist in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies. Actual results  may differ from these estimates under different assumptions or conditions. The estimates and assumptions used in the preparation of the consolidated financial statements have considered the implications on the Company as a result of ongoing global events and related economic impacts. As a result, there is heightened volatility and uncertainty around supply chain performance, labor availability, and customer demand. However, the magnitude of such impact on the Company’s business and its duration is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of  March 31, 2024 and the issuance date of the Quarterly Report on Form 10-Q.

 

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

 

Research and development expenditures are expensed as incurred. Total research and development costs, which are classified under selling, general, and administrative expenses, were $5.1 million and $4.8 million for the three months ended March 31, 2024 and 2023, respectively. Research and development expenditures were $15.5 million and $12.1 million for the nine months ended  March 31, 2024 and 2023, respectively. 

 

Recently Issued Accounting Pronouncements

 

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

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) ("ASU 2023-07"). This update provides, among other things, enhanced segment disclosure requirements including disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will review the extent of new disclosures necessary in the coming quarters, prior to implementation during fiscal year 2025. Other than additional disclosure, the Company does not expect a change to its condensed consolidated financial statements upon adoption.

 

---

In December 2023, the FASB issued ASU 2023- 09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU is expected to enhance the transparency and decision usefulness of income tax disclosures by requiring public business entities on an annual basis to disclose specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold, and certain information about income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024. The amendments in this ASU are required to be applied on a prospective basis and retrospective adoption is permitted. The Company is currently evaluating the effect of adopting this new accounting guidance, which would be applicable to fiscal year 2026.

 

2)     Acquisitions

 

At the time of the acquisition and March 31, 2024, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.

 

Subsequent to the end of the third quarter of fiscal year 2024, on May 3, 2024, the Company paid approximately $5.7 million for the purchase of all the issued and outstanding equity interests of a distributor of reed relays, a privately held company. Its results will be reporting within the Electronics segment beginning in the fourth quarter of fiscal year 2024.

 

Sanyu

 

On February 19, 2024, the Company completed the purchase of all the issued and outstanding equity interests of Sanyu Switch Co., Ltd (Sanyu), a privately held company for $20.9 million, net of cash acquired. Sanyu designs and manufactures reed relays for test and measurement and other switching applications.  Products include surface mount relays, high current relays, high insulation relays, high density relays for test boards, and RF relays which are used in semi-conductors, other electronics manufacturing and other switching applications. Sanyu's' results are reported within the Company's Electronics segment. The Company paid $22.2 million in cash in the third quarter of fiscal year 2024 and recorded $2.5 million as holdback amounts.  Holdback amounts are used to withhold a portion of the initial purchase price payment until certain post-closing conditions are satisfied and are expected to be settled within 24 months from the date of acquisition.

 

The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Sanyu's technical and applications expertise, which is highly complementary to the Company's existing business.

 

Identifiable intangible assets of $2.6 million consist primarily of $0.7 million for indefinite lived tradenames and $1.9 million of customer relationships to be amortized over 12 years. The goodwill of $6.7 million created by the transaction is not deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. 

 

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

 

 

		Preliminary Allocation March 31, 2024
Total purchase consideration:
Cash payments		$	22,178
Holdbacks			2,464
Less cash acquired			(3,711	)
Total		$	20,931

 

---

		Preliminary Allocation March 31, 2024
Identifiable assets acquired and liabilities assumed:
Other acquired assets		$	9,453
Inventories			5,709
Property, plant, & equipment			4,791
Identifiable intangible assets			2,600
Goodwill			6,696
Liabilities assumed			(8,318	)
Total		$	20,931

 

Minntronix

 

On July 31, 2023, the Company paid $29.2 million in cash for the purchase of all the issued and outstanding equity interests of Minntronix, a privately held company. Minntronix designs and manufactures customized as well as standard magnetics components and products including transformers, inductors, current sensors, coils, chokes, and filters. The products are used in applications across cable fiber, smart meters, industrial control and lighting, electric vehicles, and home security markets. Minntronix' results are reported within the Company's Electronics segment.

 

The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Minntronix's technical and applications expertise, which is highly complementary to the Company's existing business.

 

Identifiable intangible assets of $10.7 million consist primarily of $3.2 million for indefinite lived tradenames and $7.5 million of customer relationships to be amortized over 15 years. The goodwill of $13.9 million created by the transaction is not deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. 

 

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

 

		Preliminary Allocation March 31, 2024
Fair value of business combination:
Cash payments		$	33,890
Less, cash acquired			(4,661	)
Total		$	29,229

 

		Preliminary Allocation March 31, 2024
Identifiable assets acquired and liabilities assumed:
Other acquired assets		$	8,282
Customer backlog			1,120
Inventories			1,780
Property, plant, & equipment			1,039
Identifiable intangible assets			10,700
Goodwill			13,889
Liabilities assumed			(7,581	)
Total		$	29,229

 

---

Acquisition Related Costs

 

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

 

Acquisition related costs for the three months ended March 31, 2024 and 2023 were $0.5 million and less than $0.1 million, respectively. Acquisition related costs for the nine months ended March 31, 2024 and 2023 were $2.2 million and $0.5 million, respectively.

 

3)     Revenue From Contracts With Customers

 

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

 

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

 

Disaggregation of Revenue from Contracts with Customers

 

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

 

		Three Months Ended
Revenue by Product Line		March 31, 2024				March 31, 2023
Electronics		$	80,431			$	78,211
Engraving Services			33,011				35,454
Engraving Products			3,286				1,455
Total Engraving			36,297				36,909
Scientific			16,925				18,898
Engineering Technologies			20,098				18,052
Hydraulics Cylinders and Systems			14,800				13,548
Merchandising & Display			8,716				13,203
Pumps			-				5,511
Total Specialty Solutions			23,516				32,262
Total revenue by product line		$	177,267			$	184,332

 

---

		Nine Months Ended
Revenue by Product Line		March 31, 2024				March 31, 2023
Electronics		$	241,538			$	225,966
Engraving Services			110,214				105,259
Engraving Products			7,722				4,363
Total Engraving			117,936				109,622
Scientific			51,410				56,646
Engineering Technologies			58,205				59,244
Hydraulics Cylinders and Systems			41,410				47,823
Merchandising & Display			29,942				32,160
Pumps			-				21,260
Total Specialty Solutions			71,352				101,243
Total revenue by product line		$	540,441			$	552,721

 

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, 2024				March 31, 2023				March 31, 2024				March 31, 2023
United States		$	107,805			$	112,002			$	332,473			$	338,464
Asia Pacific			32,139				29,204				96,290				95,858
EMEA (1)			34,438				38,953				100,538				106,279
Other Americas			2,885				4,173				11,140				12,120
Total		$	177,267			$	184,332			$	540,441			$	552,721

 

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

 

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

 

		Three Months Ended
Timing of Revenue Recognition		March 31, 2024				March 31, 2023
Products and services transferred at a point in time		$	157,866			$	169,669
Products transferred over time			19,401				14,663
Net sales		$	177,267			$	184,332

 

		Nine Months Ended
Timing of Revenue Recognition		March 31, 2024				March 31, 2023
Products and services transferred at a point in time		$	485,295			$	501,090
Products transferred over time			55,146				51,631
Net sales		$	540,441			$	552,721

 

---

Contract Balances

 

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

 

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

 

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

 

		Balance at Beginning of Period				Additions				Deductions				Balance at End of Period
Nine months ended March 31, 2024
Contract assets:
Prepaid expenses and other current assets		$	31,138			$	53,394			$	45,274			$	39,258

 

		Balance at Beginning of Period				Additions				Deductions				Balance at End of Period
Nine months ended March 31, 2023
Contract assets:
Prepaid expenses and other current assets		$	24,679			$	49,682			$	43,820			$	30,541
Contract liabilities:
Customer deposits			41				13,015				12,750				306

 

We recognized the following revenue which was included in the contract liability beginning balances (in thousands):

 

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

 

		March 31, 2023				March 31, 2023
Revenue recognized in the period from:		Three months ended				Six months ended
Amounts included in the contract liability balance at the beginning of the period		$	38			$	41

 

4)      Fair Value Measurements

 

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

 

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

 

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

 

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

 

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

 

There were no transfers of assets or liabilities between any levels of the fair value measurement hierarchy at March 31, 2024 and June 30, 2023. The Company’s policy is to recognize transfers between levels as of the date they occur.

