UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended December 31, 2001 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 office) (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, 2001 was 12,128,855. 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, 2001 and 2000 2 Consolidated Balance Sheets, December 31, 2001 and June 30, 2001 3 Statements of Consolidated Cash Flows for the Six Months Ended December 31, 2001 and 2000 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 10 PART II. OTHER INFORMATION: Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 <TABLE> PART I. FINANCIAL INFORMATION <CAPTION> STANDEX INTERNATIONAL CORPORATION Statements of Consolidated Income (In thousands, except per share data) Three Months Ended Six Months Ended December 31 December 31 2001 2000 2001 2000 <S> <C> <C> <C> <C> Net Sales $149,927 $158,652 $293,637 $309,931 Cost of Products Sold 97,416 104,169 195,213 207,383 Gross Profit Margin 52,511 54,483 98,424 102,548 Selling, General and Administrative Expenses 39,892 39,215 73,951 72,945 Income from Operations 12,619 15,268 24,473 29,603 Other Income/(Expense): Interest Expense (2,334) (3,060) (5,014) (6,008) Interest Income 89 63 167 180 Other Income/(Expense) - net (2,245) (2,997) (4,847) (5,828) Income Before Income Taxes 10,374 12,271 19,626 23,775 Provision for Income Taxes 3,996 4,718 7,750 9,184 Income before cumulative effect of a change in accounting principle 6,378 7,553 11,876 14,591 Cumulative effect of a change in accounting principle 0 0 (3,779) 0 Net Income $ 6,378 $ 7,553 $ 8,097 $14,591 Earnings Per Share: (before cumulative effect of a change in accounting principle) Basic $ .53 $ .62 $ .98 $ 1.19 Diluted $ .52 $ .61 $ .97 $ 1.18 Earnings Per Share: (after cumulative effect of a change in accounting principle) Basic $ .53 $ .62 $ .67 $ 1.19 Diluted $ .52 $ .61 $ .66 $ 1.18 Cash Dividends Per Share $ .21 $ .21 $ .42 $ .41 </TABLE> <TABLE> <CAPTION> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheets (In thousands) December 31 June 30 2001 2001 ASSETS CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 13,597 $ 8,955 Receivables, net of allowances for doubtful accounts 89,589 98,470 Inventories (approximately 45% finished goods, 20% work in process, and 35% raw materials and supplies) 106,764 102,674 Prepaid expenses 9,014 4,845 Total current assets 218,964 214,944 PROPERTY, PLANT AND EQUIPMENT 271,173 263,613 Less accumulated depreciation 155,567 149,769 Property, plant and equipment, net 115,606 113,844 OTHER ASSETS: Prepaid pension cost 46,556 43,625 Goodwill, net 36,024 41,069 Other 10,922 10,782 Total other assets 93,502 95,476 TOTAL $428,072 $424,264 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 3,241 $ 2,532 Accounts payable 32,667 33,554 Income taxes 6,172 4,296 Accrued expenses 37,658 34,755 Total current liabilities 79,738 75,137 LONG-TERM DEBT (less current portion included above) 150,536 153,019 DEFERRED INCOME TAXES AND OTHER LIABILITIES 23,813 23,934 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Additional paid-in capital 11,238 10,950 Retained earnings 381,104 378,075 Unamortized value of restricted stock (877) (1,049) Accumulated other comprehensive loss (10,216) (10,134) Less cost of treasury shares (249,240) (247,644) Total stockholders' equity 173,985 172,174 TOTAL $428,072 $424,264 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION <CAPTION> STATEMENTS OF CONSOLIDATED CASH FLOWS (In thousands) Six Months Ended December 31 2001 2000 <S> <C> <C> Cash Flows from Operating Activities: Net income $8,097 $14,591 Cumulative effect of a change in accounting principle 3,779 0 Depreciation and amortization 6,604 6,852 Net changes in assets and liabilities 2,167 1,125 Net Cash Provided by Operating Activities 20,647 22,568 Cash Flows from Investing Activities: Expenditures for property and equipment (7,227) (8,651) Other 48 845 Net Cash Used for Investing Activities (7,179) (7,806) Cash Flows from Financing Activities: Proceeds from additional borrowings 5,598 928 Net payments of debt (7,373) (7,363) Cash dividends paid (5,069) (5,043) Purchase of treasury stock (3,308) (6,134) Other, net 1,332 2,281 Net Cash Used for Financing Activities (8,820) (15,331) Effect of Exchange Rate Changes on Cash (6) (427) Net Change in Cash and Cash Equivalents 4,642 (996) Cash and Cash Equivalents at Beginning of Year 8,955 10,438 Cash and Cash Equivalents at December 31 $13,597 $ 9,442 Supplemental Disclosure of Cash Flow Information: Cash paid during the six months for: Interest $ 5,293 $ 5,083 Income taxes $ 5,874 $ 8,274 </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, 2001 and 2000. These financial statements should be read in conjunction with the audited financial statements as of June 30, 2001. 