10-K 1 body10k2.txt BODY 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 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) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT OF 1934: Title of Each Class Name of Each Exchange Common Stock, Par Value on Which Registered $1.50 Per Share New York Stock Exchange 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant at the close of business on July 31, 2002 was approximately $241,909,000. Registrant's closing price as reported on the New York Stock Exchange for July 31, 2002 was $20.96 per share. The number of shares of Registrant's Common Stock outstanding on August 12, 2002 was 12,187,443. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's 2002 Annual Meeting of Stockholders (Part III) of this report are incorporated by reference. PART I ITEM 1. BUSINESS Standex(1) is a diversified manufacturing and marketing company with operations in three product segments: Food Service, Industrial and Consumer. Standex was incorporated in 1975 and is the successor of a corporation organized in 1955. The business of the Company is carried on within the three segments by a number of operating units, each with its own organization. The management of each operating unit has responsibility for product development, manufacturing, marketing and for achieving a return on investment in accordance with the standards established by Standex. Overall supervision, coordination and financial control are maintained by the executive staff from its corporate headquarters located at 6 Manor Parkway, Salem, New Hampshire. As of June 30, 2002, the Company had approximately 4,900 employees. The principal products and the major markets for the Company's products and services are set forth below. Sales are made both directly to customers and by or through manufacturers' representatives, dealers and distributors. Food Service Products Master-Bilt(r) refrigerated cabinets, cases, display units, modular structures, coolers and freezers; Barbecue King(r) and BKI(r) commercial cook and hold units, rotisseries, pressure fryers, ovens and baking equipment; and Federal Industries bakery and deli heated and refrigerated display cases for hospitals, schools, fast food industry, restaurants, hotels, clubs, supermarkets, bakeries, convenience stores and delicatessens. USECO food service equipment and patient feeding systems for hospitals, schools, nursing homes, correctional facilities and restaurants; H. F. Coors hotel restaurant china and cookware; and Mason candlelamps and candles for restaurants, hotels and commercial industries. Procon(r) rotary vane pumps for the carbonated beverage industry, espresso coffee machine markets, water purification industry and coolant recirculation systems. Industrial Products Snappy(r), ACME and ALCO metal ducting and fittings for heating, ventilating and air conditioning distributors throughout the continental United States. Spincraft(r) power metal spinning, custom formed components for aircraft engines, space launch vehicles, gas turbines, nuclear reactors, military ordnance, commercial satellites and similar products for OEMs, U.S. Government, energy, aircraft, aerospace and commercial satellite industry and other commercial industries. JarvisTM, Can-Am Casters and WheelsTM and PEMCO(r) casters and wheels and industrial hardware for general industry, hospitals, supermarkets, hotels and restaurants. National Metal fabricated metal products, including specialty hardware and metal furniture for the food service industry, retail stores, office furniture markets, stationery supply houses and other industries. (1) References in this Annual Report on Form 10-K to "Standex" or the "Company" shall mean Standex International Corporation and its subsidiaries. Roehlen(r) embossing rolls, texturizing and laser engraving systems, machines and plates; Mold-Tech(r) mold engraving; Mullen(r) Burst Testers; Perkins converting and finishing machinery and systems for general industry (e.g., automotive, plastics, textiles, paper, building products, synthetic materials, OEMs, converting, textile and paper industry, computer, housewares and construction industries). Custom Hoists single and double acting telescopic and piston rod hydraulic cylinders for dump trucks and trailers used in the construction and waste hauling industries. Standex Electronics reed switches, electrical connectors, sensors, toroids and relays, fixed and variable inductors and electronic assemblies, fluid sensors and tunable inductors and ATC-Frost transformers and magnetic components for telecommunications, consumer electronics, automotive, security systems, communications equipment, computers, air conditioning and refrigeration industries. James Burn Wire-O(r) double-looped wire and machinery and complete binding system for printers, publishers and binders of checkbooks, calendars, diaries, appointment books, cookbooks, catalogs and manuals. Consumer Products Standard(r) Publishing religious periodicals, curricula, Sunday school literature, children's books and supplies published and marketed to Sunday schools, churches, vacation Bible schools and Christian bookstores and printing for general commerce and industry. Berean(r) Christian Stores, a chain of 19 Berean(r) Christian bookstores, serving as distribution centers and retail outlets for religious books and merchandise. Frank Lewis(r) Grapefruit Club gift packages, Red Cooper(r) fresh grapefruit, Harry's Crestview Groves(r) grapefruit packages, grapefruit juice, grapefruit sections, onions, melons and roses; Salsa Express(r) salsas and other related food products; Red Cooper's Onion Store onions for mail order consumer direct sales. Financial information about these segments is included under the caption Industry Segment Information in the Notes to Consolidated Financial Statements. Raw Materials Raw materials and components necessary for the fabrication of products and the rendering of services for the Company are generally available from numerous sources. The Company does not foresee any unavailability of materials or components which would have any material adverse effect on its overall business, or any of its business segments, in the near term. Patents and Trademarks The Company owns or is licensed under a number of patents and trademarks in each of its product groups. However, the loss of any single patent or trademark would not, in the opinion of the Company, materially affect any segment or the overall business. Backlog
Backlog orders believed to be firm at June 30, 2002 and 2001 are as follows (in thousands): 2002 2001 Food Service $ 19,877 $ 17,996 Industrial 100,109 110,492 Consumer 5,150 4,566 Total $125,136 $133,054 All but approximately $43,415,000 of the 2002 backlog, and $52,939,000 of the 2001 backlog, was expected to be realized as sales in the following fiscal year.
