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Note 1 - Summary of Accounting Policies | 12 Months Ended
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Jun. 30, 2021
Notes to Financial Statements |
Significant Accounting Policies [Text Block] | 1. Summary of Accounting Policies Basis of Presentation and Consolidation Standex International Corporation (“Standex” or the “Company”) is a diversified industrial manufacturer in five broad business segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions with operations in the United States, Europe, Canada, Japan, Singapore, Mexico, Brazil, Turkey, South Africa, India, and China. The accompanying consolidated financial statements include the accounts of Standex International Corporation and its subsidiaries and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation. 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 consolidated financial statements were issued. Accounting Estimates 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 the COVID-19 pandemic and its related economic impacts. As a result of the COVID 19 pandemic, there is heightened volatility and uncertainty in customer demand and the worldwide economy. However, the magnitude of such impact on the Company’s business and its duration is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of June 30, 2021 and the issuance date of this Annual Report on Form 10-K. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments purchased with a maturity of three months or less. These investments are carried at cost, which approximates fair value. At June 30, 2021 and 2020, the C ompany’s cash was comprised solely of cash on deposit. Trading Securities The Company purchases investments for its non-qualified defined contribution plan for employees who exceed certain thresholds under our traditional 401(k) plan. These investments are classified as trading and reported at fair value. The investments, generally consisting of mutual funds, are included in other non-current assets and amounted to $3.0 million at June 30, 2021 and $2.1 million at June 30, 2020. Gains and losses on these investments are recorded as other non-operating (income) expense, net in the Consolidated Statements of Operations. Accounts Receivable Allowances The Company has provided an allowance for credit losses. All trade account receivables are reported net of allowances for expected credit losses. The allowances for expected credit losses represent management’s best estimate of the credit losses expected from our trade account receivables over the life of the underlying assets. Assets with similar risk characteristics are pooled together for determination of their current expected credit losses. The Company regularly performs detailed reviews of its pooled assets to evaluate the collectability of receivables based on a combination of past, current, and future financial and qualitative factors that may affect customers’ ability to pay. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected. The changes in the allowances for credit losses accounts during 2021, 2020, and 2019 were as follows (in thousands):
|  | 2021 |  |  | 2020 |  |  | 2019 |
Balance at beginning of year |  |  | $ 2,113 |  |  |  | $ 1,250 |  |  |  | $ 1,590 |
Acquisitions and other |  |  | 20 |  |  |  | 192 |  |  |  | 66 |
Provision charged to expense |  |  | 605 |  |  |  | 824 |  |  |  | (48) |
Write-offs, net of recoveries |  |  | (1,150) |  |  |  | (153) |  |  |  | (358) |
Balance at end of year |  |  | $ 1,588 |  |  |  | $ 2,113 |  |  |  | $ 1,250 |
Inventories Inventories are stated at the lower of (first-in, first-out) cost or market. Inventory quantities on hand are reviewed regularly, and write downs are made for obsolete, slow moving, and non-saleable inventory, based primarily on management’s forecast of customer demand for those products in inventory. Long-Lived Assets Long-lived assets that are used in operations, excluding goodwill and identifiable intangible assets, are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Recognition and measurement of a potential impairment loss is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment loss is the amount by which the carrying amount of a long-lived asset (asset group) exceeds its estimated fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. Property, Plant and Equipment Property, plant and equipment are reported at cost less accumulated depreciation. Depreciation is recorded on assets over their estimated useful lives, generally using the straight-line method. Lives for property, plant and equipment are as follows:
Buildings (years) |  | 40 | to | 50 |
Leasehold improvements |  | Lesser of useful life or term, unless renewals are deemed to be reasonably assured |
Machinery and equipment (years) |  | 8 | to | 15 |
Furniture and fixtures (years) |  | 3 | to | 10 |
Computer hardware and software (years) |  | 3 | to | 7 |
