STANDEX INTERNATIONAL CORP/DE/ 10-K

Item 8. Financial Statements and Supplementary Data   Standex International Corporation and Subsidiaries   Consolidated Balance Sheets   As of June 30 (in thousands, except share data)   2022     2021                     ASSETS                 Current assets:                 Cash and cash equivalents   $ 104,844     $ 136,367   Accounts receivable, net     117,075       109,883   Inventories     105,339       91,862   Prepaid expenses and other current assets     45,210       23,504   Income taxes receivable     6,530       12,750   Total current assets     378,998       374,366                     Property, plant and equipment, net     128,584       133,373   Intangible assets, net     85,770       98,929   Goodwill     267,906       278,054   Deferred tax asset     8,186       9,566   Operating lease right-of-use asset     39,119       37,276   Other non-current assets     25,876       30,659   Total non-current assets     555,441       587,857                     Total assets   $ 934,439     $ 962,223                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Accounts payable   $ 74,520     $ 74,756   Accrued liabilities     67,773       61,717   Income taxes payable     8,475       7,236   Total current liabilities     150,768       143,709                     Long-term debt     174,830       199,490   Operating lease long-term liabilities     31,357       29,041   Accrued pension and other non-current liabilities     78,141       83,558   Total non-current liabilities     284,328       312,089                     Contingencies (Note 12)                                       Stockholders' equity:                 Common stock, par value $ 1.50 per share - 60,000,000 shares authorized, 27,984,278 issued, 11,824,128 and 12,044,405 shares outstanding in 2022 and 2021     41,976       41,976   Additional paid-in capital     91,200       80,788   Retained earnings     901,421       852,489   Accumulated other comprehensive loss     ( 153,312 )     ( 116,140 ) Treasury shares ( 16,160,150 shares in 2022 and 15,939,873 shares in 2021)     ( 381,942 )     ( 352,688 ) Total stockholders' equity     499,343       506,425                     Total liabilities and stockholders' equity   $ 934,439     $ 962,223     See notes to consolidated financial statements.   33       Standex International Corporation and Subsidiaries   Consolidated Statements of Operations   For the Years Ended June 30                         (in thousands, except per share data)   2022     2021     2020   Net sales   $ 735,339     $ 656,232     $ 604,535   Cost of sales     ( 465,393 )     ( 414,971 )     ( 389,080 ) Gross profit     269,946       241,261       215,455                             Selling, general and administrative expenses     169,890       163,063       148,499   Restructuring costs     4,399       3,478       4,669   Loss on sale of business     -       14,624       -   Acquisition related expenses     1,618       931       1,759   Other operating expense     5,745       -       -   Income from operations     88,294       59,165       60,528                             Interest expense     5,874       5,992       7,475   Other non-operating (income) expense, net     1,131       473       ( 1,021 ) Income from continuing operations before income taxes     81,289       52,700       54,074   Provision for income taxes     ( 19,807 )     ( 14,157 )     ( 13,060 ) Income from continuing operations     61,482       38,543       41,014                             Income (loss) from discontinued operations, net of tax     ( 89 )     ( 2,070 )     ( 20,826 )                           Net income   $ 61,393     $ 36,473     $ 20,188                             Basic earnings per share:                         Income (loss) from continuing operations   $ 5.13     $ 3.17     $ 3.33   Income (loss) from discontinued operations     -       ( 0.17 )     ( 1.69 ) Total   $ 5.13     $ 3.00     $ 1.64                             Diluted earnings per share:                         Income (loss) from continuing operations   $ 5.07     $ 3.14     $ 3.31   Income (loss) from discontinued operations     ( 0.01 )     ( 0.17 )     ( 1.68 ) Total   $ 5.06     $ 2.97     $ 1.63     See notes to consolidated financial statements.   34       Standex International Corporation and Subsidiaries   Consolidated Statements of Comprehensive Income   For the Years Ended June 30 (in thousands)   2022     2021     2020                             Net income   $ 61,393     $ 36,473     $ 20,188   Other comprehensive income (loss):                         Defined benefit pension plans:                         Actuarial gains (losses) and other changes in unrecognized costs, net of tax   $ ( 4,702 )   $ 12,425     $ ( 6,864 ) Amortization of unrecognized costs, net of tax     4,433       5,083       4,363   Derivative instruments:                         Change in unrealized gains and (losses), net of tax     7,582       3,041       ( 3,501 ) Amortization of unrealized gains and (losses) into interest expense, net of tax     1,950       1,168       ( 991 ) Foreign currency translation gains (losses), net of tax     ( 46,435 )     9,802       ( 3,388 ) Other comprehensive income (loss), net of tax   $ ( 37,172 )   $ 31,519     $ ( 10,381 ) Comprehensive income   $ 24,221     $ 67,992     $ 9,807     See notes to consolidated financial statements.   35       Standex International Corporation and Subsidiaries   Consolidated Statements of Stockholders' Equity                               Accumulated                                                       Other                                       Additional             Comprehensive                     Total   For the Years Ended June 30   Common     Paid-in     Retained     Income     Treasury Stock     Stockholders’   (in thousands, except as specified)   Stock     Capital     Earnings     (Loss)     Shares     Amount     Equity   Balance, June 30, 2019   $ 41,976     $ 65,515     $ 818,282     $ ( 137,278 )     15,650     $ ( 324,182 )   $ 464,313   Stock issued under incentive compensation plans and employee purchase plans     -       211       -       -       ( 74 )     1,526       1,737   Stock-based compensation     -       7,026       -       -       -       -       7,026   Treasury stock acquired     -       -       -       -       172       ( 10,437 )     ( 10,437 ) Adoption of ASC 606     -       -       ( 55 )     -       -       -       ( 55 ) Comprehensive income:                                                         Net income     -       -       20,188       -       -       -       20,188   Foreign currency translation adjustment     -       -       -       ( 3,388 )     -       -       ( 3,388 ) Pension, net of tax of $0.9 million     -       -       -       ( 2,500 )     -       -       ( 2,500 ) Change in fair value of derivatives, net of tax of $1.6 million     -       -       -       ( 4,493 )     -       -       ( 4,493 ) Dividends declared ($0.86 per share)     -       -       ( 10,759 )     -       -       -       ( 10,759 ) Balance, June 30, 2020   $ 41,976     $ 72,752     $ 827,656     $ ( 147,659 )     15,748     $ ( 333,093 )   $ 461,632   Stock issued under incentive compensation plans and employee purchase plans     -       ( 332 )     -       -       ( 76 )     1,605       1,273   Stock-based compensation     -       8,368       -       -       -       -       8,368   Treasury stock acquired     -       -       -       -       268       ( 21,200 )     ( 21,200 ) Comprehensive income:     -       -               -       -       -           Net income     -       -       36,473       -       -       -       36,473   Foreign currency translation adjustment     -       -       -       9,802       -       -       9,802   Pension, net of tax of $5.6 million     -       -       -       17,508       -       -       17,508   Change in fair value of derivatives, net of tax of $0.9 million     -       -       -       4,209       -       -       4,209   Dividends declared ($0.94 per share)     -       -       ( 11,640 )     -       -       -       ( 11,640 ) Balance, June 30, 2021   $ 41,976     $ 80,788     $ 852,489     $ ( 116,140 )     15,940     $ ( 352,688 )   $ 506,425   Stock issued under incentive compensation plans and employee purchase plans     -       ( 756 )     -       -       ( 97 )     2,171       1,415   Stock-based compensation     -       11,168       -       -       -       -       11,168   Treasury stock acquired     -       -       -       -       317       ( 31,425 )     ( 31,425 ) Comprehensive income:                                                         Net income     -       -       61,393       -       -       -       61,393   Foreign currency translation adjustment     -       -       -       ( 46,435 )     -       -       ( 46,435 ) Pension, net of tax of $1.6 million     -       -       -       ( 269 )     -       -       ( 269 ) Change in fair value of derivatives, net of tax of $2.8 million     -       -       -       9,532       -       -       9,532   Dividends declared ($1.02 per share)     -       -       ( 12,461 )     -       -       -       ( 12,461 ) Balance, June 30, 2022   $ 41,976     $ 91,200     $ 901,421     $ ( 153,312 )     16,160     $ ( 381,942 )   $ 499,343     See notes to consolidated financial statements.   36     Standex International Corporation and Subsidiaries   Consolidated Statements of Cash Flows   For the Years Ended June 30 (in thousands)   2022     2021     2020   Cash Flows from Operating Activities                         Net income   $ 61,393     $ 36,473     $ 20,188   Income (loss) from discontinued operations     ( 89 )     ( 2,070 )     ( 20,826 ) Income from continuing operations     61,482       38,543       41,014   Adjustments to reconcile net income (loss) to net cash provided by operating activities:                         Depreciation and amortization     29,697       33,241       32,294   Stock-based compensation     11,168       8,368       7,026   Gain on sale of real estate and equipment     ( 456 )     -       -   Non-cash portion of restructuring charge     1,691       ( 489 )     386   Loss on sale of business     -       14,624       -   Gain from extinguishment of debt - PPP loan     -       ( 713 )     -   Deferred income taxes     ( 1,967 )     836       5,635   Life insurance benefit     ( 193 )     -       ( 1,302 ) Contributions to defined benefit plans     ( 535 )     ( 8,120 )     ( 4,040 ) Increase/(decrease) in cash from changes in assets and liabilities, net of effects from discontinued operations and business acquisitions:                         Accounts receivables, net     ( 11,571 )     ( 5,542 )     2,325   Inventories     ( 18,183 )     ( 7,717 )     ( 9,050 ) Prepaid expenses and other assets     ( 9,072 )     ( 8,000 )     ( 10,960 ) Accounts payable     6,132       17,612       174   Accrued liabilities, pension and other liabilities     2,206       4,920       2,342   Income taxes payable     7,738       ( 5,697 )     ( 11,167 ) Net cash provided by operating activities from continuing operations     78,137       81,866       54,677   Net cash provided by (used for) operating activities from discontinued operations     ( 421 )     1,716       ( 7,435 ) Net cash provided by operating activities     77,716       83,582       47,242   Cash Flows from Investing Activities                         Expenditures for property, plant and equipment     ( 23,891 )     ( 21,752 )     ( 21,521 ) Expenditures for acquisitions, net of cash acquired     ( 12,978 )     ( 27,406 )     ( 622 ) Expenditures for executive life insurance policies     ( 248 )     ( 243 )     ( 281 ) Proceeds from sale of business     -       11,678       -   Proceeds from sale of real estate and equipment     1,820       117       180   Proceeds withdrawn from life insurance policies     4,974       -       1,624   Other investing activity     ( 721 )     ( 1,485 )     -   Net cash (used for) investing activities from continuing operations     ( 31,044 )     ( 39,091 )     ( 20,620 ) Net cash provided by investing activities from discontinued operations     -       -       20,003   Net cash (used for) investing activities     ( 31,044 )     ( 39,091 )     ( 617 ) Cash Flows from Financing Activities                         Proceeds from borrowings     -       17,000       106,500   Payments of debt     ( 25,000 )     ( 17,000 )     ( 105,300 ) Contingent consideration payment     ( 2,167 )     ( 356 )     ( 872 ) Activity under share-based payment plans     1,415       1,273       1,738   Purchase of treasury stock     ( 31,425 )     ( 21,200 )     ( 10,437 ) Cash dividends paid     ( 12,249 )     ( 11,449 )     ( 10,606 ) Net cash (used for) financing activities     ( 69,426 )     ( 31,732 )     ( 18,977 ) Effect of exchange rate changes on cash     ( 8,769 )     4,799       ( 1,984 ) Net change in cash and cash equivalents     ( 31,523 )     17,558       25,664   Cash and cash equivalents at beginning of year     136,367       118,809       93,145   Cash and cash equivalents at end of year   $ 104,844     $ 136,367     $ 118,809                             Supplemental Disclosure of Cash Flow Information:                         Cash paid during the year for:                         Interest   $ 4,745     $ 4,904     $ 6,324   Income taxes, net of refunds   $ 17,987     $ 17,185     $ 18,737                               See notes to consolidated financial statements. 