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 March 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 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 March 31, 2001 was 12,069,466. 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, 2001 and 2000 2 Consolidated Balance Sheets as of March 31, 2001 and June 30, 2000 3 Statements of Consolidated Cash Flows for the Nine Months Ended March 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 11 PART II. OTHER INFORMATION: 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 Nine Months Ended March 31 March 31 2001 2000 2001 2000 <S> <C> <C> <C> <C> Net Sales $140,233 $158,158 $450,164 $479,011 Cost of Products Sold 95,392 106,234 302,775 322,139 Gross Profit Margin 44,841 51,924 147,389 156,872 Selling, General and Administrative Expenses 35,405 37,838 108,350 112,665 Income from Operations 9,436 14,086 39,039 44,207 Other Income/(Expense): Gain on Stock Received 0 0 0 2,734 Interest Expense (2,914) (2,820) (8,922) (8,291) Interest Income 76 83 256 307 Other Income/(Expense) - net (2,838) (2,737) (8,666) (5,250) Income Before Income Taxes 6,598 11,349 30,373 38,957 Provision for Income Taxes 2,561 4,889 11,745 15,367 Net Income $ 4,037 $ 6,460 $18,628 $23,590 Earnings Per Share: Basic $ .34 $ .52 $ 1.53 $ 1.85 Diluted $ .33 $ .51 $ 1.51 $ 1.84 Cash Dividends Per Share $ .21 $ .20 $ .62 $ .59 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheets (000 Omitted) <CAPTION> March 31 June 30 2001 2000 ASSETS CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 11,610 $ 10,438 Receivables, net of allowances for doubtful accounts 91,113 104,431 Inventories (approximately 45% finished goods, 20% work in process, and 35% raw materials and supplies) 105,483 112,201 Prepaid expenses 7,983 4,316 Total current assets 216,189 231,386 PROPERTY, PLANT AND EQUIPMENT 262,604 259,642 Less accumulated depreciation 150,450 147,505 Property, plant and equipment, net 112,154 112,137 OTHER ASSETS: Prepaid pension cost 42,002 38,334 Goodwill, net 29,919 31,184 Other 10,280 11,159 Total other assets 82,201 80,677 TOTAL $410,544 $424,200 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 2,818 $ 2,356 Accounts payable 28,059 36,495 Income taxes 3,631 5,357 Accrued expenses 38,074 42,168 Total current liabilities 72,582 86,376 LONG-TERM DEBT (less current portion included above) 149,799 153,436 DEFERRED INCOME TAXES AND OTHER LIABILITIES 19,690 19,573 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Additional paid-in capital 9,440 9,275 Retained earnings 374,344 363,303 Accumulated other comprehensive income (9,353) (7,965) Less cost of treasury shares (247,934) (241,774) Total stockholders' equity 168,473 164,815 TOTAL $410,544 $424,200 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (000 OMITTED) <CAPTION> Nine Months Ended March 31 2001 2000 Cash Flows from Operating Activities: <S> <C> <C> Net income $18,628 $ 23,590 Depreciation and amortization 10,180 10,355 Net changes in assets and liabilities (721) (4,011) Net Cash Provided by Operating Activities 28,087 29,934 Cash Flows from Investing Activities: Expenditures for property and equipment (10,781) (16,213) Expenditures for acquisitions and other 882 208 Net Cash Used for Investing Activities (9,899) (16,005) Cash Flows from Financing Activities: Proceeds from additional borrowings 4,190 11,537 Net payments of debt (7,365) (7,614) Cash dividends paid (7,587) (7,552) Purchase of treasury stock (9,160) (8,190) Other, net 3,164 1,614 Net Cash Used for Financing Activities (16,758) (10,205) Effect of Exchange Rate Changes on Cash (258) (353) Net Change in Cash and Cash Equivalents 1,172 3,371 Cash and Cash Equivalents at Beginning of Year 10,438 5,909 Cash and Cash Equivalents at March 31 $11,610 $ 9,280 Supplemental Disclosure of Cash Flow Information: Cash paid during the nine months for: Interest $ 9,386 $ 8,854 Income taxes $13,471 $13,507 </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) which are, in the opinion of management, necessary to a fair statement of results for the three and nine months ended March 31, 2001 and 2000. 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 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 Nine Months Ended March 31 March 31 2001 2000 2001 2000 Basic - Average Shares <S> <C> <C> <C> <C> Outstanding 12,108 12,649 12,199 12,779 Effect of Dilutive Securities: Stock Options 187 72 163 74 Diluted - Average Shares Outstanding 12,295 12,721 12,362 12,853 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 months and nine months ended March 31, 2001 and 2000 were as follows: 2001 2000 <S> <C> <C> Quarter 12,114 12,665 Year-to-date 12,238 12,801 </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 (SFAS) 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 that would be included in comprehensive income is foreign currency translation adjustments. For the nine months ended March 31, 2001 and 2000, comprehensive income totaled approximately $17,240,000 and $21,723,000 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 683 504 1,187 Non cash (disposals and write-offs) 1,779 1,779 Total 683 1,779 504 2,966 Estimated remaining costs to be incurred $ 353 $1,996 $ 93 $2,442 The Company believes that all remaining costs will be incurred by the end of fiscal 2001. </TABLE> <TABLE> 6.Industry Segment Information 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 Nine Months Ended March 31 March 31 Segment 2001 2000 2001 2000 <S> <C> <C> <C> <C> Food Service $ 35,966 $ 35,730 $109,543 $107,571 Industrial 54,766 68,864 180,887 202,484 Consumer 49,501 53,564 159,734 168,956 Total $140,233 $ 158,158 $450,164 $479,011 </TABLE> <TABLE> <CAPTION> Income From Operations Three Months Ended Nine Months Ended March 31 March 31 Segment 2001 2000 2001 2000 <S> <C> <C> <C> <C> Food Service $ 3,077 $ 3,169 $ 9,945 $ 8,997 Industrial 4,700 7,688 19,918 22,282 Consumer 3,434 5,929 15,077 20,723 Corporate (1,775) (2,700) (5,901) (7,795) Total $ 9,436 $ 14,086 $ 39,039 $ 44,207 </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. For the quarter ended March 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 ineffective portion of the hedge to be immaterial. 