Routine maintenance costs are expensed as incurred. Major improvements, including those made to leased facilities, are capitalized. Leases At the inception of an arrangement, we determined 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. We do 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, we utilize our incremental borrowing rate to discount lease payments, which reflects the fixed rate at which we 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 our incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since we do not currently have a rating agency-based credit rating. We have elected not to recognize leases with an original term of one year or less on the balance sheet. We typically only include an initial lease term in our 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. Goodwill and Identifiable Intangible Assets All business combinations are accounted for using the acquisition method. Goodwill and identifiable intangible assets with indefinite lives are not amortized, but are reviewed annually for impairment or more frequently if impairment indicators arise. Definite lived identifiable intangible assets are amortized over the following useful lives:
Customer relationships (years) |  | 5 | to | 15 |
Patents (years) |  | 12 |  |  |
Non-compete agreements (years) |  | 5 |  |  |
Other (years) |  | 10 |  |  |
Developed technology (years) |  | 10 | to | 20 |
Trade names are considered to have an indefinite life and are not amortized. See discussion of the Company’s assessment of impairment in Note 6 – Goodwill and Note 7 – Intangible Assets. Fair Value of Financial Instruments 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. When 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 (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. For pension assets (see Note 16 – Employee Benefit Plans), securities are valued based on quoted market prices for securities held directly by the trust. 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. For pension assets held in commingled funds (see Note 16 – Employee Benefit Plans), the Company values investments based on the net asset value of the funds, which are derived from the quoted market prices of the underlying fund holdings. 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. The Company did not have any transfers of assets and liabilities among levels of the fair value measurement hierarchy during the years ended June 30, 2021 or 2020. 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 our financial instruments at June 30, 2021 and 2020 were (in thousands):
|  | 2021 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities - deferred compensation plan |  | $ | 2,988 |  |  | $ | 2,988 |  |  | $ | - |  |  | $ | - |
Foreign exchange contracts |  |  | 255 |  |  |  | - |  |  |  | 255 |  |  |  | - |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | 1,222 |  |  | $ | - |  |  | $ | 1,222 |  |  | $ | - |
Interest rate swaps |  |  | 3,096 |  |  |  | - |  |  |  | 3,096 |  |  |  | - |
Contingent consideration (a) |  |  | 3,333 |  |  |  | - |  |  |  | - |  |  |  | 3,333 |
|  | 2020 |
|  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities - deferred compensation plan |  | $ | 2,065 |  |  | $ | 2,065 |  |  | $ | - |  |  | $ | - |
Interest rate swaps |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | 2,477 |  |  | $ | - |  |  | $ | 2,477 |  |  | $ | - |
Interest rate swaps |  |  | 6,667 |  |  |  | - |  |  |  | 6,667 |  |  |  | - |
Contingent consideration(a) |  |  | 1,343 |  |  |  | - |  |  |  | - |  |  |  | 1,343 |
(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. The Company’s financial liabilities based upon Level 3 inputs include contingent consideration arrangements relating to its acquisition of Piazza Rosa, GS Engineering, and Renco Electronics. The Company is contractually obligated to pay contingent consideration payments to the Sellers of these businesses based on the achievement of certain criteria. The Company is 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. Contingent acquisition payments were payable in euros and could be paid in periods through fiscal year 2021. Piazza Rosa exceeded the defined revenue targets during the first and second years and payments were made to the Piazza Rosa sellers during the first quarter of fiscal year 2019 and the second quarter of fiscal year 2020. The final revenue target was not achieved in the second quarter of fiscal year 2021. This obligation is considered settled as of December 31, 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. The targets set in the GS stock purchase agreement were not met for the first or second year, which concluded in the fourth quarter of fiscal years 2020 and 2021, respectively. As of June 30, 2021, 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 years 2022 through 2024. The Company is also obligated to pay contingent consideration to the sellers of Renco Electronics in the event that certain earnings targets are achieved during the three years following acquisition. Contingent acquisition payments are scheduled to be paid in periods through fiscal year 2024. As of June 30, 2021, the Company could be required to pay up to $3.5 million for contingent consideration arrangements if the earnings targets are met. During the first quarter of fiscal year 2022, the Company paid $1.2 million to the sellers as Renco exceeded the defined revenue targets during the first year of the measurement period. 