NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations, cash flows and changes in stockholder’s equity for the three months ended September 30, 2019 and 2018 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at September 30, 2019. The interim results are not necessarily indicative of results for a full year. The following unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 2019. The condensed consolidated balance sheet at June 30, 2019 was derived from audited consolidated financial statements included in the annual report for the fiscal year ended June 30, 2019, 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 audited consolidated financial statements included in the Annual Report on Form 10-K and in particular the audited consolidated financial statements for the year ended June 30, 2019. Certain prior period amounts have been reclassified to conform to the current period presentation. Unless otherwise noted, references to years are to the Company’s fiscal years.
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. We evaluated subsequent events through the date and time our unaudited condensed consolidated financial statements were issued.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity's testing of reporting units for goodwill impairment. It further clarifies that an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently assessing the potential impact of the adoption of ASU 2017-04 on our goodwill impairment testing procedures and our consolidated financial statements.
8
The Company’s recent acquisitions are strategically significant to the future growth prospects of the Company. At the time of the acquisition and September 30, 2019, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.
GS Engineering
During the fourth quarter of fiscal year 2019, the Company acquired Ohio-based Genius Solutions Engineering Company (d/b/a GS Engineering). The privately held company is a provider of specialized “soft surface” skin texturized tooling. GS Engineering primarily serves the automotive end market and its operating results are included in the Company’s Engraving segment.
The Company paid $30.5 million in cash for all of the issued and outstanding equity interests of GS Engineering. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary estimate of their fair values on the closing date. The Company has commenced a formal valuation of the acquired assets and liabilities and has updated the preliminary intangible assets based on the preliminary valuation results. Goodwill from the transaction is attributable to the combined organization utilizing the GS technology across its global production footprint to enable customers worldwide to benefit from a combined offering for harmonized designs across a variety of surfaces and materials.
Intangible assets of $8.9 million are preliminarily recorded, consisting of $5.6 million for developed technology to be amortized over a period of 15 years, $0.9 million for indefinite lived trademarks, and $2.4 million of customer relationships to be amortized over 13 years. The Company’s assigned fair values are preliminary as of September 30, 2019 until reviewed closing financial statements, including U.S. 338(h)10 elections, can be prepared by an independent accountant and agreed to by both parties as required by the stock purchase agreement. The goodwill of $18.1 million created by the transaction is deductible for income tax purposes.
The components of the fair value of the GS Engineering acquisition, including the preliminary allocation of the purchase price at September 30 2019, are as follows (in thousands):
|
|
|
Preliminary Allocation June 30, 2019
|
|
|
Adjustments
|
|
|
Adjusted Preliminary Allocation September 30, 2019
|
|
|
Fair value of business combination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
$
|
30,502
|
|
|
$
|
-
|
|
|
$
|
30,502
|
|
|
Less, cash acquired
|
|
|
(622
|
)
|
|
|
-
|
|
|
|
(622
|
)
|
|
Total
|
|
$
|
29,880
|
|
|
$
|
-
|
|
|
$
|
29,880
|
|
9
|
|
|
Preliminary Allocation June 30, 2019
|
|
|
Adjustments
|
|
|
Adjusted Preliminary Allocation September 30, 2019
|
|
|
Identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other acquired assets
|
|
$
|
2,197
|
|
|
$
|
(72
|
)
|
|
$
|
2,125
|
|
|
Inventories
|
|
|
228
|
|
|
|
(75
|
)
|
|
|
153
|
|
|
Customer Backlog
|
|
|
180
|
|
|
|
-
|
|
|
|
180
|
|
|
Property, plant, & equipment
|
|
|
1,391
|
|
|
|
-
|
|
|
|
1,391
|
|
|
Identifiable intangible assets
|
|
|
8,910
|
|
|
|
-
|
|
|
|
8,910
|
|
|
Goodwill
|
|
|
17,976
|
|
|
|
147
|
|
|
|
18,123
|
|
|
Liabilities assumed
|
|
|
(1,002
|
)
|
|
|
-
|
|
|
|
(1,002
|
)
|
|
Total
|
|
$
|
29,880
|
|
|
$
|
-
|
|
|
$
|
29,880
|
|
Agile Magnetics
On the last business day of the first quarter of fiscal year 2019, the Company acquired Regional Mfg. Specialists, Inc. (now named Agile Magnetics). The New Hampshire based, privately held company is a provider of high-reliability magnetics to customers in the semiconductor, military, aerospace, healthcare, and general industrial industries. The Company has included the results of Agile in its Electronics segment in the consolidated financial statements.
The Company paid $39.2 million in cash for all of the issued and outstanding equity interests of Agile. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a their fair values on the closing date. Goodwill recorded from this transaction is attributable to expanded capabilities of the combined organization which will allow for improved responsiveness to customer demands via a larger pool of engineering resources and local manufacturing.
Intangible assets of $17.4 million are recorded, consisting of $13.5 million of customer relationships to be amortized over a period of 13 years, $3.8 million for indefinite lived trademarks, and $0.1 million for a non-compete arrangement to be amortized over 5 years. The goodwill of $16.4 million recorded in connection with the transaction is deductible for income tax purposes. The Company’s assigned fair values are final as of September 30, 2019.