37   Standex International Corporation and Subsidiaries   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       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 ongoing global events and related economic impacts. As a result, there is heightened volatility and uncertainty around supply chain performance, labor availability, and customer demand. However, the magnitude of such impact on the Company’s business and its duration is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of June 30, 2022  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, 2022  and 2021 , 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, 2022  and $ 3.0 million at June 30, 2021 . 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.   38     The changes in the allowances for credit losses accounts during 2022 , 2021 , and  2020 were as follows (in thousands):       2022     2021     2020   Balance at beginning of year   $ 1,588     $ 2,113     $ 1,250   Acquisitions and other     104       20       192   Provision charged to expense     699       605       824   Write-offs, net of recoveries     (177 )     (1,150 )     (153 ) Balance at end of year   $ 2,214     $ 1,588     $ 2,113     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 determine 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.   39       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)   5 to 15   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, 2022 or 2021 .  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.   40     The fair values of our financial instruments at June 30, 2022 and 2021 were (in thousands):       2022       Total     Level 1     Level 2     Level 3   Financial Assets                                 Marketable securities - deferred compensation plan   $ 3,033     $ 3,033     $ -     $ -   Foreign exchange contracts     122       -       122       -   Interest rate swaps     8,420       -       8,420       -                                     Financial Liabilities                                 Foreign exchange contracts     711       -       711       -   Interest rate swaps     -       -       -       -   Contingent consideration (a)     1,167       -       -       1,167         2021       Total     Level 1     Level 2     Level 3   Financial Assets                                 Marketable securities - deferred compensation plan   $ 2,988     $ 2,988     $ -     $ -   Interest rate swaps     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     (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 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 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, second or third year, which concluded in the fourth quarter of fiscal years 2020, 2021, and 2022  respectively.  As of June 30, 2022 , 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 2023  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. 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. During the third quarter of fiscal year 2022, the parties agreed to reduce and fix the aggregate earnout payments to a total of $ 3.4 million. The parties also agreed to accelerate the payment of the remaining unpaid amounts. During the fourth quarter of fiscal year 2022, the Company paid $ 1.0 million to the sellers of Renco. The remaining unpaid amount of $ 1.2 million is payable in August 2022.   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.     41       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 $ 2.3 million, $ 1.7  million, a nd $ 1.3  million for the years ended June 30, 2022 , 2021 , and 2020 , 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 $ 12.2 million, $ 9.6 million, and $ 6.9  million for the years ended June  30, 2022 , 2021 , and 2020 , 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.   42     The changes in the continuing operations warranty reserve, which are recorded as accrued liabilities, during 2022 , 2021 , and  2020 were as follows (in thousands):       2022     2021     2020   Balance at beginning of year   $ 2,086     $ 1,781     $ 1,911   Acquisitions and other charges     ( 29 )     68       ( 86 ) Warranty expense     1,083       2,007       1,783   Warranty claims     ( 1,222 )     ( 1,770 )     ( 1,827 ) Balance at end of year   $ 1,918     $ 2,086     $ 1,781     The decrease in warranty expense during  2022 compared to 2021 is primarily due to decreased warranty claims in Scientific driven by declines in sales covered by warranty 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   43     The Company's income tax provision from continuing operations for the fiscal years ended June 30, 2022 , 2021 , and  2020 was $ 19.8  million, $ 14.2  million, and $ 13.1  million, respectively, or an effective rate of 24.4 %,  26.9 %, and 24.3 %, 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, 2022 was impacted by the following items: (i) a tax provision of $ 4.3 million due to the mix of income in various jurisdictions, (ii) a tax benefit of $ 2.2 million related to Federal R&D credit and Foreign Tax Credit, (iii) a tax benefit of $ 1.3 million related to return-to-accrual adjustments to true-up up prior-period provision amounts, and (iv) a tax expense of $ 1.0 million  related to uncertain tax position.   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.     Earnings Per Share   (share amounts in thousands)   2022     2021     2020   Basic – Average Shares Outstanding     11,974       12,156       12,324   Effect of Dilutive Securities – Stock Options and Restricted Stock Awards     149       102       63   Diluted – Average Shares Outstanding     12,123       12,258       12,387     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, 2022 or 2021. There were  32,000  outstanding instruments that had an anti-dilutive effect at June 30, 2020 .   Recently Issued Accounting Pronouncements   In  November 2021,  the FASB issued ASU  2021 - 10,  Government Assistance (Topic  832 ): Disclosures by Business Entities about Government Assistance, which requires business entities to provide certain disclosures when they ( 1 ) have received government assistance and ( 2 ) use a grant or contribution accounting model by analogy to other accounting guidance. The guidance in ASU  2021 - 10  is effective for all entities for fiscal years beginning after  December 15, 2021  with early adoption permitted. The Company does  not  expect the adoption of this ASU to have a significant impact on its Consolidated Financial Statements.         2. Acquisitions   The Company’s recent acquisitions are strategically significant to the future growth prospects of the Company.  At the time of the acquisition and June 30, 2022 , the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.   During the fourth quarter of fiscal year 2022, the Company paid $ 3.1 million in cash for acquired assets and liabilities of a manufacturer of magnetic components. The results are reported within the Company's Electronics segment. The transaction resulted in $ 2.5 million of goodwill that is deductible for income tax purposes.    44     Sensor Solutions   During the  third  quarter of fiscal year  2022 ,  the Company acquired Sensor Solutions, a designer and manufacturer of customized standard magnetic sensor products including hall effect switch and latching sensors, linear and rotary sensors, and specialty sensors. Sensor Solutions' customer base in automotive, industrial, medical, aerospace, military and consumer electronics end markets are a strategic fit and expand the Company's presence in these markets. Sensor Solutions operates  one  light manufacturing facility in Colorado. Sensor Solutions' results are reported within the Company's Electronics segment.   The Company paid $ 9.9  million in cash for all the issued and outstanding equity interests of Sensor Solutions. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Sensor Solutions' technical and applications expertise in sectors such as electric vehicles, industrial automation and medical end markets, which is highly complementary to the Company's existing business.   Identifiable intangible assets of $ 2.8  million consist primarily of $ 0.8  million for indefinite lived tradenames, and $ 2.0  million of customer relationships to be amortized over  10  years. The goodwill of $ 6.0  million created by the transaction is deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.    The components of the fair value of the Sensor Solutions acquisition, including the preliminary allocation of the purchase price are as follows (in thousands):            Preliminary Allocation               Preliminary Allocation       March 31, 2022     Adjustments     June 30, 2022   Fair value of business combination:                         Cash payments   $ 10,016       -     $ 10,016   Less, cash acquired     ( 114 )     -       ( 114 ) Total   $ 9,902     $ -     $ 9,902                                                       Identifiable assets acquired and liabilities assumed:                         Other acquired assets   $ 490     $ ( 2 )   $ 488   Inventories     531       ( 2 )     529   Property, plant, and equipment     232       188       420   Identifiable intangible assets     2,800       ( 20 )     2,780   Goodwill     6,001       ( 161 )     5,840   Liabilities assumed     ( 152 )     ( 3 )     ( 155 ) Total   $ 9,902     $ -     $ 9,902     Renco Electronics   During the first quarter of fiscal year 2021, the Company acquired Renco Electronics, a designer and manufacturer of customized standard magnetics components and products including transformers, inductors, chokes and coils for power and RF applications.  Renco’s end markets and customer base in areas such as consumer and industrial applications are highly complementary to our existing business with the potential to further expand key account relationships and capitalize on cross selling opportunities between the two companies.  Renco operates one manufacturing facility in Florida and is supported by contract manufacturers in Asia. Renco’s results are reported within our Electronics segment.   The Company paid $ 27.4 million in cash for all of the issued and outstanding equity interests of Renco Electronics. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Renco’s significant engineering and technical expertise in end markets supported by strong engineer-to-engineer relationships. In addition, Renco’s end markets and customer base in areas such as consumer and industrial are highly complementary to the Company’s existing business.   45     Identifiable intangible assets of $ 10.4 million consist primarily of $ 3.6 million for indefinite lived tradenames, and $ 6.8 million of customer relationships to be amortized over 12 years. The goodwill of $ 14.0 million created by the transaction is deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, including contingent consideration, are based on management’s best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.    