Acquisition

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

OKI Sensor Device Corporation

During the

third

quarter of fiscal year

2017,

the Company acquired all of the outstanding shares of OKI Sensor Device Corporation from OKI Electric Industry Co., Ltd. Located in Kofu City, Japan, OKI Sensor Device Corporation is the world’s leading designer and supplier of magnetic reed switches. Now named Standex Electronics Japan Corporation (“Standex Electronics Japan”), the acquisition enhances the Company’s access to important Asian markets and enables the Company to offer a world class suite of reed switches and related magnetic solutions while continuing to serve Standex Electronics Japan’s diverse distribution channels. Standex Electronics Japan reports within our Electronics segment.

The Company paid

$129.2

million in cash, net of cash acquired, for

100%

of the outstanding stock of Standex Electronics Japan. While the final purchase price is subject to cash and net working capital adjustments that have not yet been finalized, no such adjustment is anticipated. 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 enhanced access to our Asian markets and synergies created from the vertical integration with a key supplier.

Intangible assets of

$53.8

million have been preliminarily recorded, consisting of

$50.1

million of developed technology which is expected to be amortized over a period of

twenty

years,

$3.6

million of customer relationships which are expected to be amortized over a period of

fifteen

years, and

$0.1

million of product order backlog which is expected to be amortized during the current fiscal year. The goodwill of

$76.0

million created by the transaction is not deductible for income tax purposes.

The components of the fair value of the Standex Electronics Japan acquisition, including the preliminary allocation of the purchase price at

March

31,

2017,

are as follows (in thousands):

	Preliminary Allocation
Fair value of business combination:
Cash payments	$	137,676
Less: cash acquired		(8,521	)
Total	$	129,155
Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	12,497
Inventories		7,387
Property, plant, and equipment		12,703
Identifiable intangible assets		53,800
Goodwill		75,985
Liabilities assumed		(10,811	)
Deferred taxes		(22,406	)
Total	$	129,155

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 calendar year.

The following table reflects the unaudited pro forma operating results of the Company for the

three

and

nine

months ended

March

31,

2017

and the

three

and

nine

months ended

March

31,

2016,

which give effect to the acquisition of Standex Electronics Japan as if it had occurred on

July

2016.

The pro forma information combines the historical financial results of the Company and Standex Electronics Japan. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective

July

2016,

nor are they intended to be indicative of results that

may

occur in the future. The pro forma information does not include the effects of any synergies related to the Standex Electronics Japan acquisition, transactions between the entities prior to acquisition, or the pre-acquisition impact of other businesses acquired by the Company during this period as they were not material to the Company’s historical results of operations.

	(Unaudited Pro Forma)				(Unaudited Pro Forma)
	Three Months ended March 31,				Nine Months Ended March 31,
In thousands	2017		2016		2017		2016
Net Sales	$	200,423	$	189,416	$	587,496	$	600,780
Net Income	$	12,929	$	15,388	$	41,060	$	48,500

Earnings per share:
Basic	$	1.02	$	1.21	$	3.24	$	3.82
Diluted	$	1.01	$	1.21	$	3.22	$	3.80

Pro forma earnings during the

three

months ended

March

31,

2017

were adjusted to include expense of

$0.6

million for amortization of intangible assets recognized at fair value, depreciation expense of

$0.4

million for the fair value adjustment of the acquired fixed assets, and

$0.3

million of interest expense associated with incremental borrowings under the Company’s Credit Facility. Pro forma earnings were also adjusted to exclude non-recurring acquisition-related costs of

$3.1

million.

Pro forma earnings during the

three

months ended

March

31,

2016

were adjusted to include expense of

$0.6

million for amortization of intangible assets recognized at fair value, depreciation expense of

$0.4

million for the fair value adjustment of the acquired fixed assets, and

$0.3

million of interest expense associated with incremental borrowings under the Company’s Credit Facility.

Pro forma earnings during the

nine

months ended

March

31,

2017

were adjusted to include expense of

$1.8

million for amortization of intangible assets recognized at fair value, depreciation expense of

$1.1

million for the fair value adjustment of the acquired fixed assets, and

$0.8

million of interest expense associated with incremental borrowings under the Company’s Credit Facility. Pro forma earnings were also adjusted to exclude non-recurring acquisition-related costs of

$3.6

million.

Pro forma earnings during the

nine

months ended

March

31,

2016

were adjusted to include expense of

$1.8

million for amortization of intangible assets recognized at fair value, depreciation expense of

$1.1

million for the fair value adjustment of the acquired fixed assets, and

$0.8

million of interest expense associated with incremental borrowings under the Company’s Credit Facility.

Horizon

Scientific

During the

second

quarter of fiscal year

2017,

the Company acquired Horizon Scientific, 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 Scientific enhances Standex’s penetration of the refrigeration markets in the growing scientific sector.

We have included the operating results of Horizon Scientific 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 Scientific. 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 Scientific acquisition, including the preliminary allocation of the purchase price at

March

31,

2017,

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

nine

months ended

March

31,

2017.

Northlake

During the

second

quarter of fiscal year

2016,

the Company acquired 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 within 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	)
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 Scientific 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

and

nine

months ended

March

31,

2017,

we recorded deferred compensation costs of

$0.7

million and

$1.4

million, respectively for estimated deferred compensation earned by the Horizon Scientific seller to date. The payments are contingent on the seller remaining an employee of the Company with limited exceptions at each anniversary date.

Acquisition related expenses of

$4.7

million consisted of

$2.8

million of investment banker fees for services provided in connection with the Standex Electronics Japan transaction and

$1.9

million for

third

party due diligence expenses also related to the Standex Electronics Japan acquisition.

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

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2017		2016		2017		2016
Deferred compensation arrangements	$	703	$	-	$	1,405	$	-
Acquisition-related costs		4,719		-		5,520		-
Total	$	5,422	$	-	$	6,925	$	-