 

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

 

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

 

		March 31, 2024
		Total				Level 1				Level 2				Level 3
Assets
Marketable securities - deferred compensation plan		$	4,808			$	4,808			$	-			$	-
Interest rate swaps			6,011				-				6,011				-
Debt securities			2,700				-				-				2,700
Equity securities			2,025				-				-				2,025

 

		June 30, 2023
		Total				Level 1				Level 2				Level 3
Assets
Marketable securities - deferred compensation plan		$	3,720			$	3,720			$	-			$	-
Interest rate swaps			10,235				-				10,235				-
Debt securities			2,729				-				-				2,729
Equity securities			2,046				-				-				2,046
Liabilities
Foreign exchange contracts		$	1,722			$	-			$	1,722			$	-

 

---

The Company is contractually obligated to pay contingent consideration to the sellers of GS Engineering in the event that certain revenue and gross margin targets are achieved during the five years following acquisition. The targets set in the GS Engineering stock purchase agreement were not met for the first, second, third or fourth year, which concluded in the fourth quarter of fiscal years 2020, 2021, 2022 and 2023, respectively. As of March 31, 2024, the Company could be required to pay up to $12.8 million for contingent consideration arrangements if the revenue and gross margin targets are met in fiscal year 2024.

 

The Company has determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future payments was based on several factors, the most significant of which are the financial performance of the acquired businesses and the risk-adjusted discount rate for the fair value measurement.

 

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

 

The Company invested $2.0 million for equity securities of a company whose securities are not publicly traded and where fair value is not readily available. This was recorded as an investment within other non-current assets in the consolidated balance sheets to reflect the initial fair value of the stock acquired. These investments are recorded using either the equity method of accounting or the cost minus impairment adjusted for observable price changes, depending on ownership percentage and other factors that suggest significant influence. The Company concluded it does not have a significant ownership percentage or influence. The Company monitors this investment to evaluate whether any increase or decline in the value has occurred, based on the implied value of recent company financings, public market prices of comparable companies and general market conditions.

 

In the third quarter of fiscal year 2023, the Company also purchased $2.7 million of debt securities from the same privately held company. The available for sale asset was recorded as a current asset in the prepaid expenses and other current assets line of the consolidated balance sheet to reflect the initial fair value of the instrument acquired. This asset was originally due to mature one year from the date of issuance. In the third quarter of fiscal year 2024, the maturity was extended to the end of the fiscal year 2024. Available-for-sale debt securities are recorded at fair market value and unrealized gains and losses are included in accumulated other comprehensive income (loss) in equity, net of related tax effects. Realized gains and losses are reported in other non-operating (income) expense, net.

 

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

 

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

 

5)     Inventories

 

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

 

		March 31, 2024				June 30, 2023
Raw materials		$	49,540			$	45,268
Work in process			18,067				20,389
Finished goods			27,563				32,880
Total		$	95,170			$	98,537

 

 

Distribution costs associated with the sale of inventory, which are recorded as a component of selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations were $2.6 million and $3.2 million for the three months ended  March 31, 2024 and 2023, respectively. Distribution costs were $8.6 million and $9.2 million for the nine months ended  March 31, 2024 and 2023, respectively.

 

6)     Goodwill

 

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

 

		June 30, 2023				Acquisitions				Translation Adjustment				March 31, 2024
Electronics		$	133,432			$	20,585			$	(3,260	)		$	150,757
Engraving			76,583				-				(95	)			76,488
Scientific			15,454				-				-				15,454
Engineering Technologies			36,293				-				(51	)			36,242
Specialty Solutions			3,059				-				-				3,059
Total		$	264,821			$	20,585			$	(3,406	)		$	282,000

 

 

7)     Warranty Reserves

 

		March 31, 2024				June 30, 2023
Balance at beginning of year		$	2,094			$	1,918
Acquisitions and other charges			146				-
Warranty expense			1,223				1,939
Warranty claims			(1,064	)			(1,763	)
Balance at end of period		$	2,399			$	2,094

 

 

8)     Debt

 

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

 

		March 31, 2024				June 30, 2023
Bank credit agreements		$	150,000			$	175,000
Total funded debt			150,000				175,000
Issuance cost			(1,232	)			(1,559	)
Total long-term debt		$	148,768			$	173,441

 

 

---

Bank Credit Agreements

 

During the third quarter of fiscal year 2023, the Company entered into a Third Amended & Restated Credit Agreement which renewed the existing Credit Agreement for an additional five-year period (“Credit Facility”, or “facility”). The facility has a borrowing limit of $500 million, which can be increased by an amount of up to $250 million, in accordance with specified conditions contained in the agreement. The facility also includes a $10 million sublimit for swing line loans and a $35 million sublimit for letters of credit.

 

At March 31, 2024, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $2.7 million and had the ability to borrow $347.3 million under the facility. Funds borrowed under the facility  may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes.  The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants which the Company was compliant with as of  March 31, 2024.  At March 31, 2024, the carrying value of the current borrowings approximates fair value.

 

9)       Accrued Liabilities

 

Accrued liabilities consist of the following (in thousands):

 

		March 31, 2024				June 30, 2023
Payroll and employee benefits		$	23,563			$	30,778
Operating lease current liability			7,946				8,036
Warranty reserves			2,399				2,094
Restructuring costs			2,191				1,296
Workers' compensation			1,144				1,516
Fair value of derivatives			-				1,722
Other			18,204				16,589
Total		$	55,447			$	62,031

 

10)      Derivative Financial Instruments

 

The Company is exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency rates. The Company selectively uses derivative financial instruments in order to manage certain of these risks. Information about the Company’s derivative financial instruments is as follows:

 

Interest Rate Swaps

 

From time to time as dictated by market opportunities, the Company enters into interest rate swap agreements designed to manage exposure to interest rates on the Company’s variable rate indebtedness. The Company recognizes all derivatives on its balance sheet at fair value. The Company has designated its interest rate swap agreements, including those that may be forward-dated, as cash flow hedges, and changes in the fair value of the swaps are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swaps will be reported by the Company in interest expense.

 

The Company’s effective swap agreements convert the base borrowing rate on $150 million of debt due under our revolving credit agreement from a variable rate equal to 1 month Secured Overnight Financing Rate (SOFR) to a weighted average fixed rate of 0.85% at March 31, 2024. The fair value of the swaps, recognized in other comprehensive income, is as follows (in thousands, except percentages):

 

Effective Date		Notional Amount			Fixed Interest Rate												Maturity		March 31, 2024			June 30, 2023
February 6, 2023			25,000									2.80	%				August 6, 2023		$	-		$	59
February 23, 2023			100,000									0.86	%				March 23, 2025			3,941			6,716
May 24, 2023			25,000									0.81	%				April 24, 2025			1,081			1,777
February 24, 2023			25,000									0.86	%				March 24, 2025			989			1,683
																			$	6,011		$	10,235

 

---

The Company reported no losses for the three and nine months ended March 31, 2024, as a result of hedge ineffectiveness. Future changes in these swap arrangements, including termination of the agreements, may result in a reclassification of any gain or loss reported in accumulated other comprehensive income (loss) into earnings as an adjustment to interest expense. Accumulated other comprehensive income (loss) related to these instruments is being amortized into interest expense concurrent with the hedged exposure.

 

Foreign Exchange Contracts

 

Forward foreign currency exchange contracts are used to limit the impact of currency fluctuations on certain anticipated foreign cash flows, such as collections from customers and loan payments between subsidiaries. The Company enters into such contracts for hedging purposes only. The Company has designated certain of these currency contracts as hedges, and changes in the fair value of these contracts are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with these contracts will be reported in net income. At March 31, 2024 and June 30, 2023, the Company had outstanding forward contracts related to hedges of intercompany loans with net unrealized losses of less than $0.1 million and net unrealized losses of $1.7 million, respectively, which approximate the unrealized gains and losses on the related loans. The contracts have maturity dates through fiscal year 2024, which correspond to the related intercompany loans.