The components of the fair value of the Renco Electronics acquisition, including the final allocation of the purchase price are as follows (in thousands):       Final Allocation   Fair value of business combination:         Cash payments   $ 29,613   Less, cash acquired     ( 2,207 ) Fair value of contingent consideration     3,000   Total   $ 30,406                       Identifiable assets acquired and liabilities assumed:         Other acquired assets   $ 4,522   Inventories     5,446   Property, plant, & equipment     410   Identifiable intangible assets     10,400   Goodwill     13,991   Debt assumed     ( 712 ) Liabilities assumed     ( 3,651 ) Total   $ 30,406     Acquisition Related Expenses   Acquisition related expenses include costs related to acquired businesses and other pending acquisitions.  These costs consist of (i) deferred compensation arrangements and (ii) acquisition related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities.  These costs do not include purchase accounting expenses, which the Company defines as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets.   For the fiscal year ended June 30, 2020, the Company recorded deferred compensation costs of $ 1.2 million related to estimated deferred compensation earned by the Horizon Scientific seller to date.  The payments were contingent on the seller remaining an employee of the Company, with limited exceptions, at each anniversary date. The final payment due to the seller was made during the second quarter of fiscal year 2020, and the liability was considered settled.    The components of acquisition related expenses are as follows (in thousands):       June 30,     June 30,     June 30,       2022     2021     2020   Deferred compensation arrangements   $ -     $ -     $ 1,170   Acquisition related expenses     1,618       931       589   Total   $ 1,618     $ 931     $ 1,759     46       3. REVENUE FROM CONTRACTS WITH CUSTOMERS   Most of the Company’s contracts have a single performance obligation which represents the product or service being sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation and/or extended warranty. Additionally, most of the Company’s contracts offer assurance type warranties in connection with the sale of a product to customers. Assurance type warranties provide a customer with assurance that the product complies with agreed-upon specifications. Assurance type warranties do not represent a separate performance obligation.   In general, the Company recognizes revenue at the point in time control transfers to its customer based on predetermined shipping terms. Revenue is recognized over time under certain long-term contracts within the Engineering Technologies and Engraving groups for highly customized customer products that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin. For products manufactured over time, the transfer of control is measured pro rata, based upon current estimates of costs to complete such contracts. Losses on contracts are fully recognized in the period in which the losses become determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known.   Disaggregation of Revenue from Contracts with Customers   The following table presents revenue disaggregated by product line and segment (in thousands):       Year Ended       June 30, 2022     June 30, 2021     June 30, 2020   Electronics     304,290       253,369       185,294                             Engraving Services     136,779       137,159       132,586   Engraving Products     9,476       9,857       11,150   Total Engraving     146,255       147,016       143,736                             Scientific     83,850       79,421       57,523                             Engineering Technologies     78,117       75,562       104,047                             Hydraulics Cylinders and System     54,864       48,776       51,722   Merchandising & Display     34,305       26,049       31,488   Pumps     33,658       26,039       30,725   Total Specialty Solutions     122,827       100,864       113,935                             Total revenue by product line   $ 735,339     $ 656,232     $ 604,535     The following table presents revenue from continuing operations disaggregated by geography based on company’s locations (in thousands):       Year Ended   Net sales   June 30, 2022     June 30, 2021     June 30, 2020   United States   $ 429,368     $ 386,829     $ 364,188   Asia Pacific     148,028       125,516       98,665   EMEA (1)     143,967       129,908       128,037   Other Americas     13,976       13,979       13,645   Total   $ 735,339     $ 656,232     $ 604,535     ( 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): 47           Year Ended   Timing of Revenue Recognition   June 30, 2022     June 30, 2021     June 30, 2020   Products and services transferred at a point in time   $ 675,461     $ 619,029     $ 569,426   Products transferred over time     59,878       37,203       35,109   Net sales   $ 735,339     $ 656,232     $ 604,535     Contract Balances   Contract assets represent sales recognized in excess of billings related to work completed but not yet shipped for which revenue is recognized over time. Contract assets are recorded as prepaid expenses and other current assets. Contract liabilities are customer deposits for which revenue has not been recognized. Current contract liabilities are recorded as accrued liabilities.   The timing of revenue recognition, invoicing and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheets.   When consideration is received from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded.  Contract liabilities are recognized as revenue after control of the goods and services are transferred to the customer and all revenue recognition criteria have been met.   The following table provides information about contract assets and liability balances (in thousands):   Year ended June 30, 2022     Balance at Beginning of Period       Additions       Deductions       Balance at End of Period   Contract assets:                                 Prepaid expenses and other current assets   $ 15,013       44,168       34,502     $ 24,679   Contract liabilities:                                 Customer deposits   $ 471       12,972       13,402     $ 41     Year ended June 30, 2021     Balance at Beginning of Period       Additions       Deductions       Balance at End of Period   Contract assets:                                 Prepaid expenses and other current assets   $ 9,140       30,773       24,900     $ 15,013   Contract liabilities:                                 Customer deposits   $ 2,298       9,912       11,739     $ 471     We recognized the following revenue which was included in the contract liability beginning balances (in thousands):       Year ended   Revenue recognized in the period from:   June 30, 2022   Amounts included in the contract liability balance at the beginning of the year   $ 471         Year ended   Revenue recognized in the period from:   June 30, 2021   Amounts included in the contract liability balance at the beginning of the year   $ 2,298           Year ended   Revenue recognized in the period from:   June 30, 2020   Amounts included in the contract liability balance at the beginning of the year   $ 1,358     48       4. Inventories   Inventories are comprised of (in thousands):   June 30   2022     2021   Raw materials   $ 56,321     $ 47,000   Work in process     20,592       22,539   Finished goods     28,426       22,323   Total   $ 105,339     $ 91,862     Distribution costs associated with the sale of inventory are recorded as a component of selling, general and administrative expenses and were $ 14.0 million, $ 11.0  million, and $ 9.0 million in 2022 , 2021  and  2020  respectively.     5. Property, plant and equipment   Property, plant and equipment consist of the following (in thousands):   June 30   2022     2021   Land, buildings and leasehold improvements   $ 74,834     $ 73,785   Machinery, equipment and other     208,878       210,594   Total     283,712       284,379   Less accumulated depreciation     ( 155,128 )     ( 151,006 ) Property, plant and equipment, net   $ 128,584     $ 133,373     Depreciation expense totaled $ 18.0 million, $ 19.2 million, and $ 19.2 million, respectively for the years ended June 30, 2022 , 2021  and  2020 .     6. Goodwill   Goodwill and certain indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount. The Company’s annual test for impairment is performed using a May 31st measurement date.   The Company has identified seven reporting units for impairment testing: Electronics, Engraving, Scientific, Engineering Technologies, Procon, Federal, and Hydraulics. The Specialty Solutions segment includes Procon, Federal and Hydraulics.   As quoted market prices are not available for the Company’s reporting units, the fair value of the reporting units is determined using a discounted cash flow model (income approach).  This method uses various assumptions that are specific to each individual reporting unit in order to determine the fair value. In addition, the Company compares the estimated aggregate fair value of its reporting units to its overall market capitalization.   While the Company believes that estimates of future cash flows are reasonable, changes in assumptions could significantly affect valuations and result in impairments in the future.  The most significant assumption involved in the Company’s determination of fair value is the cash flow projections of each reporting unit.  If the estimates of future cash flows for each reporting unit may be insufficient to support the carrying value of the reporting units, the Company will reassess its conclusions related to fair value and the recoverability of goodwill.    In connection with the divestiture of Enginetics, the Company determined that, based on the net realizable value of the operations divested, the goodwill of the Engineering Technologies reporting unit was impaired. As such, the Company recognized $ 7.6 million in impairment charges during the third quarter of fiscal year 2021. As a result of the Enginetics divestiture, the Company completed an interim goodwill impairment assessment for its other reporting units in the third quarter of fiscal year 2021. As a result of the assessment in the third quarter, the Company determined that there were no indications of impairment, therefore,  no additional impairment charges were recorded.   49     In connection with the divestiture of the Refrigerated Solutions Group, the Company compared the fair value of each reporting unit, Master-Bilt and NorLake, to its carrying value as of March 31, 2020.  This resulted in an asset impairment charge in the third quarter of fiscal year 2020 of $ 7.7  million in discontinued operations, which represented the full amount of goodwill associated with both reporting units. In addition, due to the impact that the COVID- 19 pandemic had on projected operating results, cash flow, and market capitalization, the Company completed an interim goodwill impairment assessment for its remaining reporting units in the third quarter of fiscal year 2020. As a result of the assessment in the third quarter, the Company determined that the fair value of its reporting units, with the exception of RSG, substantially exceeded their respective carrying values.  Therefore, no additional impairment charges were recorded in connection with the third quarter 2020 assessment.    The Company completed its annual impairment testing as of May 31, in each of the last two fiscal years and determined that the fair value of each of its reporting units substantially exceeded each unit’s respective carrying value, therefore, no impairment charges were recorded in connection with the testing and assessment.    