The components of the fair value of the Agile acquisition, including the final allocation of the purchase price at September 30, 2019, are as follows (in thousands):
|
|
|
Preliminary Allocation September 30, 2018
|
|
|
Adjustments
|
|
|
Final Allocation September 30, 2019
|
|
|
Fair value of business combination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
$
|
39,194
|
|
|
$
|
-
|
|
|
$
|
39,194
|
|
|
Less, cash acquired
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
Total
|
|
$
|
39,193
|
|
|
$
|
-
|
|
|
$
|
39,193
|
|
|
|
|
Preliminary Allocation September 30, 2018
|
|
|
Adjustments
|
|
|
Final Allocation September 30, 2019
|
|
|
Identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other acquired assets
|
|
$
|
1,928
|
|
|
$
|
(35
|
)
|
|
$
|
1,893
|
|
|
Inventories
|
|
|
2,506
|
|
|
|
268
|
|
|
|
2,774
|
|
|
Customer Backlog
|
|
|
-
|
|
|
|
200
|
|
|
|
200
|
|
|
Property, plant, & equipment
|
|
|
1,318
|
|
|
|
(348
|
)
|
|
|
970
|
|
|
Identifiable intangible assets
|
|
|
13,718
|
|
|
|
3,632
|
|
|
|
17,350
|
|
|
Goodwill
|
|
|
20,142
|
|
|
|
(3,708
|
)
|
|
|
16,434
|
|
|
Liabilities assumed
|
|
|
(419
|
)
|
|
|
(9
|
)
|
|
|
(428
|
)
|
|
Total
|
|
$
|
39,193
|
|
|
$
|
-
|
|
|
$
|
39,193
|
|
10
Tenibac-Graphion Inc.
During August of fiscal year 2019, the Company acquired Tenibac-Graphion Inc. (“Tenibac”). The Michigan based privately held company is a provider of chemical and laser texturing services for the automotive, medical, packaging, and consumer products markets. The Company has included the results of Tenibac in its Engraving segment in the condensed consolidated financial statements.
The Company paid $57.3 million in cash for all of the issued and outstanding equity interests of Tenibac. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. Goodwill recorded from this transaction is attributable to the complementary services that the combined business can now offer to customers, through increased responsiveness to customer demands, and providing innovative approaches to solving customer needs by offering a full line of mold and tool services to customers.
Intangible assets of $16.9 million are recorded, consisting of $11.3 million of customer relationships to be amortized over a period of 15 years, $4.2 million for indefinite lived trademarks, and $1.4 million of other intangibles assets to be amortized over 5 years. The Company’s assigned fair values are final as of June 30, 2019. The goodwill of $34.4 million created by the transaction is deductible for income tax purposes.
The components of the fair value of the Tenibac acquisition, including the final allocation of the purchase price are as follows (in thousands):
|
|
|
Preliminary Allocation September 30, 2018
|
|
|
Adjustments
|
|
|
Final Allocation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of business combination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
$
|
57,284
|
|
|
$
|
-
|
|
|
$
|
57,284
|
|
|
Less cash acquired
|
|
|
(558
|
)
|
|
|
-
|
|
|
|
(558
|
)
|
|
Total
|
|
$
|
56,726
|
|
|
$
|
-
|
|
|
$
|
56,726
|
|
|
|
|
Preliminary Allocation September 30, 2018
|
|
|
Adjustments
|
|
|
Final Allocation
|
|
|
Identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other acquired assets
|
|
$
|
5,023
|
|
|
$
|
(1,253
|
)
|
|
$
|
3,770
|
|
|
Inventories
|
|
|
324
|
|
|
|
-
|
|
|
|
324
|
|
|
Customer backlog
|
|
|
1,000
|
|
|
|
(800
|
)
|
|
|
200
|
|
|
Property, plant, & equipment
|
|
|
2,490
|
|
|
|
(19
|
)
|
|
|
2,471
|
|
|
Identifiable intangible assets
|
|
|
15,960
|
|
|
|
900
|
|
|
|
16,860
|
|
|
Goodwill
|
|
|
32,949
|
|
|
|
1,411
|
|
|
|
34,360
|
|
|
Liabilities assumed
|
|
|
(1,020
|
)
|
|
|
(239
|
)
|
|
|
(1,259
|
)
|
|
Total
|
|
$
|
56,726
|
|
|
$
|
-
|
|
|
$
|
56,726
|
|
Acquisition-Related Costs
Acquisition-related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation and (ii) acquisition-related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities. These costs do not include purchase accounting expenses, which we define as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets.
Deferred compensation costs relate to the acquisition of Horizon Scientific on October 16, 2016, for which payments were due to the seller of $2.8 million on the second anniversary and $5.6 million on the third anniversary of the closing date of the purchase. For the three months ended September 30, 2019 we recorded deferred compensation costs of $0.7 million related to estimated deferred compensation earned by the Horizon Scientific seller to date which are nearly equal to the amounts recorded during the same period in fiscal year 2019. The payments are contingent on the seller remaining an employee of the Company, with limited exceptions, at each anniversary date.
Acquisition related costs consist of miscellaneous professional service fees and expenses for our recent acquisitions.
11
The components of acquisition-related costs are as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Deferred compensation arrangements
|
|
$
|
703
|
|
|
$
|
667
|
|
|
Other acquisition-related costs
|
|
|
31
|
|
|
|
21
|
|
|
Total
|
|
$
|
734
|
|
|
$
|
688
|
|
|
3)
|
Revenue From Contracts With Customers
|
Effective July 1, 2018, the Company adopted the new accounting standard, ASU No. 2014-09, “Revenue from Contracts with Customers” (ASC 606) using the modified retrospective method to contracts that were not completed as of June 30, 2018. The adoption of ASC 606 represents a change in accounting principle that provides enhanced revenue recognition disclosures.