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. The Company will update its assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the agreements expire. Concentration of Credit Risk The Company is subject to credit risk through trade receivables. Concentration of risk with respect to trade receivables is minimized because of the diversification of our operations, as well as our large customer base and our geographical dispersion. No individual customer accounts for more than 5% of revenues or accounts receivable in the periods presented. Revenue Recognition 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. Cost of Goods Sold and Selling, General and Administrative Expenses The Company includes expenses in either cost of goods sold or selling, general and administrative categories based upon the natural classification of the expenses. Cost of goods sold includes expenses associated with the acquisition, inspection, manufacturing and receiving of materials for use in the manufacturing process. These costs include inbound freight charges, purchasing and receiving costs, inspection costs, internal transfer costs as well as depreciation, amortization, wages, benefits and other costs that are incurred directly or indirectly to support the manufacturing process. Selling, general and administrative includes expenses associated with the distribution of our products, sales effort, administration costs and other costs that are not incurred to support the manufacturing process. The Company records distribution costs associated with the sale of inventory as a component of selling, general and administrative expenses in the Consolidated Statements of Operations. These expenses include warehousing costs, outbound freight charges and costs associated with salaried distribution personnel. Our gross profit margins may not be comparable to those of other entities due to different classifications of costs and expenses. Our total advertising expenses, which are classified under selling, general, and administrative expenses are primarily related to trade shows, and totaled $1.7 million, $1.3 million, and $2.5 million for the years ended June 30, 2021, 2020, and 2019, respectively. Research and Development Research and development expenditures are expensed as incurred. Total research and development costs, which are classified under selling, general, and administrative expenses, were $9.6 million, $6.9 million, and $6.3 million for the years ended June 30, 2021, 2020, and 2019, respectively. Warranties The expected cost associated with warranty obligations on our products is recorded 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 the continuing operations warranty reserve, which are recorded as accrued liabilities, during 2021, 2020, and 2019 were as follows (in thousands):
|  | 2021 |  |  | 2020 |  |  | 2019 |
Balance at beginning of year |  | $ | 1,781 |  |  | $ | 1,911 |  |  | $ | 1,849 |
Acquisitions and other charges |  |  | 68 |  |  |  | (86 | ) |  |  | (85 | )
Warranty expense |  |  | 2,007 |  |  |  | 1,783 |  |  |  | 2,346 |
Warranty claims |  |  | (1,770 | ) |  |  | (1,827 | ) |  |  | (2,199 | )
Balance at end of year |  | $ | 2,086 |  |  | $ | 1,781 |  |  | $ | 1,911 |
The increase in warranty expense during 2021 compared to 2020 is primarily due to increased claim experience in Scientific primarily as a result of sales volume increases during the most recent fiscal year. Stock-Based Compensation Plans Restricted stock awards, including performance based awards, generally vest over terms from one to three years. Compensation expense associated with these awards is recorded based on their grant-date fair value and is generally recognized on a straight-line basis over the vesting period. Compensation cost for an award with a performance condition is based on the probable outcome of that performance condition. The stated vesting period is considered non-substantive for retirement eligible participants. Accordingly, the Company recognizes any remaining unrecognized compensation expense upon participant reaching retirement eligibility. Foreign Currency Translation The functional currency of our non-U.S. operations is the local currency. Assets and liabilities of non-U.S. operations are translated into U.S. Dollars on a monthly basis using period-end exchange rates. Revenues and expenses of these operations are translated using monthly average exchange rates. The resulting translation adjustment is reported as a component of comprehensive income (loss) in the consolidated statements of stockholders’ equity and comprehensive income. Gains and losses from foreign currency transactions are included in results of operations and were not material for any period presented. Derivative Instruments and Hedging Activities The Company recognizes all derivatives on its balance sheet at fair value. Forward foreign currency exchange contracts are periodically used to limit the impact of currency fluctuations on certain anticipated foreign cash flows, such as foreign