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 March 31, 2001, 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 nine month periods ended March 31, 2001. 8. Subsequent Event Effective April 1, 2001 the Company purchased all of the Common Stock of ATC-Frost Magnetics Inc. of Oakville, Ontario, Canada for a combination of stock and cash. The acquisition will be accounted for as a purchase and was not significant with respect to the Company's consolidated financial statements. 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 nine months of fiscal 2001 the Company invested $10.8 million in plant and equipment, paid down $3.2 million of debt, repurchased $9.2 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 $28.1 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 was effective for the Company in fiscal 2001. The adoption of SAB No. 101 did not have a material effect on the Company's Consolidated Financial Statements. OPERATIONS Quarter Ended March 31, 2001 As Compared to the Quarter Ended March 31, 2000 Net sales for the quarter ended March 31, 2001 decreased by approximately $17.9 million or 11.3% from sales of $158.2 million for the quarter ended March 31, 2000 reflecting the economic slowdown apparent in the global marketplace. 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 million were level with the prior year. Consumer segment net sales decreased to $49.5 million from $53.6 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 $14.1 million to $54.8 million. The decrease was reflective of the slowdown within the automotive, trucking and telecommunications industries. The gross profit margin percentage (GPMP) decreased slightly to 32% from 33% in the prior year. Segment changes in GPMP were not individually significant. Consolidated selling, general and administrative expenses (SG&A) increased to 25.2% of net sales from 23.9% in the prior period. However, SG&A decreased by $2.4 million from the comparable quarter last year, reflecting, in part, the impact of lower sales volumes and, in part, the results of cost containment efforts. Each segment reflected these changes. As a result of the above, operating income was $9.4 million compared to $14.1 million in the prior year, a decrease of 33.0%. An increase of 3.3% 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 decreased to $6.6 million in the current period versus $11.3 million in the comparable prior period. The effective tax rate decreased to 38.8% compared to 43.1% in the prior year 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 was $4.0 million for the quarter ended March 31, 2001 compared to $6.5 million for the quarter ended March 31, 2000. Nine Months Ended March 31, 2001 As Compared to the Nine Months Ended March 31, 2000 For the nine months ended March 31, 2001, sales totaled $450.2 million compared to $479.0 million for the previous fiscal year. The decrease in sales reflect primarily the general economic slowdown apparent in the global marketplace. The effect of changes in average foreign exchange rates between periods was not significant. Net sales in the Food Service segment increased by $2.0 million reflecting a general improvement in the segment following a difficult twelve months. Consumer segment net sales decreased by $9.2 million or 5.5%, and Industrial segment net sales decreased by $21.6 million or 10.7%. The decrease in the Consumer segment sales is primarily the result of the impact of lower housing starts on our Air Distribution business. Industrial segment net sales were adversely affected by slowdowns in the automotive, trucking and telecommunications sectors. 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 24%. However, SG&A decreased by $4.3 million for the same reasons as described in the quarterly discussion above. Segment variances were not individually significant. As a result of the above, operating income was $39.0 million compared to $44.2 million in the prior year, a decrease of 11.7%. During the prior nine 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 7.6% or $600,000 in the latest nine-month period compared to the same period last year for the same reasons described in the quarterly discussion. Pre-tax income decreased to $30.4 million from $39.0 million in the prior year. The effective tax rate decreased slightly to 38.7% from 39.4% in the comparable prior period primarily for the same reason described in the quarterly discussion. Due to the above factors, net income was $18.6 million compared to $23.6 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, 2000 to March 31, 2001. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10. (a) Standex International Corporation Executive Security Program between the Company and certain named executive officers, as amended and restated effective January 31, 2001; (b) Standex International Corporation Executive Life Insurance Plan between the Company and certain named executive officers, as amended and restated effective January 31, 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 March 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: May 11, 2001 /s/ Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: May 11, 2001 /s/ Edward F. Paquette Edward F. Paquette Vice President/CFO