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 recognized under long-term contracts within the Engineering Technologies group for highly customized customer products that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin are recognized over time. 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
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
Engraving Services
|
|
|
36,066
|
|
|
|
33,855
|
|
|
Engraving Products
|
|
|
2,365
|
|
|
|
2,124
|
|
|
Total Engraving
|
|
|
38,431
|
|
|
|
35,979
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics
|
|
|
46,617
|
|
|
|
51,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering Technologies Components
|
|
|
24,644
|
|
|
|
20,784
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics Cylinders and Systems
|
|
|
13,749
|
|
|
|
12,536
|
|
|
|
|
|
|
|
|
|
|
|
|
Refrigeration
|
|
$
|
55,133
|
|
|
$
|
54,545
|
|
|
Merchandising & Display
|
|
|
9,823
|
|
|
|
9,058
|
|
|
Pumps
|
|
|
8,041
|
|
|
|
8,728
|
|
|
Total Food Service Equipment
|
|
|
72,997
|
|
|
|
72,331
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue by Product Line
|
|
$
|
196,438
|
|
|
$
|
193,080
|
|
12
The following table presents revenue from continuing operations disaggregated by geography based on company’s locations (in thousands):
|
|
|
Three Months Ended
|
|
|
Net sales
|
|
September 30, 2019
|
|
|
September 30,2018
|
|
|
United States
|
|
$
|
134,293
|
|
|
$
|
124,729
|
|
|
Asia Pacific
|
|
|
24,346
|
|
|
|
27,878
|
|
|
EMEA (1)
|
|
|
34,300
|
|
|
|
35,526
|
|
|
Other Americas
|
|
|
3,499
|
|
|
|
4,947
|
|
|
Total
|
|
$
|
196,438
|
|
|
$
|
193,080
|
|
(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
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
Products and services transferred at a point in time
|
|
$
|
189,954
|
|
|
$
|
187,898
|
|
|
Products transferred over time
|
|
|
6,484
|
|
|
|
5,182
|
|
|
Net Sales
|
|
$
|
196,438
|
|
|
$
|
193,080
|
|
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 and other current assets. Contract liabilities are customer deposits for which revenue has not been recognized. Current contract liabilities are recorded as accrued expenses.
The following table provides information about contract assets and liability balances as of September 30, 2019 (in thousands):
|
|
|
Balance at Beginning of Period
|
|
|
Additions
|
|
|
Deductions
|
|
|
Balance at End of Period
|
|
|
Three months ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and other current assets
|
|
|
8,418
|
|
|
|
6,325
|
|
|
|
8,679
|
|
|
|
6,064
|
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
1,358
|
|
|
|
1,943
|
|
|
|
3,277
|
|
|
|
24
|
|
During the three months ended September 30, 2019, we recognized the following revenue as a result of changes in the contract liability balances (in thousands):
|
|
|
Three months ended
|
|
|
Revenue recognized in the period from:
|
|
September 30, 2019
|
|
|
Amounts included in the contract liability balance at the beginning of the period
|
|
$
|
1,358
|
|
The timing of revenue recognition, invoicing and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheets.When consideration is received from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the goods and services are transferred to the customer and all revenue recognition criteria have been met.
13
|
4)
|
Fair Value Measurements
|
The financial instruments shown below are presented at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied.
Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and the methodologies used in valuation are as follows:
Level 1 – Quoted prices in active markets for identical assets and liabilities. The Company’s deferred compensation plan assets consist of shares in various mutual funds (for the deferred compensation plan, investments are participant-directed) which invest in a broad portfolio of debt and equity securities. These assets are valued based on publicly quoted market prices for the funds’ shares as of the balance sheet dates.
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 September 30, 2019 and June 30, 2019. The Company’s policy is to recognize transfers between levels as of the date they occur.
Cash and cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates fair value.
Items presented at fair value at September 30, 2019 and June 30, 2019 consisted of the following (in thousands):
|
|
|
September 30, 2019
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities - deferred compensation plan
|
|
$
|
2,429
|
|
|
$
|
2,429
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest rate swaps
|
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
1,521
|
|
|
$
|
-
|
|
|
$
|
1,521
|
|
|
$
|
-
|
|
|
Interest rate swaps
|
|
|
1,678
|
|
|
|
-
|
|
|
|
1,678
|
|
|
|
-
|
|
|
Contingent acquisition payments (a)
|
|
|
7,006
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,006
|
|
|
|
|
June 30, 2019
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities - deferred compensation plan
|
|
$
|
2,354
|
|
|
$
|
2,354
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Foreign exchange contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Interest rate swaps
|
|
|
52
|
|
|
|
-
|
|
|
|
52
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
3,052
|
|
|
$
|
-
|
|
|
$
|
3,052
|
|
|
$
|
-
|
|
|
Interest rate swaps
|
|
|
1,432
|
|
|
|
|
|
|
|
1,432
|
|
|
|
|
|
|
Contingent acquisition payments (a)
|
|
|
6,418
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,418
|
|
|
|
(a)
|
The fair value of our contingent consideration arrangement is determined based on our evaluation as to the probability and amount of any deferred compensation that has been earned to date.