Competition Standex manufactures and markets products many of which have achieved a unique or leadership position in their market. However, the Company encounters competition in varying degrees in all product groups and for each product line. Competitors include domestic and foreign producers of the same and similar products. The principal methods of competition are price, delivery schedule, quality of services, product performance and other terms and conditions of sale. During fiscal 2002, the Company invested $10,021,000 in new plant and equipment in order to upgrade facilities to become more competitive in all segments. International Operations Substantially all international operations of the Company are related to domestic operations and are included in the Food Service and Industrial business segments. International operations are conducted at 31 plants, principally in Western Europe. See the notes to the Consolidated Financial Statements for international operations financial data. Research and Development Due to the nature of the manufacturing operations of Standex and the types of products manufactured, expenditures for research and development are not material to any segment. Environmental and Other Matters To the best of its knowledge, the Company believes that it is presently in substantial compliance with all existing applicable environmental laws and does not anticipate that such compliance will have a material effect on its future capital expenditures, earnings or competitive position. ITEM 2. PROPERTIES At June 30, 2002, Standex operated a total of 91 principal plants, stores and warehouses located through the United States, Western Europe, Canada, Australia, Singapore and Mexico. The Company owned 46 of the facilities and the balance were leased. The Company operated 19 retail stores in various sections of the United States, of which all were leased. The approximate building space utilized by each product group of Standex at June 30, 2002 is as follows (in thousands): Area in Square Feet Owned Leased Food Service 702 230 Industrial 2,162 515 Consumer 342 268 General Corporate 29 - Total 3,235 1,013 In general, the buildings are in good condition, are considered to be adequate for the uses to which they are being put and are in regular use. The Company utilizes machinery and equipment which is necessary to conduct its operations. Substantially all of such machinery and equipment is owned by Standex. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to stockholders during the fourth quarter of the fiscal year. EXECUTIVE OFFICERS OF STANDEX
Name Age Principal Occupation During the Past Five Years Thomas L. King 72 Vice Chairman of the Board of the Company since December 2001; Chairman of the Board of the Company from January 1992 to December 2001; President of the Company from August 1984 to July 1994; and Chief Executive Officer of the Company from July 1985 to June 1995. Edward J. Trainor 62 Chairman of the Board of the Company since December 2001; Chief Executive Officer of the Company since July 1995; President of the Company from July 1994 to December 2001; Chief Operating Officer of the Company from July 1994 to June 1995; and Vice President of the Company from July 1992 to July 1994. Roger L. Fix 49 President and Chief Operating Officer of the Company since December 2001; Chief Executive Officer, Chief Operating Officer and President of Outboard Marine Corporation from August 2000 to February 2001; Chief Operating Officer of Outboard Marine Corporation from June 2000 to August 2000; Chief Executive of John Crane from 1998 through June 2000; President - North America of John Crane from May 1996 to May 1998; prior thereto President of Xomox, a division of Emerson Electric. As COO of Outboard Marine Corporation ("OMC") (June-August 2000), Mr. Fix completed a strategic review and commenced implementation of programs to address the financial crisis the company was and had been experiencing since about 1997. Mr. Fix became President and CEO of OMC in August 2000. In December 2000, at the direction of the investors, a voluntary petition in Bankruptcy pursuant to Chapter 11 of the U.S. Bankruptcy Code was filed for OMC. David R. Crichton 64 Executive Vice President/Operations of the Company since June 1989. Deborah A. Rosen 47 Chief Legal Officer of the Company since October 2001; Vice President of the Company since July 1999; General Counsel of the Company since January 1998; Secretary of the Company since October 1997; Assistant General Counsel and Assistant Secretary of the Company from January 1997 to December 1997 and prior thereto Senior Corporate Attorney and Assistant Secretary of the Company. Christian Storch 42 Vice President and Chief Financial Officer of the Company since September 2001; Manager of Corporate Audit and Assurance Services of the Company from July 1999 to August 2001; prior thereto Divisional Financial Director and Corporate Controller of Vossloh AG, a publicly held German corporation. Daniel C. Potter 46 Treasurer of the Company since August 1998; Assistant Treasurer from July 1997 to July 1998; Corporate Tax Manager of the Company since February 1997; Tax Manager of the Company from August 1996 to January 1997 and prior thereto Tax Manager/International. Robert R. Kettinger 60 Corporate Controller of the Company since July 1991. The executive officers are elected each year by the Board of Directors to serve for one-year terms of office. There are no family relationships among any of the directors or executive officers of the Company.