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 Six Months Ended December 31 December 31 2001 2000 2001 2000 <S> <C> <C> <C> <C> Basic - Average Shares Outstanding 12,129 12,202 12,142 12,245 Effect of Dilutive Securities: Stock Options 161 153 165 151 Diluted - Average Shares Outstanding 12,290 12,355 12,307 12,396 Both basic and diluted incomes are the same for computing earnings per share. </TABLE> <TABLE> <CAPTION> 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, 2001 and 2000 were as follows: 2001 2000 <C> <C> <C> Quarter 12,035 12,223 Year-to-date 12,069 12,301 </TABLE> 3. Cumulative Effect of a Change in Accounting Principle The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), effective July 1, 2001. As a result, the Company discontinued the amortization of goodwill arising from business combinations consummated prior to June 30, 2001 that have been accounted for using the purchase method of accounting. Such goodwill aggregated to a net amount of $41,069,000 at June 30, 2001 and goodwill amortization for the three months, and six months ended December 31, 2000 was $279,000 and $561,000, respectively. SFAS No. 142 also requires the Company to assess the recoverability of recorded goodwill at the adoption date. Impairments of goodwill that are identified as a result of the assessment, if any, are to be reported as a cumulative change in accounting principle as of the adoption date. SFAS No. 142 requires that assessment to be completed within six months of the date of adoption and to be reported retroactively to the beginning of the year adopted. The Company performed a transitional fair value based impairment test on its goodwill as of July 1, 2001. As a result, an impairment charge of $3,779,000, related to the Company's Industrial Segment, was recorded as of July 1, 2001. The charge is reflected as the cumulative effect of a change in accounting principle in the accompanying Statements of Consolidated Income. There were no income taxes associated with the charge. <TABLE> <CAPTION> A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization follows: Three Months Six Months Ended December 31 Ended December 31 2001 2000 2001 2000 <S> <C> <C> <C> <C> Reported net income $6,378 $7,553 $ 8,097 $14,591 Add back: Goodwill amortization 279 561 Adjusted net income $6,378 $7,832 $ 8,097 $15,152 Basic earnings per share: Reported net income $ 0.53 $ 0.62 $ 0.67 $ 1.19 Goodwill amortization 0.02 0.04 Adjusted net income $ 0.53 $ 0.64 $ 0.67 $ 1.23 Diluted earnings per share: Reported net income $ 0.52 $ 0.61 $ 0.66 $ 1.18 Goodwill amortization 0.02 0.04 Adjusted net income $ 0.52 $ 0.63 $ 0.66 $ 1.22 </TABLE> 4. 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. 5. Accumulated Other Comprehensive Loss In addition to net income, the only items which would be included in comprehensive income are foreign currency translation adjustments and the change in the fair market value of interest rate swap agreements. For the six months ended December 31, 2001 and 2000, comprehensive income totaled approximately $8,015,000 and $13,085,000, respectively. <TABLE> 6. Industry Segment Information <CAPTION> The Company is composed of three business segments. Net sales include only transactions with unaffiliated customers and include no intersegment sales. Operating income by segment excludes general corporate expenses, and interest expense and income. Net Sales Three Months Ended Six Months Ended December 31 December 31 Segment 2001 2000 2001 2000 <S> <C> <C> <C> <C> Food Service $ 32,581 $ 36,856 $ 68,954 $73,577 Industrial 56,591 61,723 114,588 126,121 Consumer 60,755 60,073 110,095 110,233 Total $149,927 $158,652 $293,637 $309,931 Income From Operations Three Months Ended Six Months Ended December 31 December 31 Segment 2001 2000 2001 2000 <S> <C> <C> <C> <C> Food Service $ 1,956 $ 3,659 $ 5,239 $ 6,868 Industrial 5,127 7,478 11,042 15,218 Consumer 7,891 6,252 13,390 11,643 Corporate (2,355) (2,121) (5,198) (4,126) Total $ 12,619 $ 15,268 $ 24,473 $ 29,603 </TABLE> 7. 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. For the quarter ended December 31, 2001, the Company completed an assessment of the cash flow hedge instruments and determined these hedges to be highly effective. The Company also determined the fair market value of its interest rate swaps. The change in value, adjusted for any inefficiency, was recorded to other comprehensive income and the related derivative liability. For the quarter ended December 31, 2001 the change in value totaled $325,000 and the ineffective portion of the hedge was immaterial. 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 2002 the Company invested $7.2 million in plant and equipment, paid down $7.4 million of debt, purchased $3.3 million of the Company's Common Stock and paid out $5.1 million in cash dividends to the Company's shareholders. These expenditures were primarily funded with net operating cash flows of $20.6 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. Effective July 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." The adoption of SFAS No. 142, and its effect on the Company's financial position and results of operations, is more fully described in the Notes to Financial Information. OPERATIONS Quarter Ended December 31, 2001 As compared to the Quarter Ended December 31, 2000 Net sales for the quarter ended December 31, 2001 decreased by approximately $8.8 million or 5.5% from the quarter ended December 31, 2000. The effect, on net sales, of changes in the average foreign exchange rates was not significant. Net sales in the Food Service Segment of $32.6 million were $4.3 million less than the prior year; Consumer Segment net sales increased by 1.1% to $60.8 million from the prior year's $60.1 million; and Industrial Segment net sales were $56.6 million versus $61.7 million in fiscal 2001. The Industrial Segment continued to be impacted, after being particularly hard hit in the first quarter, by the economic slowdown. The decline in Food Service Segment sales reflects food service rollout programs last fiscal year while new programs for this year have been delayed into the 3rd and 4th fiscal quarters. The Company's gross profit margin percentage ("GPMP") increased to 35% for the quarter versus 34% for the second quarter last year - a result of controlling manufacturing costs and productivity improvements. Small decreases in the Food Service and Industrial segments' GPMP were offset by an increase in the Consumer Segment GPMP. Consolidated selling, general and administrative expenses increased as a percent of net sales to approximately 26.6% compared to 24.7% in the prior year as a result of minor increases in the Food Service and Industrial segments. None of the changes were individually significant. Interest expense for the current quarter decreased $726,000 versus the same quarter in the previous fiscal year due to a decrease in interest rates. Pre-tax income was $10.4 million compared to $12.3 million in the prior year. The effective tax rate of 38.5% in the current period was virtually unchanged from the prior year's 38.4%. As a result of the above, net income for the quarter ended December 31, 2001 was $6.4 million compared to $7.6 million for the quarter ended December 31, 2000. Six Months Ended December 31, 2001 As Compared to the Six Months Ended December 31, 2000 For the six months ended December 31, 2001, sales totaled $293.6 million compared to $309.9 million for the previous fiscal year. The effect of changes in average foreign exchange rates from December 31, 2000 to December 31, 2001 was not significant. Net sales in the Food Service segment decreased by $4.6 million for reasons described in the discussion of the quarterly results. Consumer segment net sales of $110.1 million were virtually unchanged from the prior year's $110.2 million. Net sales in the Industrial segment decreased by $11.5 million or 9.1%, emulating the ongoing weakness in the economy, as noted above. The Company's GPMP remained stable at approximately 33%. Changes in segment GPMPs were not individually significant. Consolidated SG&A increased to 25.2% of net sales versus 23.5% in the prior year. Segment variances were reflective of the quarterly results previously discussed. As a result of the above, operating income was $24.5 million compared to $29.6 million in the prior year, a decrease of 17.3%. Interest expense decreased by 16.5% or $1.0 million in the latest six-month period compared to the same period last year for the same reason described in the quarterly discussion. Pre-tax income decreased to $19.6 million from $23.8 in the prior year. The effective tax rate increased slightly to 39.5% from 38.6% in the comparable prior period since a larger portion of the Company's income this year was generated in higher taxed countries. Income before the cumulative effect of a change in accounting principle was $11.9 million as compared to $14.6 million last year. The Company recorded a charge of $3.8 million representing the cumulative effect of a change in accounting principle. The change related to the Company's adoption of SFAS No. 142 effective July 1, 2001 and is more fully described in the Notes to Financial Information. Due to the above factors, net income was $8.1 million compared to $14.6 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, 2001 to December 31, 2001. 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 30, 2001. Two matters were voted upon at the meeting: the election of directors, an amendment to the Employee Stock Purchase Plan of the Company, an amendment to the 1998 Long Term Incentive Plan of the Company and the approval of the appointment of independent auditors of the Company. The name of each director elected at the meeting and the number of votes cast as to each matter are as follows: Proposal I (Election of Directors) Nominee For Withheld William R. Fenoglio 9,356,534 467,640 Walter F. Greeley 9,364,644 459,530 Thomas L. King 9,281,757 542,417 Deborah A. Rosen 9,356,339 467,835 Proposal II (To Approve an Amendment to the Employee Stock Purchase Plan to Increase the Number of Shares Available for Purchase by 200,000) For Against Abstain No Vote 8,236,239 572,833 34,567 980,535 Proposal III (To Approve an Amendment to the 1998 Long Term Incentive Plan to Increase the Number of Shares Available for Grants by 800,000) For Against Abstain No Vote 6,738,050 2,028,845 76,744 980,535 Proposal IV (Appointment of Deloitte & Touche LLP as independent auditors) For Against Abstain No Vote 9,727,408 73,295 23,471 -0- ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10. Employment Agreement dated December 3, 2001 between the Company and Roger Fix. (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 December 31, 2001. 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, 2002 /s Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: February 12, 2002 /s/Christian Storch Christian Storch Vice President/CFO