|
14
Our financial liabilities based upon Level 3 inputs consist of contingent consideration arrangements relating to our acquisitions of Horizon Scientific, Piazza Rosa, and GS Engineering. We are contractually obligated to pay contingent consideration payments in connection with the Horizon Scientific acquisition based on the criteria of continued employment of the seller on the second and third anniversary of the closing date of the acquisition. The seller of Horizon remained employed on the second anniversary of the closing date and a payment was made to the seller in the second quarter of fiscal 2019. We are contractually obligated to pay contingent consideration payments in connection with the Piazza Rosa acquisition based on the achievement of certain revenue targets during each of the first three years following acquisition. Piazza Rosa exceeded the defined revenue targets during the first year and a payment was made to the Piazza Rosa sellers during the first quarter of fiscal 2019. The Company is currently calculating the achievement of revenue targets of the second year and a payment is expected to be made to the Piazza Rosa sellers during the second quarter of fiscal 2020. The Company is also obligated to pay contingent consideration to the sellers of GS Engineering in the event that certain revenue and gross margin targets are achieved during the five years following acquisition. As of September 30, 2019, the targets set in the GS stock purchase agreement have not yet been met due to the length of time since the acquisition.
We will update our assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the consideration is paid. As of September 30, 2019, neither the range of outcomes nor the assumptions used to develop the estimate had changed.
|
5)
|
Discontinued Operations
|
In pursuing our business strategy, the Company continues to divest certain businesses and record activities of these businesses as discontinued operations.
During the first quarter of fiscal 2019, in order to focus its financial assets and managerial resources on its remaining portfolio of businesses, the Company decided to divest its Cooking Solutions Group, which consisted of three operating segments and a minority interest investment. In connection with the divestiture, during the second quarter of fiscal 2019, the Company sold its minority interest investment to the majority shareholders. During the third quarter of fiscal 2019, the Company entered into a definitive agreement to sell the three operating segments to The Middleby Corporation for a cash purchase price of $105 million, subject to post-closing adjustments and various transaction fees.
The transaction closed on March 31, 2019 and resulted in a pre-tax gain of $20.5 million less related transaction expenses of $4.4 million. The Company reported a tax benefit related to the sale due to the write-off of deferred tax liabilities related to the Cooking Solutions Group. Because the transaction closed on a non-business day, cash proceeds related to the sale were not received until the next business day which resulted in a receivable of $106.9 million recorded at March 31, 2019.
Results of the Cooking Solutions Group in current and prior periods have been classified as discontinued operations in the Condensed Consolidated Financial Statements and excluded from the results from continuing operations. Activity related to the Cooking Solutions Group and other discontinued operations for the three months ended September 30, 2019 and 2018 is as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net Sales
|
|
$
|
-
|
|
|
$
|
24,448
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
$
|
194
|
|
|
$
|
1,832
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit Before Taxes
|
|
$
|
25
|
|
|
$
|
1,832
|
|
|
Benefit (Provision) for Taxes
|
|
|
(36
|
)
|
|
|
(333
|
)
|
|
Net income from Discontinued Operations
|
|
$
|
(11
|
)
|
|
$
|
1,499
|
|
Inventories are comprised of the following (in thousands):
|
|
|
September 30, 2019
|
|
|
June 30, 2019
|
|
|
Raw materials
|
|
$
|
46,315
|
|
|
$
|
43,117
|
|
|
Work in process
|
|
|
28,672
|
|
|
|
28,120
|
|
|
Finished goods
|
|
|
23,372
|
|
|
|
17,408
|
|
|
Total
|
|
$
|
98,359
|
|
|
$
|
88,645
|
|
Distribution costs associated with the sale of inventory, which are recorded as a component of selling, general and administrative expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations, were $5.0 million and $4.1 million for the three months ended September 30, 2019 and 2018, respectively.
15
Changes to goodwill during the period ended September 30, 2019 were as follows (in thousands):
|
|
|
June 30, 2019
|
|
|
Acquisitions
|
|
|
Translation Adjustment
|
|
|
September 30, 2019
|
|
|
Engraving
|
|
$
|
79,776
|
|
|
$
|
147
|
|
|
$
|
(312
|
)
|
|
$
|
79,611
|
|
|
Electronics
|
|
|
131,317
|
|
|
|
820
|
|
|
|
(729
|
)
|
|
|
131,408
|
|
|
Engineering Technologies
|
|
|
43,890
|
|
|
|
-
|
|
|
|
(280
|
)
|
|
|
43,610
|
|
|
Hydraulics
|
|
|
3,059
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,059
|
|
|
Food Service Equipment
|
|
|
23,461
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,461
|
|
|
Total
|
|
$
|
281,503
|
|
|
$
|
967
|
|
|
$
|
(1,321
|
)
|
|
$
|
281,149
|
|
Intangible assets consist of the following (in thousands):
|
|
|
Customer Relationships
|
|
|
Tradenames (Indefinite-lived)
|
|
|
Developed Technology
|
|
|
Other
|
|
|
Total
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
73,748
|
|
|
$
|
19,849
|
|
|
$
|
55,057
|
|
|
$
|
5,475
|
|
|
$
|
154,129
|
|
|
Accumulated amortization
|
|
|
(25,803
|
)
|
|
|
-
|
|
|
|
(9,804
|
)
|
|
|
(3,668
|
)
|
|
$
|
(39,275
|
)
|
|
Balance, September 30, 2019
|
|
$
|
47,945
|
|
|
$
|
19,849
|
|
|
$
|
45,253
|
|
|
$
|
1,807
|
|
|
$
|
114,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
75,018
|
|
|
$
|
19,977
|
|
|
$
|
55,164
|
|
|
$
|
5,492
|
|
|
$
|
155,651
|
|
|
Accumulated amortization
|
|
|
(24,476
|
)
|
|
|
-
|
|
|
|
(8,765
|
)
|
|
|
(3,750
|
)
|
|
|
(36,991
|
)
|
|
Balance, June 30, 2019
|
|
$
|
50,542
|
|
|
$
|
19,977
|
|
|
$
|
46,399
|
|
|
$
|
1,742
|
|
|
$
|
118,660
|
|
Amortization expense from continuing operations for the three months ended September 30, 2019 and 2018 was $2.9 million and $1.7 million, respectively At September 30, 2019, amortization expense of intangible assets is estimated to be $8.7 million for the remainder of fiscal year 2020, $11.0 million in 2021, $10.4 million in 2022, $9.6 million in 2023, $8.7 million in 2024 and $46.6 million thereafter.
