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 September 30, 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 September 30, 2000 was 12,260,425. STANDEX INTERNATIONAL CORPORATION I N D E X Page No. PART I. FINANCIAL INFORMATION: Item 1. Statements of Consolidated Income for the Three Months Ended September 30, 2000 and 1999 2 Consolidated Balance Sheets, September 30, 2000 and June 30, 2000 3 Statements of Consolidated Cash Flows for the Three Months Ended September 30, 2000 and 1999 4 Notes to Financial Information 5-7 Item 2. Management's Discussion and Analysis 8-9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K 11 <TABLE> PART I. FINANCIAL INFORMATION <CAPTION> STANDEX INTERNATIONAL CORPORATION Statements of Consolidated Income (000 Omitted) Three Months Ended September 30 2000 1999 <S> <C> <C> Net Sales $151,279 $157,803 Cost of Products Sold 103,214 108,110 Gross Profit Margin 48,065 49,693 Selling, General and Administrative Expenses 33,730 34,460 Income from Operations 14,335 15,233 Other Income/(Expense): Gain on Stock Received 0 2,734 Interest Expense (2,948) (2,659) Interest Income 117 160 Other Income/(Expense) - net (2,831) 235 Income Before Income Taxes 11,504 15,468 Provision for Income Taxes 4,466 5,951 Net Income $ 7,038 $ 9,517 Earnings Per Share: Basic $ .57 $ .74 Diluted $ .57 $ .74 Cash Dividends Per Share $ .20 $ .19 </TABLE> <TABLE> <CAPTION> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheets (000 Omitted) September 30 June 30 2000 2000 ASSETS CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 11,511 $ 10,438 Receivables, net of allowances for doubtful accounts 100,782 104,431 Inventories (approximately 45% finished goods, 20% work in process, and 35% raw materials and supplies) 112,757 112,201 Prepaid expenses 11,541 4,316 Total current assets 236,591 231,386 PROPERTY, PLANT AND EQUIPMENT 257,798 259,642 Less accumulated depreciation 145,469 147,505 Property, plant and equipment, net 112,329 112,137 OTHER ASSETS: Prepaid pension cost 39,542 38,334 Goodwill, net 29,403 31,184 Other 11,615 11,159 Total other assets 80,560 80,677 TOTAL $429,480 $424,200 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 2,313 $ 2,356 Accounts payable 36,417 36,495 Income taxes 8,911 5,357 Accrued expenses 35,020 42,168 Total current liabilities 82,661 86,376 LONG-TERM DEBT (less current portion included above) 158,420 153,436 DEFERRED INCOME TAXES AND OTHER LIABILITIES 19,630 19,573 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Additional paid-in capital 9,348 9,275 Retained earnings 367,864 363,303 Cumulative translation adjustment (7,086) (7,965) Less cost of treasury shares (243,333) (241,774) Total stockholders' equity 168,769 164,815 TOTAL $429,480 $424,200 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION <CAPTION> STATEMENTS OF CONSOLIDATED CASH FLOWS (000 OMITTED) Three Months Ended September 30 2000 1999 Cash Flows from Operating Activities: <S> <C> <C> Net income $ 7,038 $ 9,517 Depreciation and amortization 3,486 3,493 Net changes in assets and liabilities (6,988) (8,037) Net Cash Provided by Operating Activities 3,536 4,973 Cash Flows from Investing Activities: Expenditures for property and equipment (4,351) (2,737) Other 898 113 Net Cash Used for Investing Activities (3,453) (2,624) Cash Flows from Financing Activities: Proceeds from additional borrowings 12,129 6,614 Net payments of debt (7,188) (7,180) Cash dividends paid (2,477) (2,449) Purchase of treasury stock ( 3,076) (1,615) Other, net 1,589 448 Net Cash (Used for)/Provided by Financing Activities 977 (4,182) Effect of Exchange Rate Changes on Cash 13 (65) Net Change in Cash and Cash Equivalents 1,073 (1,898) Cash and Cash Equivalents at Beginning of Year 10,438 5,909 Cash and Cash Equivalents at September 30 $ 11,511 $ 4,011 Supplemental Disclosure of Cash Flow Information: Cash paid during the three months for: Interest $ 3,368 $ 3,192 Income taxes $ 1,930 $ 2,268 </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 months ended September 30, 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. <TABLE> 2. Per Share Calculation <CAPTION> The following table sets forth the number of shares (in thousands) used in the computation of basic and diluted earnings per share: Three Months Ended September 30 2000 1999 <S> <C> <C> Basic - Average Shares Outstanding 12,293 12,883 Effect of Dilutive Securities: Stock Options 147 59 Diluted - Average Shares Outstanding 12,440 12,942 Both basic and diluted incomes are the same for computing earnings per share. 