Changes to goodwill by segment associated with continuing operations during the fiscal year is as follows (in thousands):       June 30, 2021     Acquisitions     Impairments     Translation Adjustment     June 30, 2022   Electronics   $ 144,832     $ 8,381     $ -     $ ( 16,244 )   $ 136,969   Engraving     77,378       -       -       ( 1,128 )     76,250   Scientific     15,454       -       -       -       15,454   Engineering Technologies     37,085       -       -       ( 1,157 )     35,928   Specialty Solutions     3,305       -       -       -       3,305   Total   $ 278,054     $ 8,381     $ -     $ ( 18,529 )   $ 267,906       7. Intangible Assets   Intangible assets consist of the following (in thousands):               Tradenames                               Customer     (Indefinite-     Developed                       Relationships     lived)     Technology     Other     Total   June 30, 2022                                         Cost   $ 58,948     $ 22,483     $ 45,006     $ 3,933     $ 130,370   Accumulated amortization     ( 23,847 )     -       ( 17,326 )     ( 3,427 )     ( 44,600 ) Balance, June 30, 2022   $ 35,101     $ 22,483     $ 27,680     $ 506     $ 85,770                                             June 30, 2021                                         Cost   $ 57,970     $ 22,273     $ 53,721     $ 3,812     $ 137,776   Accumulated amortization     ( 19,038 )     -       ( 16,768 )     ( 3,041 )     ( 38,847 ) Balance, June 30, 2021   $ 38,932     $ 22,273     $ 36,953     $ 771     $ 98,929     Amortization expense from continuing operations totaled $ 9.5 million, $ 11.8 million, and $ 11.6  million, respectively for the years ended June 30, 2022 , 2021 , and  2020 .   At June 30, 2022 , aggregate amortization expense is estimated to be (in thousands):   2023     8,655   2024     7,998   2025     7,643   2026     7,249   2027     6,461   Thereafter     25,281   Amortization   $ 63,287     50       8. Debt   Long-term debt is comprised of the following at June 30 ( in thousands):       2022     2021   Bank credit agreements   $ 175,000     $ 200,000   Total funded debt     175,000       200,000   Issuance cost     ( 170 )     ( 510 ) Total long-term debt   $ 174,830     $ 199,490     The Company's long-term debt matures in December 2023.      Bank Credit Agreements   During the second quarter of fiscal year 2019, the Company entered into an Amended and Restated Credit Agreement (“Credit Facility”, or “facility”).  This five -year Credit Facility expires in December 2023 and has a borrowing limit of $ 500 million, which can be increased by an amount of up to $ 250 million, in accordance with specified conditions contained in the agreement.  The facility also includes a $ 10 million sublimit for swing line loans and a $ 35 million sublimit for letters of credit.   Under the terms of the Credit Agreement, we pay a variable rate of interest and a commitment fee on borrowed amounts as well as a commitment fee on unused amounts under the facility.  The amount of the commitment fee depends upon both the undrawn amount remaining available under the facility and the Company’s funded debt to EBITDA (as defined in the agreement) ratio at the last day of each quarter.  As our funded debt to EBITDA ratio increases, the commitment fee increases.    Funds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes.  As of June 30, 2022 , the Company had the ability to borrow $ 312.6 million under the facility based on our current EBITDA.  The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants which the Company was compliant with as of June 30, 2022 .  The Company’s current financial covenants under the facility are as follows:   Interest Coverage Ratio - The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Agreement”), to interest expense for the trailing twelve months of at least 2.75:1.   Adjusted EBIT per the Credit Agreement specifically excludes extraordinary and certain other defined items such as cash restructuring and acquisition related charges up to the lower of $ 20 million or 10 % of EBITDA. The facility also allows unlimited non-cash charges including purchase accounting and goodwill adjustments.  At June 30, 2022 , the Company’s Interest Coverage Ratio was 16.0:1.        Leverage Ratio - The Company’s ratio of funded debt to trailing twelve month Adjusted EBITDA per the credit agreement, calculated as Adjusted EBIT per the Credit Agreement plus depreciation and amortization, may not exceed 3.5:1. Under certain circumstances in connection with a Material Acquisitions (as defined in the Facility), the Credit Agreement allows for the leverage ratio to go as high as 4.0:1 for a four -fiscal quarter period. At June 30,  2022 the Company’s Leverage Ratio was 0.98:1.   As of June 30, 2022 , we had borrowings under our facility of $ 175.0 million and the effective rate of interest for outstanding borrowings under the facility was 2.53 %. Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility.    In connection with the acquisition of Renco, the company assumed $ 0.7 million of debt under the Paycheck Protection Program, within the United States Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. These borrowings were forgiven by the Small Business Administration ("SBA") in June 2021.   Other Long-Term Borrowings   At June 30, 2022  and 2021 , the Company had standby letter of credit sub-facility outstanding, primarily for insurance and trade financing purposes of $ 5.1 million and $ 6.0 million, respectively.   51       9. Accrued LIABILITIES   Accrued liabilities from continuing operations recorded in our Consolidated Balance Sheets at June 30, 2022  and 2021  consist of the following (in thousands):       2022     2021   Payroll and employee benefits   $ 31,211     $ 32,550   Operating lease current liability     7,891       7,933   Litigation accrual     5,745       -   Warranty reserves     1,918       2,086   Restructuring costs     1,740       49   Workers' compensation     1,664       2,118   Contingent consideration     1,166       -   Fair value of derivatives     -       4,318   Other     16,438       12,663   Total   $ 67,773     $ 61,717       10. Derivative Financial Instruments   Interest Rate Swaps   The Company’s effective swap agreements convert the base borrowing rate on $ 175 million of debt due under our revolving credit agreement from a variable rate equal to LIBOR to a weighted average fixed rate of  1.18 % at  June 30, 2022 .   The fair value of the swaps recognized in accrued liabilities and in other comprehensive income (loss) is as follows (in thousands):   Effective Date   Notional     Fixed   Maturity   Fair Value at June 30,       Amount     Interest Rate       2022     2021   May 24, 2017     25,000     1.88 %   April 24, 2022     -       ( 374 ) August 6, 2018     25,000     2.83 %   August 6, 2023     48       ( 1,401 ) March 23, 2020     100,000     0.91 %   March 23, 2025     5,538       ( 907 ) April 24, 2020     25,000     0.88 %   April 24, 2025     1,447       ( 192 ) May 24, 2020     25,000     0.91 %   March 24, 2025     1,387       ( 222 )                     $ 8,420     $ ( 3,096 )   The Company reported no losses for the years ended June 30, 2022 ,  2021 , and 2020 , 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.   52     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 sales to foreign 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 June 30, 2022  and 2021 , the Company had outstanding forward contracts related to hedges of intercompany loans with net unrealized losses of $ 0.6 million and $ 1.0 million, respectively, which approximate the unrealized gains or losses on the related loans.  The contracts have maturity dates ranging from fiscal year 2023 to 2024, which correspond to the related intercompany loans.  The notional amounts of these instruments, by currency in thousands, are as follows:   Currency   2022     2021   USD     -       987   Euro     5,750       5,750   SGD     -       21,836   Canadian     16,600       20,600   JPY     1,000,000       -     The table below presents the fair value of derivative financial instruments as well as their classification on the balance sheet at June 30, ( in thousands):     Asset Derivatives     2022   2021   Derivative designated as Balance         Balance         hedging instruments Sheet         Sheet           Line Item   Fair Value   Line Item   Fair Value   Interest rate swaps Prepaid expenses and other current assets     8,420             Foreign exchange contracts Prepaid expenses and other current assets     122   Prepaid expenses and other current assets     255         $ 8,542       $ 255         Liability Derivatives     2022   2021   Derivative designated as Balance         Balance         hedging instruments Sheet         Sheet           Line Item   Fair Value   Line Item   Fair Value   Interest rate swaps Accrued Liabilities   $ -   Accrued Liabilities   $ 3,096   Foreign exchange contracts Accrued Liabilities     -   Accrued Liabilities     1,222         $ -       $ 4,318     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):       2022     2021     2020   Interest rate swaps   $ 9,552     $ 1,284     $ ( 7,098 ) Foreign exchange contracts     380       2,072       1,851       $ 9,932     $ 3,356     $ ( 5,247 )   53     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                         in the Statements Income (Loss) Components   2022     2021     2020   of Operations Interest rate swaps   $ 1,964     $ 2,287     $ 547   Interest expense Foreign exchange contracts     469       ( 557 )     ( 1,403 ) Other non-operating income     $ 2,433     $ 1,730     $ ( 856 )       11. Income Taxes   O n M arch 27, 2020, the CARES A ct was enacted to address the economic impact of the COVID - 19 pandemic in the U nited S tates. A mong other things, the CARES A ct allows a five -year carryback period for tax losses generated in 2019 through 2021. T he J une 30, 2021 tax provision includes benefits of $ 0.2 million and $ 0.8 million from tax losses in the years ended J une 30, 2019 and J une 30, 2020, respectively, that the CARES A ct allows to be carried back to the years ended J une 30, 2014 and J une 30, 2015, when the U.S . federal income tax rate was 35%.   U.S. tax law allows a 100%  dividend received deduction for foreign dividends and the Company has begun to bring back cash from foreign subsidiaries.  However, the permanent reinvestment assertion must still be assessed and made regarding potential liabilities for foreign withholding taxes.  As of June 30, 2022 , the Company maintained the assessment that previously undistributed earnings of certain foreign subsidiaries no longer meet the requirements for indefinite reinvestment under applicable accounting guidance.  Therefore, the Company recognized deferred tax liabilities of approximately $ 1.0 million that relate to withholding taxes on the current earnings of various foreign subsidiaries.  It is expected that deferred tax liabilities will continue to be recorded on current earnings in future periods from these subsidiaries.  The Company maintains the permanent reinvestment assertion on earnings in certain foreign jurisdictions. It is not practicable to estimate the amount of tax that might be payable on the remaining undistributed earnings.   The components of income from continuing operations before income taxes are as follows (in thousands):     2022     2021     2020   U.S. Operations   $ 11,885     $ 4,997     $ 11,890   Non-U.S. Operations     69,404       47,703       42,184   Total   $ 81,289     $ 52,700     $ 54,074       The Company utilizes the asset and liability method of accounting for income taxes.  Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the provisions of the enacted tax laws.  The components of the provision for income taxes on continuing operations (in thousands) were as shown below:       2022     2021     2020   Current:                         Federal   $ 935     $ ( 2,592 )   $ ( 870 ) State     ( 651 )     307       70   Non-U.S.     21,490       15,606       13,963   Total Current   $ 21,774     $ 13,321     $ 13,163   Deferred:                         Federal   $ 486     $ 1,469     $ 2,743   State     ( 892 )     374       885   Non-U.S.     ( 1,561 )     ( 1,007 )     ( 3,731 ) Total Deferred     ( 1,967 )     836       ( 103 ) Total   $ 19,807     $ 14,157     $ 13,060       54     A reconciliation from the U.S. Federal income tax rate on continuing operations to the total tax provision is as follows:       2022     2021     2020   Provision at statutory tax rate     21.0 %     21.0 %     21.0 % State taxes     ( 1.4 %)     1.4 %     1.1 % Impact of foreign operations     5.3 %     4.0 %     0.7 % Federal tax credits     ( 2.7 %)     ( 1.0 %)     ( 3.5 %) Tax Reform     0.0 %     0.0 %     0 % Cash repatriation     1.1 %     4.6 %     2.2 % SubF/GILTI     0.0 %     0.0 %     1.4 % Uncertain Tax Positions     1.3 %     1.5 %     ( 1.3 %) Benefit from U.S. tax loss carryback to prior years     0.0 %     ( 1.8 %)     0.0 % Tax expense on Enginetics disposal     0.0 %     2 %     0.0 % Return to provision     ( 1.6 %)     ( 3.2 %)     1.0 % Valuation allowance release     0.0 %     ( 2.3 %)     0.0 % Other     1.3 %     0.8 %     1.7 % Effective income tax provision     24.4 %     26.9 %     24.3 %   Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, size of the Company’s income or loss and any one -time activities occurring during the period.   The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2022 was impacted by the following items: (i) a tax provision of $ 4.3 million due to the mix of income in various jurisdictions, (ii) a tax benefit of $ 2.2 million related to Federal R&D credit and Foreign Tax Credit, (iii) a tax benefit of $ 1.3 million related to return-to-accrual adjustments to true-up prior-period provision amounts, and (iv) a tax expense of $ 1.0 million related to uncertain tax position.   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 credits and Foreign Tax credits, (iv) a tax benefit of $ 1.7 million related to return to provision adjustments, and (v) tax expense of $ 1.2 million attributable to the divestiture of 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.   55     Significant components of the Company’s deferred income taxes are as follows (in thousands):       2022     2021   Deferred tax liabilities:                 Depreciation and amortization   $ ( 25,758 )   $ ( 28,997 ) Withholding taxes     ( 4,245 )     ( 4,497 ) Other     ( 420 )     ( 302.00 ) Operating lease right-of-use-asset     ( 4,867 )     ( 4,711 ) Total deferred tax liability   $ ( 35,290 )   $ ( 38,507 )                   Deferred tax assets:                 Accrued compensation   $ 3,020     $ 2,610   Accrued expenses and reserves     2,138       2,610   Pension     8,383       12,653   Inventory     1,023       769   Lease liabilities     4,985       4,783   Net operating loss and credit carry forwards     21,344       16,127   Total deferred tax asset   $ 40,893     $ 39,552                     Less: Valuation allowance     ( 14,932 )     ( 12,191 ) Net deferred tax asset (liability)   $ ( 9,329 )   $ ( 11,146 )     The Company estimates the degree to which deferred tax assets, including net operating loss and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction and provides a valuation allowance for tax assets and loss carry forwards that it believes will more likely than not go unrealized.  The valuation allowance at June 30,  2022  applies to federal capital loss, state loss, foreign loss, and state R&D credit carryforwards, which management has concluded that it is more likely than not that these tax benefits will not be realized.  The increase (decrease) in the valuation allowance from the prior year was due to the current year activity in those same federal, state and foreign jurisdictions.   As of June 30, 2022 , the Company had gross state net operating loss ("NOL") and credit carry forwards of approximately $76.8 million and $4.4 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates from 2022  through 2042.  In addition, the Company had foreign NOL carry forwards of approximately $4.6 million, $3.7  million which carry forward indefinitely and $0.9 million that carry forward for 10 years.   Under ASU 2016 - 09, Improvements to Employee Share-Based Payment Accounting, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement.  Accordingly, we recorded an income tax provision in the consolidated statements of income of $ 0.1  million during the fiscal year ended June 30, 2022 , for the shortfall of tax benefits related to equity compensation.   The total provision (benefit) for income taxes included in the consolidated financial statements was as follows (in thousands):       2022     2021     2020   Continuing operations   $ 19,807     $ 14,157     $ 13,060   Discontinued operations     ( 24 )     ( 550 )     ( 2,613 ) Total provision (benefit)   $ 19,783     $ 13,607     $ 10,447     The tax benefit for discontinued operations relates mostly to the write-off of deferred tax liabilities from the sale of the RSG Group, and the sale of the assets of Master-Bilt.   56     The changes in the amount of gross unrecognized tax benefits were as follows (in thousands):       2022     2021     2020   Beginning Balance   $ 9,412     $ 9,286     $ 11,251   Additions based on tax positions related to the current year     762       5       4   Additions for tax positions of prior years     443       121       -   Reductions for tax positions of prior years     ( 1,058 )     -       ( 1,641 ) Settlements     -       -       ( 328 ) Ending Balance   $ 9,559     $ 9,412     $ 9,286     At June 30, 2022 , we had $ 9.6  million of non-current liabilities for uncertain tax positions. We are not able to provide a reasonable estimate of the timing of future payments related to these obligations. The Company increased its uncertain tax position during the year due to Federal and state R&D tax credit exposures. The Company decreased its uncertain tax position during the year due to an assessment received from the Canada Revenue Agency regarding Canadian withholding tax exposures and due to statutes lapsing on state tax exposures.   If the unrecognized tax benefits in the table above were recognized in a future period, $ 9.6 million of the unrecognized tax benefit would impact the Company’s effective tax rate.   Within the next twelve months, the statute of limitations will close in various U.S., state and non-U.S. jurisdictions. The Company does not reasonably expect any significant changes relating to the net unrecognized tax benefits in the next twelve months.  The following tax years, in the major tax jurisdictions noted, are open for assessment or refund:   Country   Years Ending June 30,   United States   2019 to 2022   Canada   2018 to 2022   Germany   2019 to 2022   Ireland   2022   Portugal   2021 to 2022   United Kingdom   2018 to 2022     The Company’s policy is to include interest expense and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations.  At June 30,  2022 and  2021 , the company had $1.1 million and $ 0.8  million for accrued interest expense on unrecognized tax benefits.     12.   CONTINGENCIES   From time to time, the Company is subject to various claims and legal proceedings, including claims related to environmental remediation, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, the Company’s management does  not  believe that the outcome of any of the currently existing legal matters will have a material impact on the Company’s consolidated financial position, results of operations or cash flow. The Company accrues for losses related to a claim or litigation when the Company’s management considers a potential loss probable and can reasonably estimate such potential loss.   Litigation   In the second quarter of fiscal year  2019, a lawsuit was filed against Standex Electronics, Inc., a wholly owned subsidiary of the Company (“Electronics”), by Miniature Precision Components, Inc., a customer (“MPC”), seeking damages in connection with allegedly faulty sensors designed and manufactured by Electronics.  The subject sensors were incorporated by MPC into a subassembly sold by MPC to its customer, an automotive manufacturer. MPC alleges that the sensors incorrectly activated a diagnostic code in vehicles for which MPC’s customer issued a service bulletin, resulting in significant warranty costs for MPC. During the fourth quarter of fiscal year 2022, the Company and MPC agreed to a full and comprehensive settlement of this matter. As a result, the Company has recorded $ 5.7 million related to this litigation as accrued liabilities in the consolidated balance sheet and other operating expense in the consolidated statement of operations.   57       13. stock-based compensation and purchase plans   Stock-Based Compensation Plans   Under incentive compensation plans, the Company is authorized to make grants of stock options, restricted stock and performance share units to provide equity incentive compensation to key employees and directors. The stock award program offers employees and directors the opportunity to earn shares of our stock over time, rather than options that give the employees and directors the right to purchase stock at a set price.  The Company has stock plans for directors, officers and certain key employees.    Total compensation cost recognized in the consolidated statement of operations for equity based compensation awards was $ 11.2 million, $ 8.4  million, and $ 7.0  million for the years ended June 30, 2022 , 2021 , and 2020 , respectively, primarily within Selling, General, and Administrative Expenses.  The total income tax benefit recognized in the consolidated statement of operations for equity-based compensation plans was $ 2.7 million, $ 1.8  million, and $ 1.9  million for the years ended June 30, 2022 ,  2021 and 2020 , respectively.   There were 508,968 shares of common stock reserved for issuance under various compensation plans at June 30, 2022 .    Restricted Stock Awards   The Company may award shares of restricted stock to eligible employees and non-employee directors of the Company at no cost, giving them, in most instances, all of the rights of stockholders, except that they may not sell, assign, pledge or otherwise encumber such shares and rights during the restriction period.  Such shares and rights are subject to forfeiture if certain employment conditions are not met.  During the restriction period, recipients of the shares are entitled to dividend equivalents on such shares, providing that such shares are not forfeited.  Dividends are accumulated and paid out at the end of the restriction period.  Restrictions on non-vested stock awards generally lapse between fiscal year 2023  and fiscal year 2025.   Compensation expense related to stock awards recognized was $ 5.0 million, $ 5.3 million, and $ 4.2 million, respectively, for fiscal years ended June 30, 2022 , 2021 , and 2020 .  Substantially all awards are expected to vest.   A summary of restricted stock awards activity is as follows:       Restricted Stock Awards               Weighted       Number     Average       of     Grant Date       Shares     Fair Value   Outstanding, June 30, 2021     168,011     $ 74.61   Granted     48,160       104.37   Vested     ( 68,601 )     87.53   Canceled     ( 5,916 )     50.57   Outstanding, June 30, 2022     141,654     $ 78.19     58   Restricted stock awards granted during fiscal years  2021  and 2020  had a weighted average grant date fair value of $ 59.57 , and $ 71.38 , respectively.  The grant date fair value of restricted stock awards is determined based on the closing price of the Company’s common stock on the date of grant. The fair value of awards vested during fiscal years 2022 ,  2021 and  2020 was $ 6.8 million, $ 2.8 million and $ 2.3 million, respectively.    As of June 30, 2022 , there was $ 3.6 million of unrecognized compensation costs related to awards expected to be recognized over a weighted-average period of 1.2 years.   Executive Compensation Program   The Company operates a compensation program for key employees.  The plan contains both an annual component as well as a long-term component.  Under the annual component, participants may elect to defer up to 50 % of their annual incentive compensation in restricted stock which is purchased at a discount to the market.  