 

The notional amounts of the Company’s forward contracts, by currency, are as follows (in thousands):

 

Currency		March 31, 2024			June 30, 2023
CAD		6,079			16,600
JPY					2,100,000

 

 

	Asset Derivatives
	March 31, 2024					June 30, 2023
Derivative designated	Balance Sheet					Balance Sheet
as hedging instruments	Line Item			Fair Value		Line Item			Fair Value
Interest rate swaps	Prepaid expenses and other current assets		$	6,011		Prepaid expenses and other current assets		$	10,235
			$	6,011				$	10,235

 

	Liability Derivatives
	March 31, 2024					June 30, 2023
Derivative designated	Balance Sheet					Balance Sheet
as hedging instruments	Line Item			Fair Value		Line Item			Fair Value
Foreign exchange contracts	Accrued liabilities		$	-		Accrued liabilities		$	315
			$	-				$	315

 

---

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

 

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2024				2023				2024				2023
Interest rate swaps		$	1,036			$	(586	)		$	761			$	4,174
Foreign exchange contracts			-				18				315				(945	)
		$	1,036			$	(568	)		$	1,076			$	3,229

 

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		Three Months Ended								Nine Months Ended							in the Unaudited
Income (Loss) Components		March 31,								March 31,							Condensed Statements
		2024				2023				2024				2023			of Operations
Interest rate swaps		$	(1,703	)		$	(1,449	)		$	(5,136	)		$	(3,008	)	Interest expense
Foreign exchange contracts			-				(26	)			(215	)			1,069		Other non-operating (income) expense, net
		$	(1,703	)		$	(1,475	)		$	(5,351	)		$	(1,939	)

 

11)     Retirement Benefits

 

The Company has defined benefit pension plans covering certain current and former employees both inside and outside of the U.S. The Company’s pension plan for U.S. employees is frozen for substantially all participants and has been replaced with a defined contribution benefit plan. Obligations under the unfunded defined benefit plan operated by the Sanyu business in Japan have been transferred to the Company as of the date of acquisition in the third quarter of fiscal year 2024.

 

Net periodic benefit cost for the Company’s U.S. and Foreign pension benefit plans for the periods ended consisted of the following components (in thousands):

 

		U.S. Plans								Non-U.S. Plans
		Three Months Ended								Three Months Ended
		March 31,								March 31,
		2024				2023				2024				2023
Service cost		$	-			$	-			$	41			$	44
Interest cost			2,472				2,397				296				249
Expected return on plan assets			(2,776	)			(2,993	)			(350	)			(218	)
Recognized net actuarial loss			950				953				(152	)			(13	)
Amortization of prior service cost			-				-				(1	)			(1	)
Net periodic (benefit) cost		$	646			$	357			$	(166	)		$	61

 

		U.S. Plans								Non-U.S. Plans
		Nine Months Ended								Nine Months Ended
		March 31,								March 31,
		2024				2023				2024				2023
Service cost		$	-			$	-			$	122			$	131
Interest cost			7,418				7,190				885				774
Expected return on plan assets			(8,334	)			(8,980	)			(1,049	)			(710	)
Recognized net actuarial loss			2,852				2,860				(454	)			(44	)
Amortization of prior service cost			-				-				(3	)			(3	)
Net periodic (benefit) cost		$	1,936			$	1,070			$	(499	)		$	148

 

---

The following table sets forth the amounts recognized for the Company's defined benefit pension plans (in thousands):

 

Amounts recognized in the consolidated balance sheets consist of:		March 31, 2024				June 30, 2023
Prepaid benefit cost		$	3,095			$	2,807
Current liabilities			(526	)			(425	)
Non-current liabilities			(40,378	)			(48,154	)
Net amount recognized		$	(37,809	)		$	(45,772	)

 

The contributions made to defined benefit plans are presented below along with remaining contributions to be made for fiscal year 2024 (in thousands):

 

		Fiscal Year 2024								Fiscal Year 2023								Remaining
		Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended				Contributions
Contributions to defined benefit plans		March 31, 2024				March 31, 2024				March 31, 2023				March 31, 2023				FY 2024
United States, funded plan		$	6,921			$	8,363			$	-			$	-			$	1,442
United States, unfunded plan			44				143				49				151				42
United Kingdom			-				-				-				-				-
Germany, unfunded plan			-				-				-				-				256
		$	6,965			$	8,506			$	49			$	151			$	1,740

  

12)     Income Taxes

13)     Earnings Per Share

 

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

 

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

 

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2024				2023				2024				2023
Basic - Average shares outstanding			11,772				11,811				11,764				11,825
Dilutive effect of unvested, restricted stock awards			77				84				112				92
Diluted - Average shares outstanding			11,849				11,895				11,876				11,917

 

Earnings available to common stockholders are the same for computing both basic and diluted earnings per share. There were no outstanding instruments that had an anti-dilutive effect at March 31, 2024 or 2023.

 

Performance stock units of 87,956 and 132,217 for the nine months ended  March 31, 2024 and 2023, respectively, are excluded from the diluted earnings per share calculation as the performance criteria have not been met.

 

14)     Accumulated Other Comprehensive Income (Loss)

 

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

 

		March 31, 2024				June 30, 2023
Foreign currency translation adjustment		$	(82,535	)		$	(74,373	)
Unrealized pension losses, net of tax			(90,956	)			(92,761	)
Unrealized gains (losses) on derivative instruments, net of tax			5,486				8,657
Total		$	(168,005	)		$	(158,477	)

   

15)     Contingencies

 

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

 

16)     Industry Segment Information

 

The Company has five reportable segments organized around the types of products sold:

 

	•	Electronics – manufactures and sells electronic components for applications throughout the end user market spectrum;
	•	Engraving – provides mold texturizing, slush molding tools, project management and design services, roll engraving, hygiene product tooling, low observation vents for stealth aircraft, and process machinery for a number of industries;
	•	Scientific – sells specialty temperature-controlled equipment for the medical, scientific, pharmaceutical, biotech and industrial markets;
	•	Engineering Technologies – provides net and near net formed single-source customized solutions in the manufacture of engineered components for the aviation, aerospace, defense, energy, industrial, medical, marine, oil and gas, and manned and unmanned space markets;
	•	Specialty Solutions – an aggregation of two operating segments that manufacture and sell refrigerated, heated and dry merchandizing display cases and single and double acting telescopic and piston rod hydraulic cylinders.

 

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

 

		Three Months Ended March 31,
		Net Sales								Income from Operations
		2024				2023				2024				2023
Industry segment:
Electronics		$	80,431			$	78,211			$	15,700			$	17,047
Engraving			36,297				36,909				6,260				5,353
Scientific			16,925				18,898				4,896				4,561
Engineering Technologies			20,098				18,052				3,524				2,351
Specialty Solutions			23,516				32,262				4,668				7,151
Corporate			-				-				(8,522	)			(8,520	)
Restructuring costs			-				-				(4,037	)			(2,237	)
Gain on sale of business			-				-				-				62,105
Acquisition related costs			-				-				(537	)			(21	)
Other operating income (expense), net			-				-				(110	)			727
Sub-total		$	177,267			$	184,332			$	21,842			$	88,517
Interest expense											949				1,415
Other non-operating (income) expense											627				747
Income from continuing operations before income taxes										$	20,266			$	86,355

 

---

		Nine Months Ended March 31,
		Net Sales								Income from Operations
		2024				2023				2024				2023
Industry segment:
Electronics		$	241,538			$	225,966			$	47,884			$	52,160
Engraving			117,936				109,622				22,765				17,580
Scientific			51,410				56,646				14,074				12,449
Engineering Technologies			58,205				59,244				9,946				7,957
Specialty Solutions			71,352				101,243				14,250				18,944
Corporate			-				-				(24,956	)			(25,376	)
Restructuring costs			-				-				(7,303	)			(3,330	)
Gain on sale of business			-				-				274				62,105
Acquisition related costs			-				-				(2,233	)			(487	)
Other operating income (expense), net			-				-				(110	)			611
Sub-total		$	540,441			$	552,721			$	74,591			$	142,613
Interest expense											3,244				4,168
Other non-operating (income) expense											1,805				1,695
Income from continuing operations before income taxes										$	69,542			$	136,750

 

 

Net sales include only transactions with unaffiliated customers and include no intersegment sales. Income (loss) from operations by segment excludes interest expense and other non-operating (income) expense.

 

17)      Restructuring

 

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

 

2024 Restructuring Initiatives

 

The Company continues to focus its efforts to reduce cost and improve productivity across its businesses. Restructuring expenses primarily related to facility rationalizations, headcount reductions and other cost saving initiatives. The Company expects the 2024 restructuring activities to be completed by fiscal year 2025. 

 

Prior Year Restructuring Initiatives 

 

Restructuring expenses primarily related to headcount reductions and facility rationalization within our Engraving and Electronics segments. The Company also incurred restructuring expenses related to third party assistance with analysis and implementation of these activities. The Company expects the prior year restructuring activities to be completed by fiscal year 2024.

