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 March 31, 2002 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 March 31, 2002 was 12,085,777. STANDEX INTERNATIONAL CORPORATION I N D E X Page No. PART I. FINANCIAL INFORMATION: Item 1. Statements of Consolidated Income for the Three and Nine Months Ended March 31, 2002 and 2001 2 Consolidated Balance Sheets as of March 31, 2002 and June 30, 2001 3 Statements of Consolidated Cash Flows for the Nine Months Ended March 31, 2002 and 2001 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 6. Exhibits and Reports on Form 8-K 11 PART I. FINANCIAL INFORMATION <TABLE> <CAPTION> STANDEX INTERNATIONAL CORPORATION Statements of Consolidated Income (000 Omitted) Three Months Ended Nine Months Ended March 31 March 31 2002 2001 2002 2001 <S> <C> <C> <C> <C> Net Sales $136,865 $140,233 $430,502 $450,164 Cost of Products Sold 93,468 95,392 288,681 302,775 Gross Profit Margin 43,397 44,841 141,821 147,389 Selling, General and Administrative Expenses 35,647 35,405 109,598 108,350 Income from Operations 7,750 9,436 32,223 39,039 Other Income/(Expense): Interest Expense (2,308) (2,914) (7,322) (8,922) Interest Income 53 76 220 256 Other Income/(Expense) - net (2,255) (2,838) (7,102) (8,666) Income Before Income Taxes 5,495 6,598 25,121 30,373 Provision for Income Taxes 1,906 2,561 9,656 11,745 Income before cumulative effect of a change in accounting principle 3,589 4,037 15,465 18,628 Cumulative effect of a change in accounting principle 0 0 (3,779) 0 Net Income $ 3,589 $ 4,037 $11,686 $18,628 Earnings Per Share: (before cumulative effect of a change in accounting principle) Basic $ .29 $ .34 $ 1.27 $ 1.53 Diluted $ .29 $ .33 $ 1.26 $ 1.51 Earnings Per Share: (after cumulative effect of a change in accounting principle) Basic $ .29 $ .34 $ .96 $ 1.53 Diluted $ .29 $ .33 $ .95 $ 1.51 Cash Dividends Per Share $ .21 $ .21 $ .63 $ .62 </TABLE> <TABLE> <CAPTION> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheets (000 Omitted) March 31 June 30 2002 2001 ASSETS <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $16,964 $ 8,955 Receivables, net of allowances for doubtful accounts 87,684 98,470 Inventories (approximately 45% finished goods, 20% work in process, and 35% raw materials and supplies) 101,410 102,674 Prepaid expenses 7,191 4,845 Total current assets 213,249 214,944 PROPERTY, PLANT AND EQUIPMENT 272,399 263,613 Less accumulated depreciation 158,361 149,769 Property, plant and equipment, net 114,038 113,844 OTHER ASSETS: Goodwill, net 35,988 41,069 Prepaid pension cost 46,390 43,625 Other 10,668 10,782 Total other assets 93,046 95,476 TOTAL $420,333 $424,264 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 2,905 $ 2,532 Accounts payable 30,285 33,554 Income taxes 5,794 4,296 Accrued expenses 37,603 34,755 Total current liabilities 76,587 75,137 LONG-TERM DEBT (less current portion included above) 146,033 153,019 DEFERRED INCOME TAXES AND OTHER LIABILITIES 23,344 23,934 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Additional paid-in capital 11,418 10,950 Retained earnings 382,168 378,075 Unamortized value of restricted stock (766) (1,049) Accumulated other comprehensive loss (10,040) (10,134) Less cost of treasury shares (250,387) (247,644) Total stockholders' equity 174,369 172,174 TOTAL $ 420,333 $424,264 </TABLE> <TABLE> <CAPTION> STANDEX INTERNATIONAL CORPORATION Statements of Consolidated Cash Flows (000 OMITTED) Nine Months Ended March 31 2002 2001 <S> <C> <C> Cash Flows from Operating Activities: Net income $11,686 $18,628 Cumulative effect of a change in accounting principle 3,779 0 Depreciation and amortization 9,847 10,180 Net changes in assets and liabilities 8,290 (721) Net Cash Provided by Operating Activities 33,602 28,087 Cash Flows from Investing Activities: Expenditures for property and equipment (9,133) (10,781) Other 167 882 Net Cash Used for Investing Activities (8,966) (9,899) Cash Flows from Financing Activities: Proceeds from additional borrowings 962 4,190 Net payments of debt (7,576) (7,365) Dividends paid (7,593) (7,587) Purchase