Additionally, non-employee directors of the Company may defer a portion of their director’s fees in restricted stock units which is purchased at a discount to the market.  During the restriction period, recipients of the shares are entitled to dividend equivalents on such units, providing that such shares are not forfeited.    Dividend equivalents are accumulated and paid out at the end of the restriction period.  The restrictions on the units expire after three years.  Restrictions on non-vested annual component  awards generally lapse between fiscal year 2023  and fiscal year 2025.   The compensation expense associated with this incentive program is charged to income over the restriction period.  The Company recorded compensation expense related to this program of $ 0.2 million, $ 0.4 million, and $ 0.3 million for the years ended June  30, 2022 ,  2021 and 2020 , respectively.   As of June 30, 2022 , there was $ 1.0 million of unrecognized compensation costs related to awards expected to be recognized over a weighted-average period of 1.4 years.   The fair value of the awards under the annual component of this incentive program is measured using the Black-Scholes option-pricing model.  Key assumptions used to apply this pricing model are as follows:       2022     2021     2020   Risk-free interest rates     0.46 %     0.18 %     1.42 % Expected life of option grants (in years)     3       3       3   Expected volatility of underlying stock     46.7 %     44.1 %     32.0 % Expected quarterly dividends (per share)   $ 0.24     $ 0.22     $ 0.20     Under the long-term component, grants of performance share units (“PSUs”) are made annually to key employees and the share units are earned based on the achievement of certain overall corporate financial performance targets over the performance period.  At the end of the performance period, the number of shares of common stock issued will be determined by adjusting upward or downward from the target in a range between 50 % and 200 %.  No shares will be issued if the minimum performance threshold is not achieved. The final performance percentage, on which the payout will be based considering the performance metrics established for the performance period, will be certified by the Compensation Committee of the Board of Directors.    A participant’s right to any shares that are earned will cliff vest in three years.  An executive whose employment terminates prior to the vesting of any award for a reason other than death, disability, retirement, or following a change in control, will forfeit the shares represented by that award. In certain circumstances, such as death, disability, or retirement, PSUs are paid on a pro-rata basis.  In the event of a change in control, vesting of the awards granted is accelerated.   A summary of the awards activity under the executive compensation program is as follows:       Annual Component     Performance Stock Units               Weighted                     Weighted       Number     Average     Aggregate     Number     Average       of     Exercise     Intrinsic     of     Grant Date       Shares     Price     Value     Shares     Fair Value   Non-vested, June 30, 2021     41,119     $ 54.36     $ 691,647       129,427     $ 70.27   Granted     22,646       71.18               35,113       102.61   Exercised / vested     ( 10,658 )     76.65     $ 241,723       ( 21,307 )     106.65   Forfeited     0       -               ( 1,063 )     86.47   Non-vested, June 30, 2022     53,107     $ 57.06     $ 346,496       142,170     $ 72.68     59   Restricted stock awards granted under the annual component of this program in fiscal years  2022 , 2021 , and  2020 had a weighted average grant date fair value of $ 108.92 , $ 43.16 , and $ 74.37 , respectively.  The PSUs granted in fiscal years  2021 and  2020 had a weighted average grant date fair value of $ 58.81 , and $ 70.37 , respectively. The grant date fair value of the PSUs is determined based on the closing price of the Company’s common stock on the date of grant. The fair value of PSUs vested under the long-term component of this program during the fiscal years ended June 30, 2022 , 2021 , and  2020 was $ 0.4 million, $ 0.7 million, and $ 0.8  million respectively.   The Company recognized compensation expense related to the PSUs of $ 6.0 million, $ 2.6  million, and $ 2.9 million for the fiscal years ended June 30, 2022 ,  2021  and  2020 respectively based on the probability of the performance targets being met. The total unrecognized compensation costs related to non-vested performance share units was $ 5.6 million at June 30, 2022 , which is expected to be recognized over a weighted average period of 1.0 years.   Employee Stock Purchase Plan   The Company has an Employee Stock Purchase Plan that allows employees to purchase shares of common stock of the Company at a discount from the market each quarter. The ESPP plan, which was effective as of July 1, 2005, provided employees the option to purchase Standex stock at a discount of 5 %. The Plan was modified, effective as of April 1, 2017, to increase the stock purchase discount to 15 % and is considered a compensatory Plan. Under this amendment, at the beginning of each calendar quarter, employees may elect to purchase shares of Company stock at a value equal to 85 % of the closing price on the last trading day of the quarter. The 15% discount is recorded as a component of SG&A in the Company’s Consolidated Statements of Operations. Shares of stock reserved for the plan were 48,268 at June 30, 2022 . Shares purchased under this plan aggregated to 6,707  in fiscal year 2022 , 7,509 in 2021 , and 11,132  in 2020 , at an average price of $ 83.22 , $ 66.98 , and $ 52.57 , respectively.       14. Accumulated Other Comprehensive Income (LosS)   The components of the Company’s accumulated other comprehensive income (loss) are as follows (in thousands):       2022     2021     2020   Foreign currency translation adjustment   $ ( 67,679 )   $ ( 21,244 )   $ ( 31,046 ) Unrealized pension losses, net of tax     ( 92,641 )     ( 92,372 )     ( 109,880 ) Unrealized losses (gains) on derivative instruments, net of tax     7,008       ( 2,524 )     ( 6,733 ) Total   $ ( 153,312 )   $ ( 116,140 )   $ ( 147,659 )       15 . restructuring   The Company has undertaken a number of initiatives that have resulted in severance, restructuring, and related charges. A summary of charges by initiative is as follows (in thousands):       Involuntary Employee                       Severance and                   Year Ended June 30,   Benefit Costs     Other     Total   2022 Restructuring Initiatives   $ 2,690     $ 1,709     $ 4,399   Total expense   $ 2,690     $ 1,709     $ 4,399                             2021 Restructuring Initiatives   $ 1,313     $ 662     $ 1,975   Prior Year Initiatives     926       577       1,503   Total expense   $ 2,239     $ 1,239     $ 3,478                             2020 Restructuring Initiatives   $ 4,004     $ 606     $ 4,610   Prior Year Initiatives     -       59       59   Total expense   $ 4,004     $ 665     $ 4,669     60     2022  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 other cost saving initiatives. During fiscal year  2022 ,  we also incurred restructuring expenses related to  third  party assistance with analysis and implementation of these activities.       Involuntary                       Employee Severance                       and Benefit Costs     Other     Total   Restructuring liabilities at June 30, 2021   $ -     $ -     $ -   Additions and adjustments     2,690       1,709       4,399   Payments     ( 1,645 )     ( 1,014 )     ( 2,659 ) Restructuring liabilities at June 30, 2022   $ 1,045     $ 695     $ 1,740     Prior Year 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.  During fiscal years 2021 and 2020, the Company also incurred restructuring expenses related to headcount reductions, facility rationalization within our Specialty Solutions and Engraving segment, and  third party assistance with analysis and implementation of these activities.   The Company expects to incur additional restructuring costs of approximately $ 1.7  million in fiscal year 2023  as the Company continues to focus its efforts to reduce cost and improve productivity across its businesses, particularly through headcount reductions, facility closures, and consolidations.   Activity in the reserves related to prior year restructuring initiatives is as follows (in thousands):       Involuntary Employee                       Severance and                       Benefit Costs     Other     Total   Restructuring liabilities at June 30, 2021   $ 39     $ 10     $ 49   Additions and adjustments     -       -       -   Payments     ( 39 )     ( 10 )     ( 49 ) Restructuring liabilities at June 30, 2022   $ -     $ -     $ -     Activity in the reserves in fiscal year 2021 (in thousands):       Involuntary Employee                       Severance and                       Benefit Costs     Other     Total   Restructuring liabilities at June 30, 2020   $ 520     $ 18     $ 538   Additions and adjustments     2,239       1,239       3,478   Payments     ( 2,720 )     ( 1,247 )     ( 3,967 ) Restructuring liabilities at June 30, 2021   $ 39     $ 10     $ 49     61     The Company’s total restructuring expenses by segment are as follows (in thousands):       Involuntary Employee                       Severance and                       Benefit Costs     Other     Total   Fiscal Year 2022                         Electronics     513       243     $ 756   Engraving     1,807       1,362       3,169   Engineering Technologies     177       40       217   Specialty Solutions     -       64       64   Corporate and Other     193       -       193   Total expense   $ 2,690     $ 1,709     $ 4,399                             Fiscal Year 2021                         Electronics   $ 355     $ 22     $ 377   Engraving     1046       631       1,677   Engineering Technologies     37       -       37   Specialty Solutions     673       586       1,259   Corporate and Other     128       -       128   Total expense   $ 2,239     $ 1,239     $ 3,478                             Fiscal Year 2020                         Electronics   $ 355     $ 97     $ 452   Engraving     1512       499       2,011   Engineering Technologies     296       -       296   Specialty Solutions     1,326       69       1,395   Corporate and Other     515       -       515   Total expense   $ 4,004     $ 665     $ 4,669         16 . Employee Benefit Plans   Retirement Plans   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 employees and participants in the plan have ceased accruing future benefits.   