PART II ITEM 5. MARKET FOR STANDEX COMMON STOCK AND RELATED STOCKHOLDER MATTERS The principal market in which the Common Stock of Standex is traded is the New York Stock Exchange. The high and low sales prices for the Common Stock on the New York Stock Exchange and the dividends paid per Common Share for each quarter in the last two fiscal years are as follows: Common Stock Prices and Dividends Paid
Common Stock Price Range Dividends 2002 2001 per Share Year Ended June 30 High Low High Low 2002 2001 First quarter $23.95 $18.32 $19.44 $16.50 $0.21 $0.20 Second quarter 23.90 18.75 20.63 16.63 0.21 0.21 Third quarter 24.90 20.60 25.76 19.75 0.21 0.21 Fourth quarter 28.00 23.95 24.30 20.75 0.21 0.21 The approximate number of stockholders of record on August 12, 2002 was 2,950.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended June 30, 2002 is as follows: (In thousands, except per share data) 2002 2001 2000 1999 1998 Net sales $573,992 $600,152 $637,049 $641,400 $616,180 Gross profit margin 187,217 198,149 209,338 210,126 200,548 Interest expense 8,546 10,998 10,571 10,492 10,117 Income before income taxes 29,885 42,465 46,853 51,491 33,064 Provision for income taxes 9,488 17,568 19,150 20,130 12,915 Income before cumulative Effect of a change in accounting principle (a) 20,397 24,897 27,703 31,361 20,149 PER SHARE DATA Net sales (diluted) 46.61 48.64 49.91 49.20 46.61 Earnings (a): Basic 1.68 2.05 2.19 2.42 1.54 Diluted 1.66 2.02 2.17 2.41 1.52 Dividends paid .84 0.83 0.79 0.76 0.76 Book value (diluted) 14.76 14.16 13.37 12.59 11.19 Average shares outstanding Basic 12,113 12,172 12,672 12,972 13,072 Diluted 12,316 12,338 12,763 13,037 13,219 JUNE 30 FINANCIAL CONDITION Working capital 44,033 139,807 145,009 146,514 148,943 Current ratio 1.28 2.86 2.68 2.79 2.73 Property, plant and equipment - net 112,892 113,844 112,137 104,783 102,973 Total assets 406,039 424,264 424,200 410,042 411,242 Long-term debt 50,087 153,019 153,436 148,111 163,448 Stockholders' equity 178,432 172,174 164,814 162,301 146,197 See notes to consolidated financial statements. (a) Excludes cumulative effect of a change in accounting principle of $3,779,000 (31 cents per share) in 2002.