  

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

 

		Three Months Ended												Nine Months Ended
		March 31, 2024												March 31, 2024
Fiscal Year 2024		Involuntary Employee Severance and Benefit Costs				Other				Total				Involuntary Employee Severance and Benefit Costs				Other				Total
Current year initiatives		$	1,885			$	2,060			$	3,945			$	3,671			$	3,312			$	6,983
Prior year initiatives			7				85				92				189				131				320
		$	1,892			$	2,145			$	4,037			$	3,860			$	3,443			$	7,303

 

 

---

		Three Months Ended												Nine Months Ended
		March 31, 2023												March 31, 2023
Fiscal Year 2023		Involuntary Employee Severance and Benefit Costs				Other				Total				Involuntary Employee Severance and Benefit Costs				Other				Total
Current year initiatives		$	1,460			$	68			$	1,528			$	1,671			$	185			$	1,856
Prior year initiatives			87				622				709				412				1,062				1,474
		$	1,547			$	690			$	2,237			$	2,083			$	1,247			$	3,330

 

 

Activity in the reserve related to the initiatives is as follows (in thousands):

 

Current Year Initiatives		Involuntary Employee Severance and Benefit Costs				Other				Total
Restructuring liabilities at June 30, 2023		$	-			$	-			$	-
Additions and adjustments			3,671				3,312				6,983
Payments			(1,884	)			(3,136	)			(5,020	)
Restructuring liabilities at March 31, 2024		$	1,787			$	176			$	1,963

 

 

Prior Year Initiatives		Involuntary Employee Severance and Benefit Costs				Other				Total
Restructuring liabilities at June 30, 2023		$	1,104			$	192			$	1,296
Additions and adjustments			189				131				320
Payments			(1,065	)			(323	)			(1,388	)
Restructuring liabilities at March 31, 2024		$	228			$	-			$	228

 

 

Prior Year		Involuntary Employee Severance and Benefit Costs				Other				Total
Restructuring liabilities at June 30, 2022		$	1,045			$	695			$	1,740
Additions and adjustments			2,083				1,247				3,330
Payments			(1,549	)			(1,652	)			(3,201	)
Restructuring liabilities at March 31, 2023		$	1,579			$	290			$	1,869

 

 

 

---

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

 

 

		Three Months Ended												Nine Months Ended
		March 31, 2024												March 31, 2024
		Involuntary Employee Severance and Benefit Costs				Other				Total				Involuntary Employee Severance and Benefit Costs				Other				Total
Electronics		$	84			$	5			$	89			$	675			$	444			$	1,119
Engraving			1,048				2,140				3,188				1,884				2,999				4,883
Engineering Technologies			-				-				-				55				-				55
Corporate			760				-				760				1,246				-				1,246
		$	1,892			$	2,145			$	4,037			$	3,860			$	3,443			$	7,303

 

		Three Months Ended												Nine Months Ended
		March 31, 2023												March 31, 2023
		Involuntary Employee Severance and Benefit Costs				Other				Total				Involuntary Employee Severance and Benefit Costs				Other				Total
Electronics		$	58			$	545			$	603			$	214			$	885			$	1,099
Engraving			157				145				302				537				362				899
Corporate			1,332				-				1,332				1,332				-				1,332
		$	1,547			$	690			$	2,237			$	2,083			$	1,247			$	3,330

 

Restructuring expense is expected to be approximately $0.4 million for the remainder of fiscal year 2024.

 

18)      Divestitures

 

On  February 28, 2023, the Company divested its Procon pumps business (“Procon”) to Investindustrial, a leading European investment and advisory group. Procon generated approximately $21.2 million in revenue in the first eight months of fiscal year 2023. Procon which is reported within the Specialty Solutions Group, was divested in order to focus on the continued simplification of the Company’s portfolio and enable greater focus on managing larger platforms and pursuing growth opportunities.

 

The Company received $67.0 million cash consideration at closing, which is presented as an investing cash flow in fiscal year 2023. Cash consideration received at closing excludes amounts held in escrow and is net of closing cash. The Company recorded a pre-tax gain on sale of the business of $62.1 million in fiscal year 2023. The operating unit's goodwill balance of $0.2 million was written off as a part of the transaction in fiscal year 2023. The sale transaction and financial results of Procon are classified as continuing operations in the Consolidated Financial Statements. 

 

During the first quarter of fiscal year 2024, the Company recorded an additional $0.3 million gain on the sale of the business due to cash received in the period related to closing cash adjustments. During the third quarter of fiscal year 2024, the company received $7.5 million of cash held in escrow, which is presented as an investing cash flow in fiscal year 2024.

 

---

ITEM 2.

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

 

Statements contained in this Quarterly Report that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the Company’s business and the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated. These factors include, but are not limited to: the impact of pandemics and other global crises or catastrophic events on employees, our supply chain, and the demand for our products and services around the world; materially adverse or unanticipated legal judgments, fines, penalties or settlements; conditions in the financial and banking markets, including fluctuations in exchange rates and the inability to repatriate foreign cash; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the automotive, construction, aerospace, defense, transportation, food service equipment, consumer appliance, energy, oil and gas and general industrial markets; lower-cost competition; the relative mix of products which impact margins and operating efficiencies in certain of our businesses; the impact of higher raw material and component costs, particularly steel, certain materials used in electronics parts, petroleum based products, and refrigeration components; the impact of higher transportation and logistics costs, especially with respect to transportation of goods from Asia; the impact of inflation on the costs of providing our products and services; an inability to realize the expected cost savings from restructuring activities including effective completion of plant consolidations, cost reduction efforts including procurement savings and productivity enhancements, capital management improvements, strategic capital expenditures, and the implementation of lean enterprise manufacturing techniques; the potential for losses associated with the exit from or divestiture of businesses that are no longer strategic or no longer meet our growth and return expectations; the inability to achieve the savings expected from global sourcing of raw materials and diversification efforts in emerging markets; the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs; the inability to attain expected benefits from acquisitions and the inability to effectively consummate and integrate such acquisitions and achieve synergies envisioned by the Company; market acceptance of our products; our ability to design, introduce and sell new products and related product components; the ability to redesign certain of our products to continue meeting evolving regulatory requirements; the impact of delays initiated by our customers; our ability to increase manufacturing production to meet demand including as a result of labor shortages; the impact on our operations of any successful cybersecurity attacks; and potential changes to future pension funding requirements. In addition, any forward-looking statements represent management's estimates only as of the day made and should not be relied upon as representing management's estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management's estimates change. Factors that may affect our operating results are described in the Risk Factors section in the Annual Reports we file with the SEC. Please refer to our most recent discussion of risk factors included in the fiscal year 2023 10-K filed with the SEC on August 5, 2023.

 

Overview

 

We are a diversified industrial manufacturer with leading positions in a variety of products and services that are used in diverse commercial and industrial markets. Headquartered in Salem, New Hampshire, we have six operating segments aggregated into five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. Two operating segments are aggregated into Specialty Solutions. Our businesses work in close partnership with our customers to deliver custom solutions or engineered components that solve their unique and specific needs, an approach we call "Customer Intimacy". 

 

Our long-term business strategy is to create, improve, and enhance shareholder value by building more profitable, focused industrial platforms through our Standex Value Creation System. This methodology employs four components: Balanced Performance Plan, Growth Disciplines, Operational Excellence, and Talent Management and provides both a company-wide framework and tools used to achieve our goals. We intend to continue investing organically and inorganically in high margin and growth businesses using this balanced and proven approach. 

 

It is our objective to grow larger and more profitable business units through a commitment to both organic and inorganic initiatives. We have a particular focus on identifying and investing in businesses, new products and new applications that complement our existing products and will increase our overall scale, global presence and capabilities. We continue to execute on acquisitions where strategically aligned with our businesses and where the opportunity meets our investment metrics. We have divested, and likely will continue to divest, businesses that we feel are not strategic or do not meet our growth and return expectations.

 

As part of our ongoing strategy:

 

•

On February 19, 2024, we acquired, through our subsidiary Standex Electronics Japan Corporation, privately-held, Japanese-based Sanyu Switch Co., Ltd (Sanyu). Sanyu designs and manufactures reed relays, test sockets, testing systems for semiconductor and other electronics manufacturing, and other switching applications. Its results are reported in the Electronics segment.

 

•

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

 

•

In the third quarter of fiscal year 2023, we divested our Procon business for $75 million. This transaction reflects the continued simplification of our portfolio and enables greater focus on managing our larger platforms and pursuing growth opportunities. Proceeds were deployed towards organic and inorganic initiatives and returning capital to shareholders. Its results were reported within our Specialty Solutions segment.

 

As a result of our portfolio moves over the past several years, we have transformed Standex to a company with a more focused group of businesses selling customized solutions to high value end markets via a compelling customer value proposition.  The narrowing of the portfolio allows for greater management focus on driving operational disciplines and positions us well to use our cash flow from operations to invest selectively in our ongoing pipeline of organic and inorganic opportunities.

