FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 2000 Commission File Number 1-7233 STANDEX INTERNATIONAL CORPORATION (Exact name of Registrant as specified in its Charter) DELAWARE 31-0596149 (State of incorporation) (I.R.S. Employer Identification No.) 6 MANOR PARKWAY, SALEM, NEW HAMPSHIRE 03079 (Address of principal executive offices) (Zip Code) (603) 893-9701 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X . NO __. The number of shares of Registrant's Common Stock outstanding on December 31, 2000 was 12,154,569. STANDEX INTERNATIONAL CORPORATION I N D E X Page No. PART I. FINANCIAL INFORMATION: Item 1. Statements of Consolidated Income for the Three and Six Months Ended December 31, 2000 and 1999 2 Consolidated Balance Sheets, December 31, 2000 and June 30, 2000 3 Statements of Consolidated Cash Flows for the Six Months Ended December 31, 2000 and 1999 4 Notes to Financial Information 5-7 Item 2. Management's Discussion and Analysis 8-10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION: Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12 <TABLE> PART I. FINANCIAL INFORMATION STANDEX INTERNATIONAL CORPORATION Statements of Consolidated Income (000 Omitted) <CAPTION> Three Months Ended Six Months Ended December 31 December 31 2000 1999 2000 1999 <S> <C> <C> <C> <C> Net Sales $158,652 $163,050 $309,931 $320,853 Cost of Products Sold 104,169 107,795 207,383 215,905 Gross Profit Margin 54,483 55,255 102,548 104,948 Selling, General and Administrative Expenses 39,215 40,367 72,945 74,827 Income from Operations 15,268 14,888 29,603 30,121 Other Income/(Expense): Gain on Stock Received 0 0 0 2,734 Interest Expense (3,060) (2,812) (6,008) (5,471) Interest Income 63 64 180 224 Other Income/(Expense) - net (2,997) (2,748) (5,828) (2,513) Income Before Income Taxes 12,271 12,140 23,775 27,608 Provision for Income Taxes 4,718 4,527 9,184 10,478 Net Income $7,553 $7,613 $14,591 $17,130 Earnings Per Share: Basic $ .62 $ .59 $ 1.19 $ 1.33 Diluted $ .61 $ .59 $ 1.18 $ 1.33 Cash Dividends Per Share $ .21 $ .20 $ .41 $ .39 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheets (000 Omitted) <CAPTION> December 31 June 30 2000 2000 ASSETS CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 9,442 $ 10,438 Receivables, net of allowances for doubtful accounts 94,583 104,431 Inventories (approximately 45% finished goods, 20% work in process, and 35% raw materials and supplies) 110,058 112,201 Prepaid expenses 8,705 4,316 Total current assets 222,788 231,386 PROPERTY, PLANT AND EQUIPMENT 260,116 259,642 Less accumulated depreciation 147,289 147,505 Property, plant and equipment, net 112,827 112,137 OTHER ASSETS: Prepaid pension cost 40,595 38,334 Goodwill, net 28,932 31,184 Other 11,430 11,159 Total other assets 80,957 80,677 TOTAL $416,572 $424,200 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 2,964 $ 2,356 Accounts payable 35,588 36,495 Income taxes 6,267 5,357 Accrued expenses 36,869 42,168 Total current liabilities 81,688 86,376 LONG-TERM DEBT (less current portion) 146,392 153,436 DEFERRED INCOME TAXES AND OTHER LIABILITIES 19,486 19,573 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Additional paid-in capital 9,232 9,275 Retained earnings 372,850 363,303 Accumulated other comprehensive income (9,470) (7,965) Less cost of treasury shares (245,582) (241,774) Total stockholders' equity 169,006 164,815 TOTAL $416,572 $424,200 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (000 OMITTED) <CAPTION> Six Months Ended December 31 2000 1999 Cash Flows from Operating Activities: <S> <C> <C> Net income $14,591 $17,130 Depreciation and amortization 6,852 6,968 Net changes in assets and liabilities 1,125 (1,219) Net Cash Provided by Operating Activities 22,568 22,879 Cash Flows from Investing Activities: Expenditures for property and equipment (8,651) (9,304) Other 845 124 Net Cash Used for Investing Activities (7,806) (9,180) Cash Flows from Financing Activities: Proceeds from additional borrowings 928 7,006 Payments of debt (7,363) (7,747) Cash dividends paid (5,043) (5,019) Purchase of treasury stock (6,134) (3,946) Other, net 2,281 909 Net Cash Used for Financing Activities (15,331) (8,797) Effect of Exchange Rate Changes on Cash (427) (128) Net Change in Cash and Cash Equivalents (996) 4,774 Cash and Cash Equivalents at Beginning of Year 10,438 5,909 Cash and Cash Equivalents at December 31 $9,442 $10,683 Supplemental Disclosure of Cash Flow Information: Cash paid during the six months for: Interest $5,083 $5,534 Income taxes $8,274 $9,539 </TABLE> NOTES TO FINANCIAL INFORMATION 1. Management Statement The financial statements as reported in this Form 10-Q reflect all adjustments (including those of a normal recurring nature) which are, in the opinion of management, necessary to a fair statement of results for the three and six months ended December 31, 2000 and 1999. These financial statements should be read in conjunction with the audited financial statements as of June 30, 2000. Accordingly, footnote disclosures that would substantially duplicate the disclosures contained in the latest audited financial statements have been omitted from this filing. 