of treasury stock (5,110) (9,160) Other, net 2,756 3,164 Net Cash Used for Financing Activities (16,561) (16,758) Effect of Exchange Rate Changes on Cash (66) (258) Net Change in Cash and Cash Equivalents 8,009 1,172 Cash and Cash Equivalents at Beginning of Year 8,955 10,438 Cash and Cash Equivalents at March 31 $16,964 $11,610 Supplemental Disclosure of Cash Flow Information: Cash paid during the nine months for: Interest $ 7,019 $ 9,386 Income taxes $ 8,158 $13,471 </TABLE> NOTES TO FINANCIAL INFORMATION 1. Management Statement The financial statements as reported in Form 10-Q reflect all adjustments (including those of a normal recurring nature) that are, in the opinion of management, necessary to a fair statement of results for the three and nine months ended March 31, 2002 and 2001. 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> <CAPTION> 2. Per Share Calculation 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 Nine Months Ended March 31 March 31 2002 2001 2002 2001 <S> <C> <C> <C> <C> Basic - Average Shares Outstanding 12,107 12,108 12,130 12,199 Effect of Dilutive Securities: Stock Options 209 187 179 163 Diluted - Average Shares Outstanding 12,316 12,295 12,309 12,362 Both basic and diluted incomes are the same for computing earnings per share. </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 months and nine months ended March 31, 2002 and 2001: 2002 2001 Quarter 12,021 12,114 Year-to-date 12,053 12,238 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 nine months ended March 31, 2001 was $268,000 and $829,000, 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 Nine Months Ended March 31 Ended March 31 2002 2001 2002 2001 <S> <C> <C> <C> <C> Reported net income $3,589 $4,037 $11,686 $18,628 Add back: Goodwill amortization 268 829 Adjusted net income $3,589 $4,305 $11,686 $19,457 Basic earnings per share: Reported net income $ 0.29 $ 0.34 $ 0.96 $ 1.53 Goodwill amortization 0.02 0.07 Adjusted net income $ 0.29 $ 0.36 $ 0.96 $ 1.60 Diluted earnings per share: Reported net income $ 0.29 $ 0.33 $ 0.95 $ 1.51 Goodwill amortization 0.02 0.07 Adjusted net income $ 0.29 $ 0.35 $ 0.95 $ 1.58 </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 (SFAS) No. 5, "Accounting for Contingencies." Management believes that such provision is sufficient to cover any future payments, including legal costs, under such proceedings. 5.Comprehensive Income In addition to net income, the only items that 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 nine months ended March 31, 2002 and 2001, comprehensive income totaled approximately $11,780,000 and $17,240,000 respectively. <TABLE> <CAPTION> 6. Industry Segment Information 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 Nine Months Ended March 31 March 31 Segment 2002 2001 2002 2001 <S> <C> <C> <C> <C> Food Service $ 32,462 $35,966 $101,416 $109,543 Industrial 53,557 54,766 168,145 180,887 Consumer 50,846 49,501 160,941 159,734 Total $136,865 $140,233 $430,502 $450,164 </TABLE> <TABLE> <CAPTION> Income From Operations Three Months Ended Nine Months Ended March 31 March 31 Segment 2002 2001 2002 2001 <S> <C> <C> <C> <C> Food Service $ 1,915 $ 3,077 $ 7,154 $ 9,945 Industrial 2,931 4,700 13,973 19,918 Consumer 5,223 3,434 18,613 15,077 Corporate (2,319) (1,775) (7,517) (5,901) Total $ 7,750 $ 9,436 $ 32,223 $39,039 </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 March 31, 2002, 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 March 31, 2002 the change in value totaled $479,000 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 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 negative of those terms and are marked with "*". 