The expected cost associated with warranty obligations on our products is recorded as a component of cost of sales when the revenue is recognized. The Company’s estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Since warranty estimates are forecasts based on the best available information, claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.
The changes in warranty reserve from continuing operations, which are recorded as a component of accrued liabilities, as of September 30, 2019 and June 30, 2019 were as follows (in thousands):
|
|
|
September 30, 2019
|
|
|
June 30, 2019
|
|
|
Balance at beginning of year
|
|
$
|
5,278
|
|
|
$
|
4,966
|
|
|
Acquisitions and other
|
|
|
(7
|
)
|
|
|
(85
|
)
|
|
Warranty expense
|
|
|
1,703
|
|
|
|
5,016
|
|
|
Warranty claims
|
|
|
(1,517
|
)
|
|
|
(4,619
|
)
|
|
Balance at end of period
|
|
$
|
5,457
|
|
|
$
|
5,278
|
|
16
Long-term debt is comprised of the following (in thousands):
|
|
|
September 30, 2019
|
|
|
June 30, 2019
|
|
|
Bank credit agreements
|
|
$
|
190,000
|
|
|
$
|
198,800
|
|
|
Total funded debt
|
|
|
190,000
|
|
|
|
198,800
|
|
|
Issuance Cost
|
|
|
(1,105
|
)
|
|
|
(1,190
|
)
|
|
Total long-term debt
|
|
$
|
188,895
|
|
|
$
|
197,610
|
|
The Company’s debt payments are due as follows (in thousands):
|
Fiscal Year
|
|
September 30, 2019
|
|
|
2020
|
|
$
|
-
|
|
|
2021
|
|
|
-
|
|
|
2022
|
|
|
-
|
|
|
2023
|
|
|
-
|
|
|
2024
|
|
|
190,000
|
|
|
Thereafter
|
|
|
-
|
|
|
Total Debt
|
|
|
190,000
|
|
|
Issuance cost
|
|
|
(1,105
|
)
|
|
Debt net of issuance cost
|
|
$
|
188,895
|
|
Bank Credit Agreements
During the second quarter of fiscal year 2019, the Company entered into a five-year Amended and Restated Credit Agreement (“Credit Facility”, or “facility”). The facility has 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.
At September 30, 2019, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $7.6 million and had the ability to borrow $257.5 million under the facility. At September 30, 2019, the carrying value of the current borrowings under the facility approximates fair value.
|
11)
|
Derivative Financial Instruments
|
The Company is exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency rates. We selectively use derivative financial instruments in order to manage 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 are forward-dated, as cash flow hedges, and changes in the fair value of the swaps are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swaps will be reported by the Company in interest expense.
17
The Company’s effective swap agreements convert the base borrowing rate on $85 million of debt due under our revolving credit agreement from a variable rate equal to LIBOR to a weighted average fixed rate of 2.11% at September 30, 2019. The fair value of the swaps, recognized in accrued expenses and in other comprehensive income, is as follows (in thousands, except percentages):
|
Effective Date
|
|
Notional Amount
|
|
|
Fixed Interest Rate
|
|
|
Maturity
|
|
September 30, 2019
|
|
|
June 30, 2019
|
|
|
December 19, 2015
|
|
10,000
|
|
|
2.01%
|
|
|
December 19, 2019
|
|
|
$ (1)
|
|
|
|
$ 3
|
|
|
May 24, 2017
|
|
25,000
|
|
|
1.88%
|
|
|
April 24, 2022
|
|
|
(287
|
)
|
|
|
(190
|
)
|
|
May 24, 2017
|
|
25,000
|
|
|
1.67%
|
|
|
May 24, 2020
|
|
|
14
|
|
|
|
49
|
|
|
August 6, 2018
|
|
25,000
|
|
|
2.83%
|
|
|
August 6, 2023
|
|
|
(1,390
|
)
|
|
|
(1,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$ (1,664)
|
|
|
|
$ (1,380)
|
|
The Company reported no losses for the three months ended September 30, 2019, as a result of hedge ineffectiveness. Future changes in these swap arrangements, including termination of the agreements, may result in a reclassification of any gain or loss reported in accumulated other comprehensive income (loss) into earnings as an adjustment to interest expense. Accumulated other comprehensive income (loss) related to these instruments is being amortized into interest expense concurrent with the hedged exposure.