2. Per Share Calculation <TABLE> The following table sets forth the number of shares (in thousands) used in the computation of basic and diluted earnings per share: <CAPTION> Three Months Ended Six Months Ended December 31 December 31 2000 1999 2000 1999 <S> <C> <C> <C> <C> Basic Average Shares Outstanding 12,202 12,820 12,245 12,851 Effect of Dilutive Securities: Stock Options 153 90 151 75 Diluted Average Shares Outstanding 12,355 12,910 12,396 12,926 Both basic and diluted incomes are the same for computing earnings per share. </TABLE> <TABLE> Cash dividends per share have been computed based on the shares outstanding at the time the dividends were paid. The shares (in thousands) used in this calculation for the three and six months ended December 31, 2000 and 1999 were as follows: 2000 1999 <S> <C> <C> Quarter 12,223 12,849 Year-to-date 12,301 12,870 </TABLE> 3. Contingencies The Company is a party to various claims and legal proceedings related to environmental and other matters generally incidental to its business. Management has evaluated each matter based, in part, upon the advice of its independent environmental consultants and in-house counsel and has recorded an appropriate provision for the resolution of such matters in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." Management believes that such provision is sufficient to cover any future payments, including legal costs, under such proceedings. 4. Comprehensive Income In addition to net income, the only item which would be included in comprehensive income is foreign currency translation adjustments. For the six months ended December 31, 2000 and 1999, comprehensive income totaled approximately $13,085,000 and $16,321,000, respectively. 5. Restructuring Charge In June 2000, the Company recorded a restructuring charge of $5,408,000 before taxes. The restructuring plan involved the: (1) disposal, closing or elimination of certain under-performing and unprofitable operating plants, product lines, manufacturing processes and businesses; (2) realignment and consolidation of certain marketing and distribution activities; and (3) other cost containment actions, including selective personnel reductions. The charge was recorded in the line item "Restructuring charge (credit)" on the Statements of Consolidated Income of the 2000 Annual Report. As part of this restructuring the Company sold for cash the assets and operations of its Keller-Dorian and Goyot subsidiaries in September. <TABLE> The following schedule reflects the Company's restructuring activities (in thousands) since the charge was recorded: <CAPTION> Involuntary Employee Severance and Asset Shutdown Benefit Costs Impairment Costs Total <S> <C> <C> <C> <C> Reserve beginning balance $1,036 $3,775 $ 597 $5,408 Expended: Cash 421 176 597 Non-cash (disposals and write-offs) 3,021 3,021 Total 421 3,021 176 3,618 Estimated costs to be incurred $ 615 $ 754 $ 421 $ 1,790 The Company believes that all remaining costs will be incurred by the end of fiscal 2001. </TABLE> 6. Industry Segment Information <TABLE> The Company is composed of three product segments. Net sales include only transactions with unaffiliated customers and include no intersegment sales. Operating income by segment excludes general corporate expenses, interest expense and income, and the gain on stock received. <CAPTION> Net Sales Three Months Ended Six Months Ended December 31 December 31 Segment 2000 1999 2000 1999 <S> <C> <C> <C> <C> Food Service $ 36,856 $ 34,058 $ 73,577 $ 71,841 Industrial 61,723 66,570 126,121 133,620 Consumer 60,073 62,422 110,233 115,392 Total $158,652 $163,050 $309,931 $320,853 </TABLE> <TABLE> <CAPTION> Income From Operations Three Months Ended Six Months Ended December 31 December 31 Segment 2000 1999 2000 999 <S> <C> <C> <C> <C> Food Service $ 3,659 $ 2,314 $ 6,868 $ 5,828 Industrial 7,478 7,217 15,218 14,594 Consumer 6,252 7,844 11,643 14,794 Corporate (2,121) (2,487) (4,126) (5,095) Total $15,268 $14,888 $29,603 $30,121 </TABLE> 7. Derivative Instruments and Hedging Activities Effective July 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." Standex manages its debt portfolio by using interest rate swaps to achieve an overall desired position of fixed and floating rate debt to reduce certain exposures to interest rate fluctuations. Standex designates its interest rate swaps as cash flow