Net periodic benefit cost for U.S. and non-U.S. plans included the following components (in thousands):       U.S. Plans     Foreign Plans       Year Ended June 30,     Year Ended June 30,       2022     2021     2020     2022     2021     2020   Service Cost   $ 5     $ 4     $ 3     $ 231     $ 217     $ 236   Interest Cost     7,320       7,439       9,083       768       725       846   Expected return on plan assets     ( 13,038 )     ( 13,012 )     ( 13,150 )     ( 855 )     ( 629 )     ( 868 ) Recognized net actuarial loss     5,534       5,933       5,101       336       757       651   Amortization of prior service cost (benefit)     -       -       -       ( 4 )     ( 5 )     ( 5 ) Net periodic benefit cost (benefit)   $ ( 179 )   $ 364     $ 1,037     $ 476     $ 1,065     $ 860       62     The following table sets forth the funded status and amounts recognized as of June 30,  2022 and 2021 for our U.S. and foreign defined benefit pension plans (in thousands):       U.S. Plans     Foreign Plans       Year Ended June 30,     Year Ended June 30,       2022     2021     2022     2021   Change in benefit obligation                                 Benefit obligation at beginning of year   $ 252,092     $ 264,619     $ 47,809     $ 45,190   Service cost     5       4       231       217   Interest cost     7,320       7,439       768       725   Actuarial loss (gain)     ( 42,844 )     ( 3,457 )     ( 11,353 )     ( 746 ) Benefits paid     ( 16,748 )     ( 16,513 )     ( 1,636 )     ( 1,906 ) Foreign currency exchange rate & other changes     -       -       ( 4,951 )     4,329   Projected benefit obligation at end of year   $ 199,825     $ 252,092     $ 30,868     $ 47,809                                     Change in plan assets                                 Fair value of plan assets at beginning of year   $ 212,603     $ 194,824     $ 45,017     $ 41,973   Actual return on plan assets     ( 38,213 )     26,277       ( 8,161 )     40   Employer contribution     209       8,015       326       105   Benefits paid     ( 16,748 )     ( 16,513 )     ( 1,636 )     ( 1,906 ) Foreign currency exchange rate     -       -       ( 4,560 )     4,805   Fair value of plan assets at end of year   $ 157,851     $ 212,603     $ 30,986     $ 45,017                                     Funded Status   $ ( 41,974 )   $ ( 39,489 )   $ 118     $ ( 2,792 )                                   Amounts recognized in the consolidated balance sheets consist of:                                 Prepaid benefit cost   $ -     $ -     $ 6,295     $ 5,661   Current liabilities     ( 195 )     ( 208 )     ( 261 )     ( 309 ) Non-current liabilities     ( 41,779 )     ( 39,281 )     ( 5,916 )     ( 8,144 ) Net amount recognized   $ ( 41,974 )   $ ( 39,489 )   $ 118     $ ( 2,792 )                                   Unrecognized net actuarial loss   $ 120,719     $ 117,847     $ 1,479     $ 4,618   Unrecognized prior service cost     -       -       ( 38 )     ( 51 ) Accumulated other comprehensive income, pre-tax   $ 120,719     $ 117,847     $ 1,441     $ 4,567     The accumulated benefit obligation for all defined benefit pension plans was $226.8  million and $ 299.8 million at June 30,  2022 and 2021 , respectively.   The estimated actuarial net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $4.2  million.   63     Plan Assets and Assumptions   The fair values of the Company’s pension plan assets at June 30,  2022 and 2021 by asset category, as classified in the three levels of inputs described in Note 1 under the caption Fair Value of Financial Instruments , are as follows (in thousands):       June 30, 2022       Total     Level 1     Level 2     Level 3   Cash and cash equivalents   $ 1,254     $ 1,123     $ 131     $ -   Common and preferred stocks     64,343       1,786       62,557       -   Corporate bonds and other fixed income securities     112,593       1,535       111,058       -   Other     10,648       -       10,648       -       $ 188,838     $ 4,444     $ 184,394       -         June 30, 2021       Total     Level 1     Level 2     Level 3   Cash and cash equivalents   $ 3,209     $ 3,148     $ 61     $ -   Common and preferred stocks     86,499       2,425       84,074       -   Corporate bonds and other fixed income securities     146,742       1,850       144,892       -   Other     21,170       -       21,170       -       $ 257,620     $ 7,423     $ 250,197       -     Asset allocation and target asset allocations are as follows:       U.S. Plans     Foreign Plans       Year Ended June 30,     Year Ended June 30,   Asset Category   2022     2021     2022     2021   Equity securities   33 %     36 %     6 %     5 %   Debt securities   48 %     43 %     78 %     70 %   Global balanced securities   11 %     12 %     15 %     24 %   Other   8 %     9 %     1 %     1 %   Total   100 %     100 %     100 %     100 %         2022   Asset Category – Target   U.S.     U.K.   Equity securities   33 %     0 %   Debt and market neutral securities   49 %     70 %   Global balanced securities   12 %     1 %   Other   6 %     29 %   Total   100 %     100 %     Our investment policy for the U.S. pension plans targets a range of exposure to the various asset classes. Standex rebalances the portfolio periodically when the allocation is not within the desired range of exposure. The plan seeks to provide returns in excess of the various benchmarks. The benchmarks include the following indices: S&P 500; Citigroup PMI EPAC; Citigroup World Government Bond and Barclays Aggregate Bond. A third -party investment consultant tracks the plan’s portfolio relative to the benchmarks and provides quarterly investment reviews which consist of a performance and risk assessment on all investment managers and on the portfolio.   Certain managers within the plan use, or have authorization to use, derivative financial instruments for hedging purposes, the creation of market exposures and management of country and asset allocation exposure. Currency speculation derivatives are strictly prohibited.   64     Year Ended June 30 2022 2021 2020   Plan assumptions - obligations               Discount rate 1.4 %- 5.0 % 0.73 - 3.00 % 0.99 - 2.90 %   Rate of compensation increase 3.25 % 3.25 % 2.90 %                   Plan assumption - cost               Discount rate 0.73 %- 3.0 % 0.99 - 2.90 % 0.31 - 3.70 %   Expected return on assets 2.05 %- 6.8 % 1.40 - 6.90 % 2.30 - 7.00 %   Rate of compensation increase 3.25 % 2.90 % 3.20 %     Included in the above are the following assumptions relating to the obligations for defined benefit pension plans in the United States at June 30, 2022 ; a discount rate of 5.0% and expected return on assets of 6.7%. The U.S. defined benefit pension plans represent the majority of our pension obligations. The expected return on plan assets assumption is based on our expectation of the long-term average rate of return on assets in the pension funds and is reflective of the current and projected asset mix of the funds. The discount rate reflects the current rate at which pension liabilities could be effectively settled at the end of the year. The discount rate is determined by matching our expected benefit payments from a stream of AA- or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions.   Expected benefit payments for all plans during the next five years are as follows:  2023, $17.6  million; 2024, $17.5  million; 2025, $17.5  million; 2026, $17.3  million; 2027, $17.2  million and five years thereafter, $83.2  million. The Company expects to make $0.5  million of contributions to its pension plans in 2023.   The Company operates defined benefit plans in Germany and Japan which are unfunded.   Multi-Employer Pension Plans   We contribute to two  multiemployer defined benefit plans under the terms of collective bargaining agreements that cover our union-represented employees. These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods and benefit formulas. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:     ● Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.   ● If a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may be borne by the remaining participating employers.   ● If we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. However, cessation of participation in a multiemployer plan and subsequent payment of any withdrawal liability is subject to the collective bargaining process.   65     The following table outlines the Company’s participation in multiemployer pension plans for the periods ended June 30, 2022 , 2021 , and 2020 , and sets forth the yearly contributions into each plan. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three -digit plan number. The most recent Pension Protection Act zone status available in  2022 and  2021 relates to the plans’ two most recent fiscal year-ends. The zone status is based on information that we received from the plans’ administrators and is certified by each plan’s actuary. Among other factors, plans certified in the red zone are generally less than 65% funded, plans certified in the orange zone are both less than 80% funded and have an accumulated funding deficiency or are expected to have a deficiency in any of the next six plan years, plans certified in the yellow zone are less than 80% funded, and plans certified in the green zone are at least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates whether a financial improvement plan (“FIP”) for yellow/orange zone plans, or a rehabilitation plan (“RP”) for red zone plans, is either pending or has been implemented. For all plans, the Company’s contributions do not exceed 5% of the total contributions to the plan in the most recent year.             Pension Protection Act                           Expiration           Zone Status   Contributions     Date of                                           Collective     EIN/Plan       FIP/RP                         Surcharge Bargaining Pension Fund   Number   2022 2021 Status   2022     2021     2020   Imposed? Agreement New England Teamsters and Trucking Industry Pension Fund     04-6372430-001   Red Red Yes/ Implemented   $ 520     $ 631     $ 531   No May-25                                             IAM National Pension Fund, National Pension Plan     51-6031295-002   Red Red Yes/Implemented     579       513       595   Yes Oct-22 - May-25                   $ 1,099     $ 1,144     $ 1,126         Retirement Savings Plans   The Company has two primary employee savings plans, one for salaried employees and one for hourly employees. Substantially all of our full-time domestic employees are covered by these savings plans. Under the provisions of the plans, employees may contribute a portion of their compensation within certain limitations. The Company, at the discretion of the Board of Directors, may make contributions on behalf of our employees under the plans. Company contributions were $ 2.9  million, $ 2.9 million, and $ 3.7 million for the years ended June 30, 2022 , 2021 , and 2020 , respectively. At June 30, 2022 , the salaried plan holds approximately 121,000 shares of Company common stock, representing approximately 4.4% of the holdings of the plan.     17 . Industry Segment Information   The company has five reportable segments organized around the types of products sold:   •  Electronics – manufacturing and selling of electronic components for applications throughout the end-user market spectrum; •  Engraving – provides mold texturizing, slush molding tools, project management and design services, roll engraving, hygiene product tooling, low observation vents for stealth aircraft, and process machinery for a number of industries; •  Scientific – specialty temperature-controlled equipment for the medical, scientific, pharmaceutical, biotech and industrial markets; •  Engineering Technologies – provides net and near net formed single-source customized solutions in the manufacture of engineered components for the aviation, aerospace, defense, energy, industrial, medical, marine, oil and gas, and manned and unmanned space markets. •  Specialty Solutions – an aggregation of three operating segments that manufacture and sell refrigerated, heated and dry merchandizing display cases, custom fluid pump solutions, and single and double acting telescopic and piston rod hydraulic cylinders.   Net sales include only transactions with unaffiliated customers and include no significant intersegment or export sales.  Operating income by segment and geographic area excludes general corporate and interest expenses.  Assets of the Corporate segment consist primarily of cash, office equipment, and other non-current assets.   66   Given the nature of our corporate expenses, management concluded that it would not presently be appropriate to allocate the expenses associated with corporate activities to our operating segments.  These corporate expenses include the costs for the corporate headquarters, salaries and wages for the personnel in corporate, professional fees related to corporate matters and compliance efforts, stock-based compensation and post-retirement benefits related to our corporate executives, officers and directors, and other compliance related costs.  The Company has a process to allocate and recharge certain direct costs to the operating segments when such direct costs are administered and paid at corporate.  Such direct expenses that are recharged on an intercompany basis each month include such costs as insurance, workers’ compensation programs, and audit fees.  