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 September 30, 2019 and June 30, 2019, the Company had outstanding forward contracts related to hedges of intercompany loans with net unrealized losses of $(1.5) million and $(3.1) million, respectively, which approximate the unrealized gains and losses on the related loans. The contracts have maturity dates ranging from 2020 to 2023, which correspond to the related intercompany loans.
The notional amounts of the Company’s forward contracts, by currency, are as follows:
|
Currency
|
|
September 30, 2019
|
|
|
June 30, 2019
|
|
|
USD
|
|
|
46,278
|
|
|
|
55,015
|
|
|
EUR
|
|
|
5,750
|
|
|
|
5,750
|
|
|
CAD
|
|
|
20,600
|
|
|
|
20,600
|
|
The table below presents the fair value of derivative financial instruments as well as their classification on the balance sheet (in thousands):
|
|
|
Asset Derivatives
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Derivative designated
|
|
Balance
|
|
|
|
|
Balance
|
|
|
|
|
|
as hedging instruments
|
|
Sheet
|
|
|
|
|
Sheet
|
|
|
|
|
|
|
|
Line Item
|
|
Fair Value
|
|
Line Item
|
|
Fair Value
|
|
|
Interest rate swaps
|
|
Other Assets
|
|
$
|
14
|
|
Other Assets
|
|
$
|
52
|
|
|
Foreign exchange contracts
|
|
Other Assets
|
|
|
-
|
|
Other Assets
|
|
|
-
|
|
|
|
|
|
|
$
|
14
|
|
|
|
$
|
52
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Derivative designated
|
|
Balance
|
|
|
|
|
Balance
|
|
|
|
|
|
as hedging instruments
|
|
Sheet
|
|
|
|
|
Sheet
|
|
|
|
|
|
|
|
Line Item
|
|
Fair Value
|
|
Line Item
|
|
Fair Value
|
|
|
Interest rate swaps
|
|
Accrued Liabilities
|
|
$
|
1,679
|
|
Accrued Liabilities
|
|
$
|
1,432
|
|
|
Foreign exchange contracts
|
|
Accrued Liabilities
|
|
|
1,521
|
|
Accrued Liabilities
|
|
|
3,052
|
|
|
|
|
|
|
$
|
3,200
|
|
|
|
$
|
4,484
|
|
18
The table below presents the amount of gain (loss) recognized in comprehensive income on our derivative financial instruments (effective portion) designated as hedging instruments and their classification within comprehensive income for the periods ended (in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Interest rate swaps
|
|
$
|
102
|
|
|
$
|
397
|
|
|
Foreign exchange contracts
|
|
|
1,050
|
|
|
|
(34
|
)
|
|
|
|
$
|
1,152
|
|
|
$
|
363
|
|
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
|
|
in the Unaudited
|
|
Income (Loss) Components
|
|
September 30,
|
|
Condensed Statements
|
|
|
|
2019
|
|
|
2018
|
|
of Operations
|
|
Interest rate swaps
|
|
$
|
(30
|
)
|
|
$
|
(61
|
)
|
Interest expense
|
|
Foreign exchange contracts
|
|
|
(1,171
|
)
|
|
|
(598
|
)
|
Interest expense
|
|
|
|
$
|
(1,201
|
)
|
|
$
|
(659
|
)
|
|
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.
Net Periodic Benefit Cost for the Company’s U.S. and Foreign pension benefit plans for the three months ended September 30, 2019 and 2018 consisted of the following components (in thousands):
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
10
|
|
|
$
|
9
|
|
|
Interest cost
|
|
|
2,271
|
|
|
|
2,586
|
|
|
|
205
|
|
|
|
254
|
|
|
Expected return on plan assets
|
|
|
(3,288
|
)
|
|
|
(3,385
|
)
|
|
|
(211
|
)
|
|
|
(228
|
)
|
|
Recognized net actuarial loss
|
|
|
1,275
|
|
|
|
1,030
|
|
|
|
158
|
|
|
|
86
|
|
|
Net periodic benefit cost
|
|
$
|
259
|
|
|
$
|
232
|
|
|
$
|
162
|
|
|
$
|
121
|
|
The contributions made to defined benefit plans for the three months ended September 30, 2019 and 2018 are presented below along with remaining contributions to be made for fiscal year 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
Contributions
|
|
|
Contributions to defined benefit plans
|
|
2019
|
|
|
2018
|
|
|
Fiscal 2020
|
|
|
United States, funded plan
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,348
|
|
|
United States, unfunded plan
|
|
|
56
|
|
|
|
56
|
|
|
|
160
|
|
|
United Kingdom
|
|
|
184
|
|
|
|
195
|
|
|
|
185
|
|
|
Germany, unfunded plan
|
|
|
-
|
|
|
|
-
|
|
|
|
254
|
|
|
Ireland
|
|
|
-
|
|
|
|
-
|
|
|
|
62
|
|
|
|
|
$
|
240
|
|
|
$
|
251
|
|
|
$
|
5,009
|
|
19
The Company's effective tax rate from continuing operations for the first quarter of the fiscal year ending September 30, 2019 was 27.8% compared with 28.9% for the prior year quarter. The effective tax rate in fiscal year 2020 was lower primarily due to a benefit as a result of non-taxable life insurance proceeds earned during the quarter.