 

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

 

Restructuring expenses reflect costs associated with our efforts of continuously improving operational efficiency and expanding globally in order to remain competitive in our end user markets. We incur costs for actions to size our businesses to a level appropriate for current economic conditions, improve our cost structure, enhance our competitive position and increase operating margins. Such expenses include costs for moving facilities to locations that allow for lower fixed and variable costs, external consultants who provide additional expertise starting up plants after relocation, downsizing operations because of changing economic conditions, and other costs resulting from asset redeployment decisions. Shutdown costs include severance, benefits, stay bonuses, lease and contract terminations, asset write-downs, costs of moving fixed assets, and moving and relocation costs. Vacant facility costs include maintenance, utilities, property taxes and other costs.

 

Because of the diversity of the Company’s businesses, end user markets and geographic locations, management does not use specific external indices to predict the future performance of the Company, other than general information about broad macroeconomic trends.  Each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to its business and which could impact its performance. Those units report pertinent information to senior management, which uses it to the extent relevant to assess the future performance of the Company. A description of any such material trends is described below in the applicable segment analysis.

 

We monitor a number of key performance indicators (“KPIs”) including net sales, income from operations, backlog, effective income tax rate, gross profit margin, and operating cash flow. A discussion of these KPIs is included below. We may also supplement the discussion of these KPIs by identifying the impact of foreign exchange rates, acquisitions, and other significant items when they have a material impact on a specific KPI. 

 

We believe the discussion of these items provides enhanced information to investors by disclosing their impact on the overall trend which provides a clearer comparative view of the KPI, as applicable.  For discussion of the impact of foreign exchange rates on KPIs, we calculate the impact as the difference between the current period KPI calculated at the current period exchange rate as compared to the KPI calculated at the historical exchange rate for the prior period.  For discussion of the impact of acquisitions, we isolate the effect on the KPI amount that would have existed regardless of such acquisition.  Sales resulting from synergies between the acquisition and existing operations of the Company are considered organic growth for the purposes of our discussion.

 

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

 

Results from Continuing Operations

 

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
(In thousands, except percentages)		2024				2023				2024				2023
Net sales		$	177,267			$	184,332			$	540,441			$	552,721
Gross profit margin			38.5	%			38.5	%			39.3	%			38.3	%
Income from operations			21,842				88,517				74,591				142,613

 

		Three Months Ended				Nine Months Ended
(In thousands)		March 31, 2024				March 31, 2024
Net sales, prior year period		$	184,332			$	552,721
Components of change in sales:
Organic sales change			(10,528	)			(20,070	)
Effect of acquisitions			10,563				28,751
Effect of business divestitures			(5,511	)			(21,259	)
Effect of exchange rates			(1,589	)			298
Net sales, current period		$	177,267			$	540,441

 

Net sales decreased in the third quarter of fiscal year 2024 by $7.1 million or 3.8%, when compared to the prior year quarter. Organic sales decreased $10.5 million, or 5.7%, due to transitory headwinds in several of our end markets, primarily from lower demand in our Electronics and Scientific segments, partially offset by project timing in our Engineering Technologies group and growth in the Hydraulics business.  Organic sales included $25.5 million in the period attributed to fast growth markets. Foreign currency negatively impacted sales by $1.6 million, or 0.8%. The acquisitions of Minntronix and Sanyu positively impacted sales by $10.6 million, or 5.7%, partially offset by the impact on sales associated with the divestiture of Procon of $5.5 million, or 3.0%. 

 

Net sales decreased in the nine months ended March 31, 2024 by $12.3 million or 2.2%, when compared to the prior year period. Organic sales decreased $20.1 million, or 3.6%, due to transitory headwinds in several of our end markets, primarily from lower demand in our Electronics, Specialty and Scientific segments and project timing in our Engineering Technologies group, partially offset by strong demand in the Engraving segment and pricing actions in the Engineering Technologies group. Organic sales included $66.4 million in the period attributed to fast growth markets. Foreign currency positively impacted sales by $0.3 million. The acquisitions of Minntronix and Sanyu positively impacted sales by $28.8 million, or 5.2%, offset by the impact on sales associated with the divestiture of Procon of $21.3 million, or 3.8%. 

 

Gross Profit Margin

 

Gross profit in the third quarter of fiscal year 2024 decreased to $68.3 million, or a gross margin of 38.5% as compared to $70.9 million, or a gross margin of 38.5%, in the third quarter of fiscal year 2023. Gross profit margin remained flat as productivity initiatives and contribution from the Minntronix acquisition were offset by the organic sales decreases and the impact of the divestiture of the Procon business. 

 

Gross profit in the nine months ended March 31, 2024 increased to $212.6 million, or a gross margin of 39.3% as compared to $211.5 million, or a gross margin of 38.3%, in the prior year period. The gross profit margin increase was a result of pricing actions, productivity initiatives and contribution from the Minntronix acquisition, partially offset by the divestiture of the Procon business and organic sales decreases.  

 

Selling, General, and Administrative Expenses

 

Selling, General, and Administrative (“SG&A”) expenses for the third quarter of fiscal year 2024 were $41.8 million, or 23.6% of sales, compared to $43.0 million, or 23.3% of sales, during the prior year quarter. SG&A expenses during the quarter were primarily impacted by a reduction in selling and marketing expenses partially offset by a one-time stock-based compensation charge and increased research and development spending to drive future product initiatives.

 

Selling, General, and Administrative (“SG&A”) expenses for the nine months ended March 31, 2024 were $128.6 million, or 23.8% of sales, compared to $127.8 million, or 23.1% of sales, during the prior year period. SG&A expenses during the period were primarily impacted by a one-time stock-based compensation charge in the third quarter of the fiscal year 2024 and increased research and development spending and partially offset by a reduction in selling and marketing expenses. 

 

Restructuring Costs

 

We incurred restructuring expenses of $4.0 million and $7.3 million in the third quarter of fiscal year 2024 and the nine months ended March 31, 2024, respectively, primarily related to facility closures and global headcount reductions within our Engraving, Electronics and Engineering Technologies segments as well as the Corporate headquarters. 

 

We expect to incur restructuring costs of approximately $0.4 million throughout the remainder of fiscal year 2024, as we continue to focus our efforts to reduce cost and improve productivity across our businesses.

 

Acquisition Related Costs

 

We incurred acquisition related expenses of $0.5 million and $2.2 million in the third quarter of fiscal year 2024 and the nine months ended March 31, 2024, respectively. Acquisition related expenses typically consist of due diligence, integration, and valuation expenses incurred in connection with recent or pending acquisitions.

 

Gain on Sale of Business

 

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

 

Income from Operations

 

Income from operations for the third quarter of fiscal year 2024 was $21.8 million, compared to $88.5 million during the prior year quarter. The decrease of $66.7 million, or 75.3%, is primarily due to the gain on the divestiture of Procon in the third quarter of fiscal year 2023, organic sales decreases and increased investment in research and development spending, restructuring and acquisition related costs.  The decreases are partially offset by cost reduction activities and productivity improvement initiatives. 

 

Income from operations for the nine months ended March 31, 2024 was $74.6 million, compared to $142.6 million during the prior year period. The decrease of $68.0 million, or 47.7%, is primarily due to the gain on the divestiture of Procon in the third quarter of the fiscal year 2023, organic sales decreases and increased investment in research and development spending, restructuring and acquisition related costs.  The decreases are partially offset by cost reduction activities and productivity improvement initiatives. 

 

Interest Expense

 

Interest expense for the third quarter of fiscal year 2024 was $0.9 million, a 32.9% decrease from interest expense of $1.4 million during the prior year quarter. Interest expense for the nine months ended March 31, 2024 was $3.2 million, a 22.2% decrease from interest expense of $4.2 million during the prior year period. Our effective interest rate for the nine months ended March 31, 2024 was 2.45%.

 

Income Taxes

 

The Company's effective tax rate from continuing operations for the third quarter of fiscal year 2024 and for the nine months ended March 31, 2024 was 21.4% and 22.5%, respectively compared with 6.7% and 13.0% for the prior year quarter and prior year period, respectively. The tax rate was impacted in the current period by the following items: (i) a discrete tax expense related to a provision to return adjustments associated with federal research and development tax credits and the limitation on executive compensation, (ii) the jurisdictional mix of earnings and (iii) a discrete tax benefit related to foreign withholding taxes. The tax rate was impacted in the prior period by the following items: (i) a discrete tax benefit related to the partial release of a valuation allowance previously recorded against deferred tax assets and connected to capital loss carryforwards, resulting from the utilization of capital loss carryforward to offset capital gain from the sale of Procon (ii) a discrete tax expense related to provision to return adjustments as a result of a change in tax rate for the Company’s operations within China's tax jurisdiction, (iii) a discrete tax benefit related to provision to return adjustments associated with federal and state research and development tax credits, (iv) the jurisdictional mix of earnings and (v) foreign withholding taxes.