purchases of materials and loan payments from 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. The Company also uses interest rate swaps to manage exposure to interest rates on the Company’s variable rate indebtedness. The Company values the swaps based on contract prices in the derivatives market for similar instruments. The Company has designated its interest rate swap agreements, including any 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 does not hold or issue derivative instruments for trading purposes. Income Taxes On December 22, 2017, the Tax Cuts and Jobs Act (the “Act” or “TCJA”) was passed which, among other things, reduces the federal corporate tax rate to 21.0% effective for taxable years starting on or after January 1, 2018. For the years ended June 30, 2021 and 2020, and 2019 the Company recorded federal taxes using a federal rate of 21.0%. The provision for fiscal year ending June 30, 2021, 2020 and 2019 was impacted by several law changes implemented by the Act such as the interest deduction limitation and Global Intangible Low Taxed Income (GILTI). As allowed under U.S. GAAP, the Company has elected to treat any taxes due on future U.S. inclusions in taxable income under the GILTI provision as a current-period expense when incurred. The Company will continue to monitor guidance regarding these changes and their impact on the financial statements in later periods. The Company's income tax provision from continuing operations for the fiscal years ended June 30, 2021, 2020, and 2019 was $14.2 million, $13.1 million, and $18.7 million, respectively, or an effective rate of 26.9%, 24.3%, and 27.9%, respectively. Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, the amount of the Company's income or loss, the mix of income earned in the US versus outside the US, the effective tax rate in each of the countries in which we earn income, and any one-time tax issues which occur during the period. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2021 was impacted by the following items: (i) a tax provision of $5.1 million due to the mix of income in various jurisdictions, (ii) a tax benefit of $1.0 million from our 2019 and 2020 tax losses that the CARES Act allows to be carried back to 2014 and 2015, when the U.S. federal income tax rate was 35%, (iii) a tax benefit of $0.8 million related to Federal R&D credit and Foreign Tax Credit, (iv) a tax benefit of $1.7 million related to return to provision adjustments, and (v) the tax expense of $1.2 million attributable to the divestiture of the Enginetics Corporation during the year. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2020 was impacted by the following items: (i) a tax benefit of $1.2 million related to the Federal R&D credit, (ii) a tax provision of $1.4 million due to the mix of income in various jurisdictions, (iii) a tax benefit of $0.7 million related to the release of uncertain tax provision reserves, and (iv) a tax provision of $0.8 million related to GILTI. The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2019 was impacted by the following items: (i) a tax benefit related to the impact of the Sec. 965 toll tax of $0.8 million, (ii) a tax provision of $0.3 million related to the elimination of the performance based compensation exception for executive compensation under Sec. 162(m) of the Internal Revenue Code, and (iii) a tax provision related to expected foreign withholding taxes on cash repatriation of $2.1 million. Earnings Per Share
(share amounts in thousands) |  | 2021 |  |  | 2020 |  |  | 2019 |
Basic – Average Shares Outstanding |  |  | 12,156 |  |  |  | 12,324 |  |  |  | 12,574 |
Effect of Dilutive Securities – Stock Options and Restricted Stock Awards |  |  | 102 |  |  |  | 63 |  |  |  | 59 |
Diluted – Average Shares Outstanding |  |  | 12,258 |  |  |  | 12,387 |  |  |  | 12,633 |
Both basic and diluted income is the same for computing earnings per share. There were no outstanding instruments that had an anti-dilutive effect at June 30,2021. There were 32,000 outstanding instruments that had an anti-dilutive effect at June 30, 2020. There were no outstanding instruments that had an anti-dilutive effect at June 30, 2019. Recently Issued Accounting Pronouncements In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently assessing the potential impact of the adoption of ASU 2020-04 on our consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an “incurred loss” method to “an expected loss” method. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13. This amendment provides clarity and improves the codification to ASU 2016-13. The pronouncements are concurrently effective for fiscal years beginning after December 15, 2019 and interim periods therein. The Company adopted ASU 2016-13 in fiscal year 2021. The adoption did not have a material impact on the consolidated financial statements. As a result of the adoption of ASU 2016-13, the Company has updated its critical accounting policy related to trade account receivables and allowances for credit losses. See Accounts Receivable Allowances above.

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