The accounting policies applied by the reportable segments are the same as those described in the Summary of Accounting Policies footnote to the consolidated financial statements.  There are no differences in accounting policies which would be necessary for an understanding of the reported segment information.     Industry Segments                                                 (in thousands)   Net Sales     Depreciation and Amortization       2022     2021     2020     2022     2021     2020   Electronics   $ 304,290     $ 253,369     $ 185,294     $ 11,803     $ 13,159     $ 12,339   Engraving     146,255       147,016       143,736       10,561       11,140       10,595   Scientific     83,850       79,421       57,523       1,574       1,590       1,594   Engineering Technologies     78,117       75,562       104,047       3,865       5,519       6,000   Specialty Solutions     122,827       100,864       113,935       1,541       1,513       1,446   Corporate and Other     -       -       0       353       320       320   Total   $ 735,339     $ 656,232     $ 604,535     $ 29,697     $ 33,241     $ 32,294         Income (Loss) From Operations     Capital Expenditures (1)       2022     2021     2020     2022     2021     2020   Electronics   $ 70,428     $ 46,600     $ 29,749     $ 11,809     $ 11,154     $ 5,334   Engraving     21,825       22,510       20,493       6,504       6,517       10,618   Scientific     17,861       18,240       13,740       278       693       360   Engineering Technologies     8,776       6,164       14,027       1,480       1,110       1,170   Specialty Solutions     15,579       14,358       18,546       1,716       1,313       1,154   Restructuring costs     ( 4,399 )     ( 3,478 )     ( 4,669 )     -       -       -   Loss on sale of business     -       ( 14,624 )     -       -       -       -   Acquisition related costs     ( 1,618 )     ( 931 )     ( 1,759 )     -       -       -   Other operating expense     ( 5,745 )     -       -       -       -       -   Corporate     ( 34,413 )     ( 29,674 )     ( 29,599 )     257       626       668   Total   $ 88,294     $ 59,165     $ 60,528     $ 22,044     $ 21,413     $ 19,304   Interest expense     ( 5,874 )     ( 5,992 )     ( 7,475 )                         Other non-operating (expense) income, net     ( 1,131 )     ( 473 )     1,021                           Income from continuing operations before income taxes   $ 81,289     $ 52,700     $ 54,074                               ( 1 ) Includes capital expenditures in accounts payable of $ 0.1 million, $ 2.4 million, and $ 3.2 million at June 30, 2022 , 2021 , and  2020 respectively.       Goodwill     Identifiable Assets       2022     2021     2022     2021   Electronics   $ 136,969     $ 144,832     $ 378,581     $ 382,045   Engraving     76,250       77,378       256,115       263,406   Scientific     15,454       15,454       114,177       110,300   Engineering Technologies     35,928       37,085       118,723       114,012   Specialty Solutions     3,305       3,305       57,757       46,883   Corporate & Other     -       -       9,086       45,577   Total   $ 267,906     $ 278,054     $ 934,439     $ 962,223     67     Tangible Long-lived assets   2022     2021   United States   $ 61,540     $ 63,613   Asia Pacific     32,334       33,722   EMEA (2)     29,736       30,677   Other Americas     4,974       5,361   Total   $ 128,584     $ 133,373       ( 2 ) EMEA consists primarily of Europe, Middle East and S. Africa.     18 . Divestitures   On March 31, 2021, the Company divested Enginetics Corporation (“Enginetics”), its jet engine components business, to Enjet Aero, LLC, a privately-held aerospace engine component manufacturing company. Enginetics generated approximately $ 9.0 million in revenue in the first nine months of fiscal 2021. The business activities, which are reported within the Engineering Technologies Group, were divested in order to focus on the higher growth and margin opportunities of the Company's core spin forming solutions business that serves the space, commercial aviation and defense end markets. The Company received $ 11.7 million cash consideration and recorded a pre-tax loss on sale of the business of $ 14.6 million, including a goodwill impairment charge of $ 7.6 million, assigned to the entirety of the Engineering Technologies segment, and a $ 5.4 million write-down of intangible assets. The sale transaction and financial results of Enginetics are classified as continuing operations in the Consolidated Financial Statements.     19. 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 third quarter of fiscal 2020, in order to focus its financial assets and managerial resources on its remaining portfolio of businesses, the Company entered into a definitive agreement to sell the Refrigerated Solutions Group, consisting of the Master-Bilt and NorLake operating segments, to Ten Oaks Group for a cash purchase price of $ 10.6  million, subject to post-closing adjustments and various transaction fees. The Refrigerated Solutions Group was a part of the Company's Food Service Equipment segment, and manufactured refrigerated cabinets and walk-ins for customers food service and retail end markets.   The transaction closed on April 16, 2020 and resulted in a pre-tax loss of $ 20.0 million less related transaction expenses of $ 1.9 million. The Company reported a tax benefit related to the loss on sale of $ 2.6 million.   68     Activity related to the Refrigerated Solutions Group and other discontinued operations for the years ended is as follows (in thousands):       Year Ended June 30,       2022     2021     2020   Net sales   $ -     $ -     $ 111,841                             Gain (loss) on sale of business   $ -     $ -     $ ( 19,996 ) Transaction fees     -       -       ( 1,933 ) Profit (loss) before taxes   $ ( 113 )   $ ( 2,620 )   $ ( 23,439 ) Benefit (provision) for taxes     24       550       2,613   Net income (loss) from discontinued operations   $ ( 89 )   $ ( 2,070 )   $ ( 20,826 )     20. LEASES   In the normal course of its business, the Company enters into various leases as the lessee, primarily related to certain transportation vehicles, facilities, office space, and machinery and equipment. These leases have remaining lease terms between one and fifty-six years, some of which may include options to extend the leases or options to terminate the leases. Some lease arrangements require variable payments that are dependent on usage, output, or index-based adjustments.    Amounts recorded in the Company's Consolidated Balance Sheet and Statement of Operations related to leases are as follows (in thousands):       June 30, 2022     June 30, 2021   Assets                 Operating lease right-of-use-asset   $ 39,119     $ 37,276                     Liabilities                 Current accrued liabilities   $ 7,891     $ 7,933   Operating lease long-term liabilities     31,357       29,041   Total lease liability   $ 39,248     $ 36,974     Lease cost   The components of lease costs are as follows (in thousands):       Year Ended     Year Ended       June 30, 2022     June 30, 2021   Operating lease cost   $ 11,153     $ 11,747   Variable lease cost     1,372       863   Net lease cost   $ 12,525     $ 12,610     69     Maturity of lease liability   The maturity of the Company's lease liabilities included in continuing operations at June  30,   2022 were as follows (in thousands):       Operating Leases             2023   $ 8,707   2024     7,265   2025     6,087   2026     5,197   2027     4,619   After 2027     11,803   Less: interest     ( 4,430 ) Present value of lease liabilities   $ 39,248       The weighted average remaining lease term and discount rates are as follows:   Lease Term and Discount Rate   June 30, 2022   Weighted average remaining lease term (years)     8.62             Weighted average discount rate (percentage)     2.83 %             Other Information   Supplemental cash flow information related to leases is as follows:       Year Ended     Year Ended       June 30, 2022     June 30, 2021   Operating cash outflows from operating leases   $ 10,960     $ 11,025     70         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the stockholders and the Board of Directors of Standex International Corporation   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheet of Standex International Corporation and subsidiaries (the "Company") as of June 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for the each of the two years in the period ended June 30, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.   We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 5, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.   Basis for Opinion   These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit Matter   The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.   Revenue recognition – Revenue recognized over time – Refer to note 3 to the financial statements   Critical Audit Matter Description   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. For the year ended June 30,2022, the revenue recognized over time was $59.9 million.   We identified revenue recognized over time as a critical audit matter because of the judgments and subjectivity involved in the determination of estimated costs to complete contracts. This required extensive audit effort and a high degree of auditor judgment when performing audit procedures to audit costs incurred to date and management’s estimates of margin at completion used to recognize revenue over time and evaluating the results of those procedures.   71     How the Critical Audit Matter Was Addressed in the Audit   Our audit procedures related to management’s estimates of total costs and profit for the performance obligations used to recognize revenue for certain performance obligations accounted for over time included the following, among others:            ● We tested the effectiveness of controls for revenue recognized over time, including management’s controls over the estimates of total costs and profit for performance obligations.     ● We selected a sample of long-term contracts with customers for which the revenue is recognized over time and we performed the following:     o evaluated whether the contracts were properly included in management’s calculation of long-term contract revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation     o evaluated management’s ability to achieve the estimates of total costs and profit at completion by comparing the estimates to management’s work plans, engineering specifications, and supplier contracts, and performing corroborating inquiries with the Company’s project managers and engineers.     o tested the accuracy and completeness of the costs incurred to date for the performance obligation to supporting documentation     o tested the mathematical accuracy of management’s calculation of revenue for the contract.     ● We evaluated management’s ability to estimate total costs and profits accurately by comparing actual costs and profits to management’s historical estimates for performance obligations that have been fulfilled.   /s/ DELOITTE & TOUCHE LLP       Boston, Massachusetts   August 5, 2022   We have served as the Company’s auditor since 2020.     72     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   Board of Directors and Shareholders Standex International Corporation   Opinion on the financial statements   We have audited the consolidated balance sheet of Standex International Corporation  and subsidiaries (the “Company”) as of June 30, 2020 (not presented herein), and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020, and the results of its operations and its cash flows for the year ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.   Basis for opinion   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.   /s/ GRANT THORNTON LLP   We served as the Company’s auditor from 2015 to 2020.   Boston, Massachusetts   August 25, 2020   73     Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure   Not Applicable