hedge instruments, whose recorded value in the consolidated balance sheet approximates fair market value. The Company assesses the effectiveness of its hedge instruments on a quarterly basis. Forward foreign currency exchange contracts are used by the Company to protect certain anticipated foreign cash flows, such as dividends and loan payments from subsidiaries, against movements in the related exchange rates. The Company enters into such contracts for hedging purposes only. The Company does not hold or issue derivative instruments for trading purposes. At December 31, 2000, the Company had no significant forward foreign currency contracts. The cumulative effect of a change in accounting principles due to adoption of SFAS No. 133 as of July 1, 2000 did not have a significant impact on earnings for the three month or six month periods ended December 31, 2000. STANDEX INTERNATIONAL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations Statements contained in the following "Management's Discussion and Analysis" that are not based on historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "believe," "estimate," "anticipate," "continue," or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the Company's business and the results of its operations and may cause the actual results of operations in future periods to differ materially from those currently expected or desired. These factors include uncertainties in competitive pricing pressures, general domestic and international business and economic conditions and market demand. MATERIAL CHANGES IN FINANCIAL CONDITION During the first six months of fiscal 2001 the Company invested $8.7 million in plant and equipment, paid down $7.4 million of debt, repurchased $6.1 million of the Company's Common Stock and paid out $5 million in cash dividends to the Company's shareholders. These expenditures were primarily funded with net operating cash flows of $22.6 million. The Company intends to continue its policy of using its funds to make acquisitions when conditions are favorable, invest in property, plant and equipment, pay dividends and purchase its Common Stock. New Accounting Pronouncements - Effective July 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of SFAS No. 133, which did not have a material effect on the Company's financial position or results of operations, is more fully described in the Notes to Financial Information. In December 1999, the Securities and Exchange Commission (the "SEC") released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements and will be effective for the Company in fiscal 2001. Management expects that the adoption of SAB No. 101 will not have a material effect on the Consolidated Financial Statements. OPERATIONS Quarter Ended December 31, 2000 As compared to the Quarter Ended December 31, 1999 Net sales for the quarter ended December 31, 2000 decreased by approximately $4.4 million or 2.7% from sales of $163.1 million for the quarter ended December 31, 1999. The effect, on net sales, of changes in the average foreign exchange rates was not significant. Net sales in the Food Service segment were approximately $2.8 million or 8.2% more than the prior year. The increase reflected a general improvement in the segment following a difficult 12 months. Consumer segment net sales decreased to $60.1 million from $62.4 million in the prior period. The decrease was primarily the result of the impact of lower housing starts on our Air Distribution business. Industrial segment net sales decreased $4.9 million to $61.7 million. The decrease was reflective of the economic slowdown within the automotive industry, and a general reduction in inventory levels by customers in the industrial marketplace. The gross profit margin percentage (GPMP) was unchanged at approximately 34% for the quarters ended December 31, 2000 and 1999. Small increases in the Food Service and Industrial segments' GPMP were partially offset by a decrease in the Consumer segment GPMP. Consolidated selling, general and administrative expenses (SG&A) remained stable at 24.7% of net sales. Slight increases in the Food Service and Consumer segments' SG&A were offset by a decrease in the Industrial segment. An increase of 8.8% in interest expense for the quarter was a result of an increase in interest rates when compared to the previous year partially off- set by a decrease in average outstanding debt. Pre-tax income increased to $12.3 million in the current period versus $12.1 million in the comparable prior period. The effective tax rate increased to 38.4% compared to 37.3% in the prior year since a larger portion of the Company's income this year was generated in higher taxed countries. As a result of the above, net income was $7.6 million for