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, 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 September 30, 2001 was 12,135,486. 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, 2001 and 2000 2 Consolidated Balance Sheets, September 30, 2001 and June 30, 2001 3 Statements of Consolidated Cash Flows for the Three Months Ended September 30, 2001 and 2000 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 PART I. FINANCIAL INFORMATION <TABLE> STANDEX INTERNATIONAL CORPORATION Statements of Consolidated Income (000 Omitted) <CAPTION> Three Months Ended September 30 2001 2000 <S> <C> <C> Net Sales $143,710 $151,279 Cost of Products Sold 97,797 103,214 Gross Profit Margin 45,913 48,065 Selling, General and Administrative Expenses 34,059 33,730 Income from Operations 11,854 14,335 Other Income/(Expense): Interest Expense (2,680) (2,948) Interest Income 78 117 Other Income/(Expense) - net (2,602) (2,831) Income Before Income Taxes 9,252 11,504 Provision for Income Taxes 3,754 4,466 Net Income $ 5,498 $ 7,038 Earnings Per Share: Basic $ .45 $ .57 Diluted $ .45 $ .57 Cash Dividends Per Share $ .21 $ .20 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheets (000 Omitted) <CAPTION> September 30 June 30 2001 2001 ASSETS CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 10,169 $ 8,955 Receivables, net of allowances for doubtful accounts 100,635 98,470 Inventories (approximately 45% finished goods, 20% work in process, and 35% raw materials and supplies) 104,510 102,674 Prepaid expenses 12,055 4,845 Total current assets 227,369 214,944 PROPERTY, PLANT AND EQUIPMENT 269,792 263,613 Less accumulated depreciation 153,507 149,769 Property, plant and equipment, net 116,285 113,844 OTHER ASSETS: Prepaid pension cost 44,092 43,625 Goodwill, net 41,494 41,069 Other 11,253 10,782 Total other assets 96,839 95,476 TOTAL $ 440,493 $424,264 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 2,681 $ 2,532 Accounts payable 37,057 33,554 Income taxes 7,324 4,296 Accrued expenses 35,732 34,755 Total current liabilities 82,794 75,137 LONG-TERM DEBT (less current portion included above) 157,973 153,019 DEFERRED INCOME TAXES AND OTHER LIABILITIES 24,203 23,934 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Additional paid-in capital 11,182 10,950 Retained earnings 381,032 378,075 Unamortized value of restricted stock (975) (1,049) Accumulated other comprehensive (loss) (8,717) (10,134) Less cost of treasury shares (248,975) (247,644) Total stockholders' equity 175,523 172,174 TOTAL $ 440,493 $424,264 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (000 OMITTED) <CAPTION> Three Months Ended September 30 2001 2000 Cash Flows from Operating Activities: <S> <C> <C> Net income $ 5,498 $ 7,038 Depreciation and amortization 3,402 3,486 Net changes in assets and liabilities (3,991) (6,988) Net Cash Provided by Operating Activities 4,909 3,536 Cash Flows from Investing Activities: Expenditures for property and equipment (4,432) (4,351) Other 95 898 Net Cash Used for Investing Activities (4,337) (3,453) Cash Flows from Financing Activities: Proceeds from additional borrowings 12,248 12,129 Net payments of debt (7,146) (7,188) Cash dividends paid (2,541) (2,477) Purchase of treasury stock (2,750) (3,076) Other, net 559 1,589 Net Cash Provided by Financing Activities 370 977 Effect of Exchange Rate Changes on Cash 272 13 Net Change in Cash and Cash Equivalents 1,214 1,073 Cash and Cash Equivalents at Beginning of Year 8,955 10,438 Cash and Cash Equivalents at September 30 $ 10,169 $ 11,511 Supplemental Disclosure of Cash Flow Information: Cash paid during the three months for: Interest $ 2,895 $ 3,368 Income taxes $ 852 $ 1,930 </TABLE> NOTES TO FINANCIAL INFORMATION 1. Management Statement The unaudited 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, 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 September 30 2001 2000 <S> <C> <C> Basic - Average Shares Outstanding 12,154 12,293 Effect of Dilutive Securities: Stock Options 168 147 Diluted - Average Shares Outstanding 12,322 12,440 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, 2001 and 2000 were 12,102 and 12,383, 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 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 three months ended September 30, 2001 and 2000, comprehensive income totaled approximately $6,915,000 and $7,917,000, respectively. <TABLE> 5. 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 and interest expense. (000 Omitted) Income Net Sales From Operations 2001 2000 2001 2000 <S> <C> <C> <C> <C> Food Service $ 36,373 $ 36,721 $ 3,283 $ 3,209 Industrial 57,997 64,398 5,915 7,740 Consumer 49,340 50,160 5,499 5,391 Corporate (2,843) (2,005) Total $143,710 $151,279 $ 11,854 $ 14,335 </TABLE> 6. 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 September 30, 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 September 30, 2001 the change in value totaled $(105,000) and the ineffective portion of the hedge was immaterial. 7. Goodwill and Other Intangible Assets The Company adopted Statement of 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 ended September 30, 2000 was $282,000. 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. <TABLE> The Company is currently refining the valuation models to be used in assessing recorded goodwill at the various reporting units comprehended in the Company's three business segments. Company management has not determined the ultimate impact of impairments, if any, but does not expect any aggregated impairment to exceed $4.5 million. <CAPTION> For the Quarter Ended September 30 2001 2000 <S> <C> <C> Reported net income $ 5,498 $ 7,038 Add back: Goodwill amortization 282 Adjusted net income $ 5,498 $ 7,320 Basic earnings per share: Reported net income $ 0.45 $ 0.57 Goodwill amortization 0.02 Adjusted net income $ 0.45 $ 0.59 Diluted earnings per share: Reported net income $ 0.45 $ 0.57 Goodwill amortization 0.02 Adjusted net income $ 0.45 $ 0.59 </TABLE> 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 2002 the Company invested $4.4 million in plant and equipment, purchased $2.8 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 $4.9 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. 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 September 30, 2001 As compared to the Quarter Ended September 30, 2000 Net sales for the quarter ended September 30, 2001 decreased by approximately $7.6 million or 5.0% from the quarter ended September 30, 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 $36.4 million were $350,000 less than the prior year; Consumer Segment net sales decreased by 1.6% to $49.3 million from the prior year's $50.2 million; and Industrial Segment net sales were $58.0 million versus $64.4 million in fiscal 2001. The relatively flat sales in the Food Service and Consumer segments are reflective of the general economic slowdown. The decrease in Industrial segment sales is a consequence of downturns in the automotive, trucking, aerospace and telecommunications markets which resulted in deferrals of commitments and orders under several large customer programs. 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, increased slightly as a percent of net sales to approximately 23.7% compared to 22.3% in the prior year. None of the segment changes were individually significant. Interest expense for the current quarter decreased $268,000 versus the same quarter in the previous fiscal year due to a decrease in interest rates and a decrease in average debt outstanding. Pre-tax income was $9.3 million compared to $11.5 million in the prior year. The effective tax rate increased to 40.6% in the current period compared to 38.8% 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 for the quarter ended September 30, 2001 was $5.5 million compared to $7.0 million for the quarter ended September 30, 2000. 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 September 30, 2001. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10. Employment Agreement between Christian Storch and the Company dated September 1, 2001. (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, 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: November 13, 2001 /s/Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: November 13, 2001 /s/Christian Storch Christian Storch Vice President/CFO