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Note 2 - Acquisitions
 6 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
2)
     Acquisition
s
 
The Company’s recent acquisitions are strategically significant to the future growth prospects of the Company, however at the closing date of each acquisition and
December
31,
2016,
historical results of the acquired Companies both individually and in the aggregate, were immaterial to the Company’s consolidated financial results. Pro forma results of operations have not been presented due to the immaterial impact the amounts would have had on the Company's historical results of operations.
 
Horizon Scientific
 
During the
second
quarter of fiscal year
2017,
the Company acquired Horizon Scientific, Inc., (“Horizon”), a supplier of laboratory refrigerators and freezers, as well as cryogenic equipment for the scientific, bio-medical and pharmaceutical markets. We believe the acquisition of Horizon enhances Standex’s penetration of the refrigeration markets in the growing scientific sector.
We have included the operating results of Horizon in our Food Service Equipment segment in our Condensed Consolidated Financial Statements.
 
The Company paid
$24.7
million in cash, net of cash acquired, for
100%
of the outstanding stock of Horizon. The final purchase price is subject to cash and net working capital adjustments that have not yet been finalized along with deferred consideration of up to
$8.4
million. The preliminary purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values on the closing date. Goodwill recorded from this transaction is attributable to potential revenue increases from synergies with our existing customer base and channel partners.
 
Intangible assets of
$17.6
million have been preliminarily recorded, consisting of
$16.1
million of customer relationships which are expected to be amortized over a period of
fifteen
years,
$1.2
million of trademarks which are indefinite lived, and
$0.3
million of product order backlog which is expected to be amortized during the current fiscal year. The goodwill of
$5.5
million created by the transaction is not deductible for income tax purposes.
 
The components of the fair value of the Horizon acquisition, including the preliminary allocation of the purchase price at
December
31,
2016,
are as follows (in thousands):
 
 
 
Preliminary Allocation
 
Fair value of business combination:
        
Cash payments
   $
26,457
 
Less: cash acquired
    
(1,797
 )
Total
   $
24,660
  
Identifiable assets acquired and liabilities assumed:
        
Current assets
   $
4,863
 
Inventories
    
4,470
  
Property, plant, and equipment
    
1,616
 
Identifiable intangible assets
    
17,550
 
Goodwill
    
5,452
 
Liabilities assumed
    
(2,374
 )
Deferred taxes
    
(6,917
 )
Total
   $
24,660
  
 
Transaction costs associated with this acquisition were immaterial. All transaction costs have been recorded as general and administrative expense for the
three
and
six
months ended
December
31,
2016.
 
The initial allocation of the purchase price is based upon a preliminary valuation, and accordingly, our estimates and assumptions are subject to change as we obtain additional information during the measurement period and complete the valuation of intangible assets. The Company anticipates finalizing the purchase price allocation during the current fiscal year.
 
Northlake
 
During the
second
quarter of fiscal year
2016,
the Company acquired Northlake Engineering, Inc., (“Northlake”), a Wisconsin-based designer, manufacturer and distributor of high reliability electromagnetic products and solutions serving the North America power distribution and medical equipment markets. Northlake reports to our Electronics segment.
 
The Company paid
$13.7
million in cash for
100%
of the outstanding stock of Northlake and has recorded intangible assets of
$6.8
million, consisting of
$4.1
million of customer relationships which primarily are expected to be amortized over a period of
twelve
and half years,
$2.4
million of trademarks which are indefinite-lived and
$0.3
million of non-compete which are expected to amortized over a period of
five
years. Acquired goodwill of
$5.1
million is deductible for income tax purposes. The Company finalized the purchase price allocation during the quarter ending
June
30,
2016.
 
The components of the fair value of the Northlake acquisition, including the allocation of the purchase price is as follows (in thousands):
 
 
 
Final
 
Fair value of business combination:
        
Cash payments
   $
14,015
 
Less: cash acquired
    
(315
 )
Total
   $
13,700
 
Identifiable assets acquired and liabilities assumed:
        
Current assets
   $
2,810
  
Property, plant, and equipment
    
1,407
  
Identifiable intangible assets
    
6,824
  
Goodwill
    
5,121
  
Other non-current assets
    
158
  
Liabilities assumed
    
(2,620
 )
Final payments
    
-
  
Total
   $
13,700
  
 
 
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 payments due to the Horizon seller of
$2.8
million on the
second
anniversary and
$5.6
million on the
third
anniversary of the closing date of the purchase. The deferred compensation costs of
$
0.7
million recorded in the
three
and
six
months ended
December
31,
2016
are the estimated deferred compensation earned by the Horizon seller to date. The payments are contingent on the seller remaining an employee of the Company with limited exceptions at each anniversary date.
 
The components of acquisition-related costs, net are as follows (dollars in thousands):
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
December 31,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Deferred compensation arrangements
   $
703
     $
-
    $
703
     $
-
 
Acquisition-related costs
    
800
      
-
     
800
      
-
 
Total
   $
1,503
     $
-
     $
1,503
     $
-