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
|
|
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Basic - Average shares outstanding
|
|
|
12,345
|
|
|
|
12,716
|
|
|
Dilutive effect of unvested, restricted stock awards
|
|
|
58
|
|
|
|
92
|
|
|
Diluted - Average shares outstanding
|
|
|
12,403
|
|
|
|
12,808
|
|
Earnings available to common stockholders are the same for computing both basic and diluted earnings per share. There were not any anti-dilutive potential common shares excluded from the calculation above for the three months ended September 30, 2019 and 2018, respectively.
Performance stock units of 86,806 and 80,073 for the three months ended September 30, 2019 and 2018, respectively, are excluded from the diluted earnings per share calculation as the performance criteria have not been met.
|
15)
|
Comprehensive Income (Loss)
|
The components of the Company’s accumulated other comprehensive income (loss) are as follows (in thousands):
|
|
|
September 30, 2019
|
|
|
June 30, 2019
|
|
|
Foreign currency translation adjustment
|
|
$
|
(33,253
|
)
|
|
$
|
(27,658
|
)
|
|
Unrealized pension losses, net of tax
|
|
|
(105,989
|
)
|
|
|
(107,380
|
)
|
|
Unrealized losses on derivative instruments, net of tax
|
|
|
(2,307
|
)
|
|
|
(2,240
|
)
|
|
Total
|
|
$
|
(141,549
|
)
|
|
$
|
(137,278
|
)
|
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.
|
17)
|
Industry Segment Information
|
The Company has determined that it has five reportable segments organized around the types of product sold:
|
|
•
|
Engraving – provides mold texturizing, slush molding tools, tool finishing, project management and design services, hygiene product tooling, low observation vents for stealth aircraft, and process machinery for a number of industries;
|
|
|
•
|
Electronics – manufacturing of electronic components for applications throughout the end-user market spectrum;
|
|
|
•
|
Engineering Technologies – provides net and near net formed single-source customized solutions in the manufacture of engineered components for the aviation, aerospace, defense, energy, industrial, medical, marine, oil and gas, and manned and unmanned space markets.
|
|
|
•
|
Hydraulics – manufacturing of single and double-acting telescopic and piston rod hydraulic cylinders; and
|
|
|
•
|
Food Service Equipment – a manufacturer of commercial food service equipment and scientific refrigeration equipment;
|
20
Net sales and income (loss) from continuing operations by segment for the three months ended September 30, 2019 and 2018 were as follows (in thousands):
|
|
|
Three Months Ended September 30,
|
|
|
|
|
Net Sales
|
|
|
Income from Operations
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engraving
|
|
$
|
38,431
|
|
|
$
|
35,979
|
|
|
$
|
6,537
|
|
|
$
|
7,547
|
|
|
Electronics
|
|
|
46,617
|
|
|
|
51,450
|
|
|
|
8,099
|
|
|
|
12,787
|
|
|
Engineering Technologies
|
|
|
24,644
|
|
|
|
20,784
|
|
|
|
3,359
|
|
|
|
1,775
|
|
|
Hydraulics
|
|
|
13,749
|
|
|
|
12,536
|
|
|
|
2,527
|
|
|
|
1,583
|
|
|
Food Service Equipment
|
|
|
72,997
|
|
|
|
72,331
|
|
|
|
8,372
|
|
|
|
6,668
|
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,285
|
)
|
|
|
(6,580
|
)
|
|
Restructuring costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,479
|
)
|
|
|
(447
|
)
|
|
Acquisition-related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(734
|
)
|
|
|
(688
|
)
|
|
Other operating (income) expense, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,045
|
|
|
|
-
|
|
|
Sub-total
|
|
$
|
196,438
|
|
|
$
|
193,080
|
|
|
$
|
18,441
|
|
|
$
|
22,645
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(2,121
|
)
|
|
|
(2,244
|
)
|
|
Other non-operating income
|
|
|
|
|
|
|
|
|
|
|
916
|
|
|
|
(201
|
)
|
|
Income from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
17,236
|
|
|
$
|
20,200
|
|
Net sales include only transactions with unaffiliated customers and include no intersegment sales. Income (loss) from operations by segment excludes interest expense and other non-operating income (expense).
The Company’s identifiable assets at September 30, 2019 and June 30, 2019 are as follows (in thousands):
|
|
|
September 30, 2019
|
|
|
June 30, 2019
|
|
|
Engraving
|
|
$
|
256,628
|
|
|
|
233,569
|
|
|
Electronics
|
|
|
324,894
|
|
|
|
332,326
|
|
|
Engineering Technologies
|
|
|
148,569
|
|
|
|
149,628
|
|
|
Hydraulics
|
|
|
27,672
|
|
|
|
28,132
|
|
|
Food Service Equipment
|
|
|
166,465
|
|
|
|
159,656
|
|
|
Corporate & Other
|
|
|
25,064
|
|
|
|
18,578
|
|
|
Total
|
|
$
|
949,292
|
|
|
$
|
921,889
|
|
The Company has undertaken cost reduction and facility consolidation initiatives that have resulted in severance, restructuring, and related charges.
2020 Restructuring Initiatives
The Company continues to focus our efforts to reduce cost and improve productivity across our businesses, particularly through headcount reductions, facility closures, and consolidations. Restructuring expenses primarily related to headcount reductions and facility rationalization within our Engraving segment. Thus far, during fiscal year 2020, we have also incurred restructuring expenses related to third party assistance with analysis and implementation of these activities.
Prior Year Restructuring Initiatives
During the fiscal year 2019, the Company initiated restructuring programs related to: (1) employee headcount reductions as the Company realigned management functions (2) the exit of unprofitable Engraving businesses, and (3) initiatives intended to improve profitability, streamline production, and enhance capacity to support future growth in the Electronics and Engraving segments.