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 months ended September 30, 2000 and 1999 were 12,383 and 12,892, respectively. </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 three months ended September 30, 2000 and 1999, comprehensive income totaled approximately $7,917,000 and $8,514,000, respectively. <TABLE> 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, 2000. <CAPTION> The following schedule reflects the Company's restructuring activities (in thousands) since the charge was recorded: 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 275 - 135 410 Non-cash (disposals and write-offs) 3,253 3,253 Total 275 3,253 135 3,663 Estimated costs to be incurred $ 761 $ 522 $ 462 $1,745 </TABLE> <TABLE> 6. Industry Segment Information <CAPTION> 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. (000 Omitted) Income Net Sales From Operations 2000 1999 2000 1999 <S> <C> <C> <C> <C> Food Service $ 36,721 $ 37,783 $ 3,209 $ 3,525 Industrial 64,398 67,050 7,740 7,433 Consumer 50,160 52,970 5,391 6,988 Corporate (2,005) (2,713) Total $151,279 $157,803 $14,335 $15,233 </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. 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 September 30, 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 quarter ended September 30, 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 quarter of fiscal 2001 the Company invested $4.4 million in plant and equipment, purchased $3.1 million of the Company's Common Stock and paid out $2.5 million in cash dividends to the Company's shareholders. These expenditures were primarily funded with net operating cash flows of $3.5 million and the balance from additional borrowings. 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 the latter part of 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 September 30, 2000 As compared to the Quarter Ended September 30, 1999 Net sales for the quarter ended September 30, 2000 decreased by approximately $6.5 million or 4.1% for the quarter ended September 30, 1999. The effect, on net sales, of changes in the average foreign exchange rates was not significant. Net sales in the Food Service Segment of $36.7 million were approximately $1.1 million or 2.8% less than the prior year; Consumer Segment net sales decreased by 5.3% to $50.2 million from the prior year's $53 million; and Industrial Segment net sales were $64.4 million versus $67.0 million in fiscal 2000. The Food Service and Consumer Segment declines are primarily attributable to general economic conditions including a slowdown in the U.S. economy and the impact of consolidations taking place in retail markets. A strong British Pound, that continues to make imports from Euro currency countries more competitive in the U.K. and products manufactured in the U.K. less competitive for export to Euro currency countries, had a negative impact on Industrial Segment sales. The Company's gross profit margin percentage ("GPMP") remained at 32% and none of the segments reported significant changes in GPMP. Consolidated selling, general and administrative expenses, while decreasing by $730,000, remained stable overall as a percent of net sales at approximately 22%. None of the segment changes were individually significant. During the quarter ended September 30, 1999, 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 for the current quarter increased $287,000 or 10.9% versus the same quarter in the previous fiscal year due to an increase in interest rates and an increase in average debt outstanding. Pre-tax income was $11.5 million compared to $15.5 million in the prior year. The effective tax rate increased only slightly to 38.8% in the current period compared to 38.5% in the prior year. As a result of the above, net income for the quarter ended September 30, 2000 was $7.0 million compared to $9.5 million for the quarter ended September 30, 1999. 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 September 30, 2000. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K The Company filed no reports on Form 8-K with the Securities and Exchange Commission during the quarter ended September 30, 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: November 14, 2000 /s/ Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: November 14, 2000 /s/ Edward F. Paquette Edward F. Paquette Vice President/CFO