 

 

 

 

On February 19, 2024, we completed our acquisition of Sanyu Switch Co., Ltd. (“Sanyu”). We accounted for the Sanyu purchase under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, the preliminary  purchase price was allocated to the fair value of the assets acquired, including identifiable intangible assets, and the liabilities assumed as of the closing date. Goodwill resulting from the difference between the fair value of the assets acquired and the fair value of the liabilities assumed is not amortizable for book or tax purposes. Although the acquisition was nontaxable, the transaction gave rise to certain temporary differences for which deferred taxes have been recognized. The results of operations for the Sanyu acquisition have been included in our consolidated financial results beginning on the closing date.

 

Backlog

 

Backlog includes all active or open orders for goods and services. Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules. Backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems, with the exception of Engineering Technologies. Customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Due to the nature of long-term agreements in the Engineering Technologies segment, the timing of orders and delivery dates can vary considerably resulting in significant backlog changes from one period to another. 

 

		As of March 31, 2024								As of March 31, 2023
		Total Backlog				Backlog under 1 year				Total Backlog				Backlog under 1 year
Electronics		$	116,150			$	106,603			$	156,806			$	144,741
Engraving			25,389				23,102				39,185				33,069
Scientific			2,809				2,809				3,078				3,078
Engineering Technologies			61,791				47,424				64,708				57,105
Specialty Solutions			19,236				19,236				26,958				26,541
Total		$	225,375			$	199,174			$	290,735			$	264,534

 

Total backlog realizable under one year decreased $65.4 million, or 24.7%, to $199.2 million at March 31, 2024, from $264.5 million at March 31, 2023. 

 

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

 

 

		As of
(In thousands)		March 31, 2024
Backlog under 1 year, prior year period		$	264,534
Components of change in backlog:
Organic change			(74,600	)
Effect of acquisitions			16,623
Effect of divestitures			(7,383	)
Backlog under 1 year, current period		$	199,174

 

Segment Analysis

 

Overall

 

Looking forward to the remainder of fiscal year 2024, we anticipate continued improvement in key financials metrics, supported by productivity initiatives. 

 

In general, for the remainder of fiscal year 2024, we expect: 

 

•

improved demand in transportation markets from electric and hybrid vehicle programs with a ramp up of new business opportunities in Electronics and Engraving;

	•	vaccine and medication storage demand to remain stable;
	•	commercial aviation and defense end markets demand to increase based on current program expectations;

•

space markets to remain attractive, with volume to slightly increase from fiscal year 2023 due to new product development for existing customers;

	•	refuse and dump end markets to improve;
	•	slightly lower demand levels in food service equipment markets;
	•	continued market softness in China and Europe, including inventory destocking, affecting general industrial and appliances end markets served by our Electronics Group.

 

Electronics Group

 

		Three Months Ended												Nine Months Ended
		March 31,								%				March 31,								%
(In thousands, except percentages)		2024				2023				Change				2024				2023				Change
Net sales		$	80,431			$	78,211				2.8	%		$	241,538			$	225,966				6.9	%
Income from operations			15,700				17,047				(7.9	%)			47,884				52,160				(8.2	%)
Operating income margin			19.5	%			21.8	%							19.8	%			23.1	%

 

Net sales in the third quarter of fiscal year 2024 increased $2.2 million, or 2.8%, when compared to the prior year quarter.  The acquisition of Minntronix in the first quarter of fiscal year 2024 added $8.6 million, or 11.0%, in sales for the third quarter of fiscal year 2024.  The acquisition of Sanyu in the third quarter of fiscal year 2024 added $2.0 million, or 2.5% in sales for the third quarter of fiscal year 2024.  The organic sales decrease of $7.3 million, or 9.3%, and foreign currency impacts of $1.0 million, or 1.3% also negatively affected net sales compared to the prior year quarter. Organic sales were impacted by continued softness in China and Europe, primarily in the appliances and general industrial end markets. 

 

Income from operations in the third quarter of fiscal year 2024 decreased by $1.3 million, or 7.9%, when compared to the prior year quarter. The operating income decrease was the result of lower organic sales and a change in product mix, partially offset by contribution from the recent acquisitions and productivity initiatives.

 

Net sales in the nine months ended March 31, 2024 increased $15.6 million, or 6.9%, when compared to the prior year period.  The acquisitions of Minntronix and Sanyu in the fiscal year 2024 added $28.8 million, or 12.7%, in sales for the nine months ended March 31, 2024.  The organic sales decrease of $12.8 million, or 5.7%, and foreign currency impacts of $0.4 million, or 0.2% also negatively affected net sales compared to the prior year period. Organic sales were impacted by continued softness in China and Europe, primarily in appliances and general industrial end markets. 

 

Income from operations in the nine months ended March 31, 2024 decreased by $4.3 million, or 8.2%, when compared to the prior year period. The operating income decrease was the result of lower sales, a change in product mix and foreign currency impacts, partially offset by contributions from the recent acquisitions and productivity initiatives.

 

In the fourth quarter of fiscal year 2024, on a sequential basis, we expect similar revenue and slightly lower to similar adjusted operating margin due to unfavorable mix.

 

Engraving Group

 

		Three Months Ended												Nine Months Ended
		March 31,								%				March 31,								%
(In thousands, except percentages)		2024				2023				Change				2024				2023				Change
Net sales		$	36,297			$	36,909				(1.7	%)		$	117,936			$	109,622				7.6	%
Income from operations			6,260				5,353				16.9	%			22,765				17,580				29.5	%
Operating income margin			17.2	%			14.5	%							19.3	%			16.0	%

 

Net sales in the third quarter of fiscal year 2024 decreased by $0.6 million, or 1.7%, when compared to the prior year quarter. Organic sales decreased by less than $0.1 million, or 0.2%, due to fewer new platform rollouts in North America. Foreign currency negative impacts on net sales were $0.5 million, or 1.5%. 

 

Income from operations in the third quarter of fiscal year 2024 increased by $0.9 million, or 16.9%, when compared to the prior year quarter.  The operating income increase was driven by organic sales increases and previously announced productivity initiatives. 

 

Net sales in the nine months ended March 31, 2024 increased by $8.3 million, or 7.6%, when compared to the prior year period. Organic sales increased by $7.9 million, or 7.2%, due to strong demand in Europe and growth in soft trim applications in Asia, partially offset by fewer platform rollouts in North America. Foreign currency positive impacts contributed $0.4 million, or 0.4%. 

 

Income from operations in the nine months ended March 31, 2024 increased by $5.2 million, or 29.5%, when compared to the prior year period.  The operating income increase was driven by organic sales increases and ongoing productivity initiatives. 

 

In the fourth quarter of fiscal year 2024, on a sequential basis, we expect slightly lower revenue and slightly to moderately lower operating margin due to unfavorable project timing in North America and Europe.  

 

Scientific

 

		Three Months Ended												Nine Months Ended
		March 31,								%				March 31,								%
(In thousands, except percentages)		2024				2023				Change				2024				2023				Change
Net sales		$	16,925			$	18,898				(10.4	%)		$	51,410			$	56,646				(9.2	%)
Income from operations			4,896				4,561				7.3	%			14,074				12,449				13.1	%
Operating income margin			28.9	%			24.1	%							27.4	%			22.0	%

 

Net sales in the third quarter of fiscal year 2024 decreased by $2.0 million, or 10.4%, when compared to the prior year quarter, reflecting general market softness, notably affecting purchases by retail pharmacies.

 

Income from operations in the third quarter of fiscal year 2024 increased $0.3 million, or 7.3%, when compared to the prior year quarter. The increase is driven by lower freight costs and productivity initiatives offset by lower volume. 

 

Net sales in the nine months ended March 31, 2024 decreased by $5.2 million, or 9.2%, when compared to the prior year period, reflecting general market softness including purchases by retail pharmacies.

 

Income from operations in the nine months ended March 31, 2024 increased $1.6 million, or 13.1%, when compared to the prior year period. The increase is primarily driven by productivity initiatives and lower freight costs, partially offset by lower volume. 

 

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

 

 

Engineering Technologies Group

 

		Three Months Ended												Nine Months Ended
		March 31,								%				March 31,								%
(In thousands, except percentages)		2024				2023				Change				2024				2023				Change
Net sales		$	20,098			$	18,052				11.3	%		$	58,205			$	59,244				(1.8	%)
Income from operations			3,524				2,351				49.9	%			9,946				7,957				25.0	%
Operating income margin			17.5	%			13.0	%							17.1	%			13.4	%

 

Net sales in the third quarter of fiscal year 2024 increased by $2.0 million, or 11.3%, when compared to the prior year quarter.  The organic sales increase of $2.0 million was driven by improvement in the aviation end markets, offset by lower defense sales caused by delays in government funding.