21
A summary of charges by initiative is as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2019
|
|
|
Fiscal 2020
|
|
Involuntary Employee Severance and Benefit Costs
|
|
|
Other
|
|
|
Total
|
|
|
Current year initiatives
|
|
$
|
1,000
|
|
|
$
|
479
|
|
|
$
|
1,479
|
|
|
Prior year initiatives
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
$
|
1,000
|
|
|
$
|
479
|
|
|
$
|
1,479
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2018
|
|
|
Fiscal 2019
|
|
Involuntary Employee Severance and Benefit Costs
|
|
|
Other
|
|
|
Total
|
|
|
Current year initiatives
|
|
$
|
-
|
|
|
$
|
350
|
|
|
$
|
350
|
|
|
Prior year initiatives
|
|
|
85
|
|
|
|
12
|
|
|
|
97
|
|
|
|
|
$
|
85
|
|
|
$
|
362
|
|
|
$
|
447
|
|
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, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Additions and adjustments
|
|
|
1,000
|
|
|
|
479
|
|
|
|
1,479
|
|
|
Payments
|
|
|
(1,000
|
)
|
|
|
(479
|
)
|
|
|
(1,479
|
)
|
|
Restructuring liabilities at September 30, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Prior Year Initiatives
|
|
Involuntary Employee Severance and Benefit Costs
|
|
|
Other
|
|
|
Total
|
|
|
Restructuring liabilities at June 30, 2019
|
|
$
|
147
|
|
|
$
|
5
|
|
|
$
|
152
|
|
|
Additions and adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Payments
|
|
|
(122
|
)
|
|
|
-
|
|
|
|
(122
|
)
|
|
Restructuring liabilities at September 30, 2019
|
|
$
|
25
|
|
|
$
|
5
|
|
|
$
|
30
|
|
The Company’s total restructuring expenses by segment are as follows (in thousands):
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2019
|
|
|
|
|
Involuntary Employee Severance and Benefit Costs
|
|
|
Other
|
|
|
Total
|
|
|
Engraving
|
|
$
|
559
|
|
|
$
|
479
|
|
|
$
|
1,038
|
|
|
Food Service Equipment
|
|
|
91
|
|
|
|
-
|
|
|
|
91
|
|
|
Corporate
|
|
|
350
|
|
|
|
-
|
|
|
|
350
|
|
|
|
|
$
|
1,000
|
|
|
$
|
479
|
|
|
$
|
1,479
|
|
22
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2018
|
|
|
|
|
Involuntary Employee Severance and Benefit Costs
|
|
|
Other
|
|
|
Total
|
|
|
Engraving
|
|
$
|
17
|
|
|
$
|
-
|
|
|
$
|
17
|
|
|
Electronics
|
|
|
-
|
|
|
|
12
|
|
|
|
12
|
|
|
Engineering Technologies
|
|
|
47
|
|
|
|
-
|
|
|
|
47
|
|
|
Food Service Equipment
|
|
|
21
|
|
|
|
-
|
|
|
|
21
|
|
|
Corporate
|
|
|
-
|
|
|
|
350
|
|
|
|
350
|
|
|
|
|
$
|
85
|
|
|
$
|
362
|
|
|
$
|
447
|
|
Restructuring expense is expected to be approximately $1.9 million for the remainder of fiscal year 2020.
Effective July 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”). The Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have material financing leases.
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. To estimate its incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating
The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.
Amounts (in thousands) recorded in the Company's Condensed Consolidated Balance Sheet and Statement of Operations related to leases are as follows:
|
|
|
September 30, 2019
|
|
|
Assets
|
|
|
|
|
|
ROU Assets (other assets)
|
|
$
|
42,079
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current (accrued expense)
|
|
$
|
7,712
|
|
|
Other non-current liability
|
|
|
34,192
|
|
|
Total lease liability
|
|
$
|
41,904
|
|
Lease cost
The components of lease costs for the three months ended September 30, 2019 are as follows:
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2019
|
|
|
Operating lease cost1
|
|
$
|
2,913
|
|
1Includes short-term leases and variable lease costs, which are immaterial.
23
Maturity of lease liability
The maturity of the Company's lease liabilities at September 30, 2019 were as follows:
|
|
|
Operating Leases
|
|
|
Remainder of 2020
|
|
$
|
6,758
|
|
|
2021
|
|
|
7,187
|
|
|
2022
|
|
|
5,779
|
|
|
2023
|
|
|
4,027
|
|
|
2024
|
|
|
3,593
|
|
|
After 2024
|
|
|
20,083
|
|
|
Less: Interest
|
|
|
(5,523
|
)
|
|
Present value of lease Liabilities
|
|
$
|
41,904
|
|
The weighted average remaining lease term and discount rates are as follows:
|
Lease Term and Discount Rate
|
|
September 30, 2019
|
|
|
Weighted average remaining lease term (years)
|
|
|
|
|
|
Operating leases
|
|
|
10.54
|
|
|
Weighted average discount rate (percentage)
|
|
|
|
|
|
Operating leases
|
|
|
2.7
|
%
|
Other Information
Supplemental cash flow information related to leases is as follows:
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2019
|
|
|
Operating cash flows from operating leases
|
|
$
|
2,551
|
|
|
Total cash paid for amounts included in the measurement of lease liabilities
|
|
|
2,551
|
|