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 nine months of fiscal 2002 the Company invested $9.1 million in plant and equipment, paid down $7.6 million of debt, purchased $5.1 million of the Company's Common Stock and paid out $7.6 million in cash dividends to the Company's shareholders. These expenditures were primarily funded with net operating cash flows of $33.6 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 March 31, 2002 As compared to the Quarter Ended March 31, 2001 Net sales for the quarter ended March 31, 2002 decreased by approximately $3.4 million or 2.4% from the quarter ended March 31, 2001, continuing to reflect the lagging effects of the global economic slowdown. The effect, on net sales, of changes in the average foreign exchange rates was not significant. Net sales in the Food Service Segment of $32.5 million were $3.5 million less than the prior year; Consumer Segment net sales increased by 2.7% to $50.8 million from the prior year's $49.5 million; and Industrial Segment net sales were $53.6 million versus $54.8 million in fiscal 2001. The Industrial Segment continued to be impacted 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. The recently signed steel tariff, which will cause a significant increase in steel prices, will present additional challenges to several of our businesses that sell products containing steel.* The Company's gross profit margin percentage ("GPMP") of 32% for the quarter was unchanged from the third quarter last year. Segment changes in GPMP were not individually significant. Consolidated selling, general and administrative expenses increased slightly as a percent of net sales to approximately 26.0% compared to 25.2% in the prior year. None of the segment changes were individually significant. Interest expense for the current quarter decreased $606,000 versus the same quarter in the previous fiscal year due to a decrease in interest rates. Pre-tax income was $5.5 million compared to $6.6 million in the prior year. The effective tax rate was 34.7% in the current period compared to the prior year's 38.8% since a larger portion of the Company's income this year was generated in lower taxed countries. As a result of the above, net income for the quarter ended March 31, 2002 was $3.6 million compared to $4.0 million for the quarter ended March 31, 2001. Nine Months Ended March 31, 2002 As Compared to the Nine Months Ended March 31, 2001 For the nine months ended March 31, 2002, sales totaled $430.5 million compared to $450.2 million for the previous fiscal year. The effect of changes in average foreign exchange rates between periods was not significant. Net sales in the Food Service segment decreased by $8.1 million for reasons described in the discussion of the quarterly results. Consumer segment net sales of $160.9 million increased 0.8% from the prior year's $159.7 million. Net sales in the Industrial Segment decreased by $12.7 million or 7.0%, reflecting 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 25.5% of net sales versus 24.1% in the prior year. Segment variances were not individually significant. As a result of the above, operating income was $32.2 million compared to $39.0 million in the prior year, a decrease of 17.4%. Interest expense decreased by 17.9% or $1.6 million in the latest nine- month period compared to the same period last year for the same reason described in the quarterly discussion. Pre-tax income decreased to $25.1 million from $30.4 in the prior year. The effective tax rate was virtually unchanged at 38.4% compared to 38.7% in the prior period. Income before the cumulative effect of a change in accounting principle was $15.5 million as compared to $18.6 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 $11.7 million compared to $18.6 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 March 31, 2002. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 (i) Amendment to Employment Agreement between Edward J. Trainor and the Company dated January 30, 2002. 10 (ii) Amendment to Employment Agreement between David R. Crichton and the Company dated January 30, 2002. 10 (iii) Amendment to Employment Agreement between Deborah A. Rosen and the Company dated January 30, 2002. (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 March 31, 2002. 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: May 13, 2002 /s/ Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: May 13, 2002 /s/ Christian Storch Christian Storch Vice President/CFO