 

Income from operations in the third quarter of fiscal year 2024 increased by $1.2 million, or 49.9%, when compared to the prior year quarter reflecting higher volume in aviation and pricing and productivity initiatives, partially offset by investments in research and development.

 

Net sales in the nine months ended March 31, 2024 decreased by $1.0 million, or 1.8%, when compared to the prior year period.  Organic sales decreased by $1.3 million, or 2.2%, partially offset by foreign currency impacts of $0.3 million, or 0.4%, as compared to the prior year period. The net sales decrease was due to project timing partially offset by pricing actions, an increase in new product development in the fast growth commercial space market, and higher sales to the aviation and oil and gas markets. 

 

Income from operations in the nine months ended March 31, 2024 increased by $1.9 million, or 25.0%, when compared to the prior year period.  The increase was due to the impact of pricing and productivity initiatives, partially offset by research and development and sales declines due to project timing. 

 

In the fourth quarter of fiscal year 2024, on a sequential basis, we expect moderately to significantly higher revenue and moderately higher operating margin due to favorable project timing.

 

Specialty Solutions Group

 

		Three Months Ended												Nine Months Ended
		March 31,								%				March 31,								%
(In thousands, except percentages)		2024				2023				Change				2024				2023				Change
Net sales		$	23,516			$	32,262				(27.1	%)		$	71,352			$	101,243				(29.5	%)
Income from operations			4,668				7,151				(34.7	%)			14,250				18,944				(24.8	%)
Operating income margin			19.9	%			22.2	%							20.0	%			18.7	%

 

Net sales in the third quarter of fiscal year 2024 decreased by $8.7 million, or 27.1%, when compared to the prior year quarter.  Organic sales for the group decreased $3.2 million, or 10.0%, as compared to the prior year quarter, reflecting a sales normalization in the Display Merchandising business partially offset by an increase in the Hydraulics business. The divestiture of Procon in the third quarter of fiscal year 2023 negatively impacted the group by $5.5 million, or 17.1%. 

 

Income from operations in the third quarter of fiscal year 2024 decreased $2.5 million or 34.7%, when compared to the prior year quarter, due to the Procon divestiture and lower volume in the Display Merchandising business, partially offset by higher volume in the Hydraulics business. 

 

Net sales in the nine months ended March 31, 2024 decreased by $29.9 million, or 29.5%, when compared to the prior year period. Organic sales for the group decreased $8.6 million, or 8.5%, as compared to the prior year period, reflecting organic growth decreases in the Display Merchandising business and the Hydraulics business, due to an ongoing industry-wide chassis shortage. The divestiture of Procon in the third quarter of fiscal year 2023 negatively impacted the group by $21.3 million, or 21.0%. 

 

Income from operations in the nine months ended March 31, 2024 decreased $4.7 million or 24.8%, when compared to the prior year period. The decrease is due to the Procon divestiture and lower volume in the Display Merchandising and Hydraulics business, partially offset by improved operating performance in the Display Merchandising business. 

 

In the fourth quarter of fiscal year 2024, on a sequential basis, we expect moderately higher revenue and operating margin due to improved end market demand and leverage on higher sales.

 

Corporate and Other

 

		Three Months Ended												Nine Months Ended
		March 31,								%				March 31,								%
(In thousands, except percentages)		2024				2023				Change				2024				2023				Change
Income (loss) from operations:
Corporate		$	(8,522	)		$	(8,520	)			0.0	%		$	(24,956	)		$	(25,376	)			(1.7	%)
Restructuring			(4,037	)			(2,237	)			80.5	%			(7,303	)			(3,330	)			119.3	%
Acquisition related costs			(537	)			(21	)			2457.1	%			(2,233	)			(487	)			358.5	%
Gain on sale of business			-				62,105				(100.0	%)			274				62,105				(99.6	%)
Other operating income (expense), net			(110	)			727				(115.1	%)			(110	)			611				(118.0	%)

 

Corporate expenses in the third quarter of fiscal year 2024 remained flat when compared to the prior year quarter. Corporate expenses in the nine months ended March 31, 2024 decreased by 1.7% when compared to the prior year period.  Corporate expenses in fiscal year 2024 reflect the impact of a charge due to the CEO reaching retirement eligibility under the stock compensation plan largely offset by reductions in professional service fees and incentive compensation.  We recorded a charge of $0.1 million in other operating income (expense), net for settlement of an environmental remediation claim in the third quarter of fiscal year 2024.  In fiscal year 2023, we received a refund from our insurance provider as a recoupment related to a previously recorded litigation matter and incurred a $0.3 million charge related to environmental remediation.

 

The restructuring, gain on sale of business and acquisition related costs have been discussed above in the Company Overview. 

 

Discontinued Operations

 

In pursuing our business strategy, the Company may divest certain businesses.  Future divestitures may be classified as discontinued operations based on their strategic significance to the Company. Net loss from discontinued operations was $0.1 million and $0.4 million for the three and nine months ended March 31, 2024, respectively. Net loss from discontinued operations was less than $0.1 million and $0.1 million for the three and nine months ended March 31, 2023, respectively.

 

Liquidity and Capital Resources

 

At March 31, 2024, our total cash balance was $138.8 million, of which $110.5 million was held by foreign subsidiaries. The amount and timing of cash repatriation is dependent upon foreign exchange rates and each business unit’s operational needs including requirements to fund working capital, capital expenditure, and jurisdictional tax payments. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to capital controls; however, those balances are generally available without legal restrictions to fund ordinary business operations.

 

Net cash provided by continuing operating activities for the nine months ended March 31, 2024, was $64.6 million compared to net cash provided by continuing operating activities of $50.4 million in the prior year.  We generated $84.2 million from income statement activities and used $11.1 million of cash to fund working capital and other balance sheet increases.  Cash flow used in investing activities for the nine months ended March 31, 2024 totaled $54.0 million and primarily consisted of $29.2 million for the acquisition of Minntronix in the first quarter of fiscal year 2024, $18.5 million for the acquisition of Sanyu in the third quarter of fiscal year 2024, and $13.8 million used for capital expenditures offset by $7.8 million proceeds from the prior divestiture of the Procon business. Cash used for financing activities for the nine months ended March 31, 2024 totaled $65.8 million and consisted primarily purchases of stock of $31.8 million, repayments of debt of $25.0 million and cash paid for dividends of $10.4 million. 

 

During the third quarter of fiscal year 2023, the Company entered into a Third Amended & Restated Credit Agreement which renewed the existing Credit Agreement for an additional five-year period (“credit agreement”, or “facility”) with a borrowing limit of $500 million.  The facility can be increased by an amount of up to $250 million, in accordance with specified conditions contained in the agreement.  The facility also includes a $10 million sublimit for swing line loans and a $35 million sublimit for letters of credit. 

 

Under the terms of the Credit Facility, we pay a variable rate of interest and a commitment fee on borrowed amounts as well as a commitment fee on unused amounts under the facility.  The amount of the commitment fee depends upon both the undrawn amount remaining available under the facility and the Company’s funded debt to EBITDA (as defined in the agreement) ratio at the last day of each quarter.  As our funded debt to EBITDA ratio increases, the commitment fee increases. 

 

 

Funds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes.  As of March 31, 2024, the Company used $2.7 million against the letter of credit sub-facility and had the ability to borrow $347.3 million under the facility based on our current trailing twelve-month EBITDA.  The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants. The Company’s current financial covenants under the facility are as follows:

 

Interest Coverage Ratio The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Facility”), to interest expense for the trailing twelve months of at least 2.75:1.  Adjusted EBIT per the Credit Facility specifically excludes extraordinary and certain other defined items such as cash restructuring and acquisition related charges up to the lower of $20.0 million or 10% of EBITDA.  The facility also allows for unlimited non-cash purchase accounting and goodwill adjustments.  At March 31, 2024, the Company’s Interest Coverage Ratio was 26.12:1.

 

Leverage Ratio The Company’s ratio of funded debt to trailing twelve month Adjusted EBITDA per the Credit Facility, calculated as Adjusted EBIT per the Credit Facility plus depreciation and amortization, may not exceed 3.5:1.  Under certain circumstances in connection with a Material Acquisition (as defined in the Facility), the Facility allows for the leverage ratio to go as high as 4.0:1 for a four-fiscal quarter period.  At March 31, 2024, the Company’s leverage ratio was 0.63:1.