both quarters ended December 31, 2000 and 1999. Six Months Ended December 31, 2000 As Compared to the Six Months Ended December 31, 1999 For the six months ended December 31, 2000, sales totaled $309.9 million compared to $320.9 million for the previous fiscal year. The decrease in sales is a result of the general economic slowdown readily apparent in all economic reports. The effect of changes in average foreign exchange rates from December 31, 1999 to December 31, 2000 was not significant. Net sales in the Food Service segment increased by $1.7 million for reasons described in the discussion of the quarterly results. Consumer segment net sales decreased by $5.2 million or 4.5%, and Industrial segment net sales decreased by $7.5 million or 5.6%. The decrease in the Consumer segment sales is the direct result of the Air Distribution business being impacted by lower housing starts. Industrial segment net sales were adversely affected by an economic slowdown in the automotive sector and customer efforts to reduce inventory levels. The Company's GPMP remained stable at approximately 33%. Changes in segment GPMPs were not individually significant. Consolidated SG&A remained unchanged as a percentage of net sales at approximately 23%. Segment variances were not individually significant and generally reflected the changes in sales. As a result of the above, operating income was $29.6 million compared to $30.1 million in the prior year, a decrease of 1.7%. During the prior six months, other income of $2.7 million was recorded resulting from the receipt of marketable stock of an insurance company, in which Standex owned life policies, that "demutualized" by converting from a mutual company to a stock company. Interest expense increased by 9.8% or $0.6 million in the latest six-month period compared to the same period last year for the same reasons described in the quarterly discussion. Pre-tax income decreased to $23.8 million from $27.6 in the prior year. The effective tax rate increased slightly to 38.6% from 38% in the comparable prior period primarily for the same reason described in the quarterly discussion. Due to the above factors, net income was $14.6 million compared to $17.1 million in the prior year. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a number of market risks, primarily the effects of changes in foreign currency exchange rates and interest rates. Investments in foreign subsidiaries and branches, and their resultant operations, denominated in foreign currencies, create exposures to changes in exchange rates. The Company's use of its bank credit agreements creates an exposure to changes in interest rates. The effect of changes in exchange rates and interest rates on the Company's earnings has been relatively insignificant compared to other factors that also affect earnings, such as business unit sales and operating margins. The Company does not hold or issue financial instruments for trading, profit or speculative purposes. There have been no significant changes in the exposure to changes in both foreign currency and interest rates from June 30, 2000 to December 31, 2000. PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of stockholders of the Company was held on October 31, 2000. Two matters were voted upon at the meeting: the election of directors and the approval of the appointment of independent auditors of the Company. A third matter, a shareholder proposal entitled "Maximize Value Resolution" was not properly presented and therefore not considered at the meeting. <TABLE> The name of each director elected at the meeting and the number of votes cast as to each matter are as follows: <CAPTION> Proposal I (Election of Directors) Nominee For Withheld <S> <C> <C> William R. Fenoglio 10,030,953 586,782 Walter F. Greeley 10,027,637 590,098 C. Kevin Landry 10,021,861 595,874 H. Nicholas Muller, III, Ph.D. 9,420,526 1,197,209 Edward J. Trainor 8,787,416 1,830,319 </TABLE> <TABLE> <CAPTION> Proposal II (Appointment of Deloitte & Touche LLP as independent auditors) For Against Abstain <C> <C> <C> 10,467,428 116,509 33,798 </TABLE> <TABLE> <CAPTION> Proposal III (Maximize Value Resolution) For Against Abstain No Vote <C> <C> <C> <C> 1,063,054 8,324,205 207,387 1,023,089 ITEM 6. Exhibits and Reports on Form 8-K Reports on Form 8-K The Company filed no reports on Form 8-K with the Securities and Exchange Commission during the quarter ended December 31, 2000. ALL OTHER ITEMS ARE INAPPLICABLE STANDEX INTERNATIONAL CORPORATION S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STANDEX INTERNATIONAL CORPORATION Date: February 12, 2001 /s/ Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: February 12, 2001 /s/ Edward F. Paquette Edward F. Paquette Vice President/CFO </TABLE>