 

As of March 31, 2024, we had borrowings under our facility of $150.0 million. In order to manage our interest rate exposure on these borrowings, we are party to $150.0 million of active floating to fixed rate swaps.  These swaps convert our interest payments from SOFR to a weighted average fixed rate of 0.85%.  The effective rate of interest for our outstanding borrowings, including the impact of the interest rate swaps, was 2.45%.

 

Our primary cash requirements in addition to day-to-day operating needs include interest payments, capital expenditures, acquisitions, share repurchases, and dividends.  Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility.  We expect fiscal year 2024 capital spending to be between $28.0 million and $32.0 million.  We expect that fiscal year 2024 depreciation and amortization expense will be between $20.0 million and $22.0 million and $8.0 million and $9.0 million, respectively.

 

The following table sets forth our capitalization:

 

(In thousands)		March 31, 2024				June 30, 2023
Long-term debt		$	148,768			$	173,441
Less cash and cash equivalents			(138,799	)			(195,706	)
Net (cash) debt			9,969				(22,265	)
Stockholders' equity			618,982				607,449
Total capitalization		$	628,951			$	585,184

 

We sponsor a number of defined benefit and defined contribution retirement plans.  The U.S. pension plan is frozen for substantially all participants.  We have evaluated the current and long-term cash requirements of these plans, and our existing sources of liquidity are expected to be sufficient to cover required contributions under ERISA and other governing regulations. Obligations under the unfunded benefit plan operated by the Sanyu business in Japan have been transferred to us as of the date of acquisition in the third quarter of fiscal year 2024.

 

The fair value of the Company's U.S. defined benefit pension plan assets was $147.4 million at March 31, 2024, as compared to $142.1 million at the most recent measurement date, which occurred as of June 30, 2023. The next measurement date to determine plan assets and benefit obligations will be on June 30, 2024.

 

The Company expects to pay $1.7 million in contributions to its defined benefit plans during the remainder of fiscal year 2024. Contributions of $7.0 million and less than $0.1 million were made during the nine months ended March 31, 2024 and 2023, respectively. There are required contributions of $9.8 million to the United States funded pension plan for fiscal year 2024. In the third quarter of fiscal year 2024, we contributed $6.9 million and the remaining $1.4 million will be contributed in the fourth quarter of fiscal year 2024. The Company expects to make contributions during the remainder of fiscal year 2024 of less than $0.1 million and $0.3 million to its unfunded defined benefit plans in the U.S. and Germany, respectively. There are no required contributions to the plans in Japan. Any subsequent plan contributions will depend on the results of future actuarial valuations.

 

 

We have an insurance program in place to fund supplemental retirement income benefits for three retired executives. Current executives and new hires are not eligible for this program.  At March 31, 2024, the underlying policies had a cash surrender value of $11.7 million and are reported net of loans of $5.0 million for which we have the legal right of offset, these amounts are reported net on our balance sheet.

 

Other Matters

 

Inflation – Certain of our expenses, such as wages and benefits, occupancy costs, freight and equipment repair and replacement, are subject to normal inflationary pressures. Inflation for medical costs can impact both our employee benefit costs as well as our reserves for workers' compensation claims. We monitor the inflationary rate and make adjustments to reserves whenever it is deemed necessary. Our ability to control worker compensation insurance medical cost inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit the maximum exposure for us. Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements. We have experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities. These materials are some of the key elements in the products manufactured in these segments.  Wherever possible, we will implement price increases to offset the impact of changing prices.  The ultimate acceptance of these price increases will be impacted by our affected divisions’ respective competitors and the timing of their price increases. In general, we do not enter into purchase contracts that extend beyond one operating cycle. While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.

 

Foreign Currency Translation – Our primary functional currencies used by our non-U.S. subsidiaries are the Euro, British Pound Sterling (Pound), Japanese (Yen), and Chinese (Yuan).

 

Defined Benefit Pension Plans – We record expenses related to these plans based upon various actuarial assumptions such as discount rates, mortality rates, and assumed rates of returns. The Company’s pension plan is frozen for substantially all eligible U.S. employees and participants in the plan ceased accruing future benefits.

 

Environmental Matters – To the best of our knowledge, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position.

 

Seasonality – We are a diversified business with generally low levels of seasonality.

 

Employee Relations – The Company has labor agreements with several union locals in the United States and several European employees belong to European trade unions. 

 

Critical Accounting Policies

 

The condensed consolidated financial statements include the accounts of Standex International Corporation and all of its subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying condensed consolidated financial statements.  Although we believe that materially different amounts would not be reported due to the accounting policies adopted, the application of certain accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.  Our Annual Report on Form 10-K for the year ended June 30, 2023 lists a number of accounting policies which we believe to be the most critical.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Risk Management

 

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

 

Exchange Rate Risk

 

We are exposed to both transactional risk and translation risk associated with exchange rates.  The transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts.  We also mitigate certain of our foreign currency exchange rate risks by entering into forward foreign currency contracts from time to time.  The contracts are used as a hedge against anticipated foreign cash flows, such as loan payments, customer remittances, and materials purchases, and are not used for trading or speculative purposes.  The fair values of the forward foreign currency exchange contracts are sensitive to changes in foreign currency exchange rates, as an adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts.  However, any such losses or gains would generally be offset by corresponding gains and losses, respectively, on the related hedged asset or liability.  At March 31, 2024 the fair value, in the aggregate, of the Company’s open foreign exchange contracts was a liability of less than $0.1 million.

 

Our primary translation risk is with the Euro, British Pound Sterling, Peso, Japanese Yen and Chinese Yuan.  A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at March 31, 2024, would not result in a material change in our operations, financial position, or cash flows.  We hedge our most significant foreign currency translation risks primarily through cross currency swaps and other instruments, as appropriate.

 

Interest Rate Risk

 

The Company’s effective interest rate on borrowings was 2.45% at March 31, 2024.  Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings and is mitigated by our use of interest rate swap agreements to modify our exposure to interest rate movements.  At March 31, 2024, we have $150.0 million of active floating to fixed rate swaps with terms through fiscal year 2025.  These swaps convert our interest payments from SOFR to a weighted average rate of 0.85%.  At March 31, 2024, the fair value, in the aggregate, of the Company’s interest rate swaps was assets of $6.0 million. A 25-basis point increase in interest rates would not materially change our annual interest expense as most of our outstanding debt is currently converted to fixed rate debts by means of interest rate swaps.

 

Concentration of Credit Risk

 

We have a diversified customer base. As such, the risk associated with concentration of credit risk is inherently minimized. As of March 31, 2024, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.

 

Commodity Prices

 

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

 

The Engineering Technologies, Specialty Solutions, and Electronics segments are all sensitive to price increases for steel and aluminum products, other metal commodities such as rhodium and copper, and petroleum-based products.  We have experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities.  These materials are some of the key elements in the products manufactured in these segments.  Wherever possible, we will implement price increases to offset the impact of changing prices.  The ultimate acceptance of these price increases, if implemented, will be impacted by our affected divisions’ respective competitors and the timing of their price increases.

 

 

ITEM 4.     CONTROLS AND PROCEDURES

 

At the end of the period covered by this Report, the management of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2024 in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

There was no change in the Company's internal control over financial reporting during the quarterly period ended March 31, 2024 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

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

 

Issuer Purchases of Equity Securities(1)

Quarter Ended March 31, 2024

 

Period		(a) Total number of shares (or units) purchased				(b) Average price paid per share (or unit)				(c) Total number of shares (or units) purchased as part of publicly announced plans or programs				(d) Maximum number (or appropriate dollar value) of shares (or units) that may yet be purchased under the plans or programs
January 1, 2024 - January 31, 2024			4,209			$	149.76				4,209			$	37,844
February 1, 2024 - February 28, 2024			29,493				152.59				29,493				33,343
March 1, 2024 - March 31, 2024			-				-				-				33,343
Total			33,702				152.24				33,702				33,343

 

(1)

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

 

ITEM 5. Other Information

 

None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarter ended March 31, 2024.

 

  

 

ITEM 6. EXHIBITS

 

(a)

Exhibits

 

	31.1	Principal Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Principal Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Principal Executive Officer and Principal Financial Officer Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101	The following materials from this Quarterly Report on Form 10-Q, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
	104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

 

 

ALL OTHER ITEMS ARE INAPPLICABLE 

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		STANDEX INTERNATIONAL CORPORATION
Date:	May 3, 2024	/s/ ADEMIR SARCEVIC
		Ademir Sarcevic
		Vice President/Chief Financial Officer
		(Principal Financial & Accounting Officer)
Date:	May 3, 2024	/s/ AMY GAGNON
		Amy Gagnon
		Vice President/Chief Accounting Officer