ITEM 7. 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, unforeseen volatility in financial markets, general domestic and international business and economic conditions and market demand. Liquidity and Capital Resources Cash Flow Operating activities in 2002 generated $44.4 million in cash flow. The Company redeployed those resources by investing $10.0 million in plant and capital equipment while returning $10.1 million to shareholders through cash dividends and reducing net debt by $22.4 million. This represents the third consecutive year in which Standex has generated cash from operations in excess of $40.0 million, and the highest amount in at least 15 years. In addition to measuring the cash flow generation or usage based upon operating, investing, and financing classifications included in the Consolidated Statement of Cash Flows, the Company also measures free cash flow. Free cash flow is defined as cash flow from operating activities less capital expenditures. The Company generated free cash flow of $34.3 million in 2002, compared with $28.3 million in 2001, and $21.4 million in 2000. Capital Structure
The following table sets forth the Company's capitalization at June 30: Year Ended June 30 2002 2001 Short-term debt $82,221 $ 2,532 Long-term debt 50,087 153,019 Total Debt 132,308 155,551 Less cash 8,092 8,955 Total net debt 124,216 146,596 Stockholders' equity 178,432 172,174 Total capitalization $302,648 $318,770
The Company's net debt decreased by $22.4 million to $124.2 million at June 30, 2002. The Company's net debt to capital percentage is 41.0% down from 46.0% in 2001. On June 30, 2002, the Company had a $175.0 million revolving credit agreement with eight banks which is scheduled to expire in May 2003. In addition, the Company has the option to borrow up to $175.0 million on an unsecured short-term basis. Available borrowings under the revolving credit agreement are reduced by unsecured short-term borrowings. At June 30, 2002, the Company had the ability to borrow an additional $100.3 million under these bank credit agreements. The Company intends to enter into a new revolving credit agreement prior to December 31, 2002 and believes it has adequate access to the private credit market. The Company believes that these resources, along with the Company's internally generated funds, will be sufficient to meet anticipated cash funding needs for the foreseeable future. The Company authorized the issue and sale of $25 million aggregate principal amount of its 5.94% Senior Note due in 2012. Two institutional holders committed to the note on August 9, 2002. On June 30, 2002, the Company's credit quality designation was NAIC-2. The Company has an insurance program for certain key executives. The underlying policies have a cash surrender value of $17.3 million and are reported net of loans of $13.3 million for which the Company has the legal right of offset. These policies have been purchased to fund Supplemental Retirement Income Benefits for certain executives. The aggregate present value of future obligations was $1,532,000 at June 30, 2002. Fiscal 2002 as Compared to Fiscal 2001 A difficult economic environment affected sales in all segments. Net sales for the year ended June 30, 2002 decreased by $26.2 or 4.4% to $574.0 million as volume declined in each of our business segments. The effect, on net sales, of changes in the average foreign exchange rates was not significant. The 5.5% decline in Food Service Segment sales was primarily due to lower sales volumes caused by a weak economy. Demand was weak as customers delayed or scaled back their rollout programs. Net sales in the Consumer Segment decreased by 4.8%. Reduced consumer confidence levels and the events of September 11th negatively affected segment performance. The Industrial Segment was particularly hard hit by the recession. Segment sales decreased 3.7%. ATC-Frost was acquired in late fiscal 2001. Excluding this acquisition's impact on fiscal 2002, segment sales decreased by 6.3%. Lower sales volume and negative price pressure from discounting activities was somewhat offset by the effect of a strong housing market. The Company's gross profit margin percentage ("GPMP") decreased 0.4 percentage points to 32.6%. Because of the economic environment, in the fourth quarter of 2002 the Company recorded higher than normal inventory reserves of $3.4 million affecting all three segments. Selling, general and administrative expenses ("SG&A") were 25.9% of net sales, up from 24.1% in the prior year. SG&A performance of the Company's business segments corresponds with the decreased sales levels. Interest expense decreased by $2.5 million. The decline reflects lower average borrowings driven by the Company's strong cash flow performance in 2002, and lower interest rates on the Company's variable rate debt. The effective tax rate was 36.3% which included the effect of a change in accounting principle described below. The decline in the 2002 effective tax rate from 2001 was affected by the implementation of additional tax-planning strategies, transactional based benefits from distributions from foreign subsidiaries and decreased levels of various tax contingencies. Income before the cumulative effect of a change in accounting principle was $20.4 million as compared to $24.9 million last year. The Company recorded a charge of $3.8 million representing the cumulative effect of a change in accounting principle to write-off previously recorded goodwill. The charge related to the Company's adoption of SFAS No. 142 effective July 2001, is described in detail in the Notes to Consolidated Financial Statements. Fiscal 2001 as Compared to Fiscal 2000 Net sales for the year ended June 30, 2001 of $600.2 million represents a decrease of $36.9 million or 5.8% from sales of $637.0 million for the year ended June 30, 2000. The effect, on net sales, of changes in the average foreign exchange rates was not significant. For the year ended June 30, 2001 net sales in the Food Service Segment increased by $2.7 million or 1.9% from the prior year. Net sales in the Consumer Segment increased slightly to $115.6 million versus $115.3 in the prior year. Net sales in the Industrial Segment were $337.7 million for the year ended June 30, 2001 compared to $377.7 million for 2000. The Industrial Group continues to be adversely affected by the slowdown in the automotive, trucking, aerospace and telecommunications markets as several relatively larger customer program commitments and orders have been delayed. Lower housing starts have had a negative impact on our Standex Air Distribution Products division The overall gross profit margin percentage ("GPMP") remained essentially the same (33.0% vs. 32.9%) for the current and prior year. All segments recorded similar GPMPs in 2001 as compared to 2000. Consolidated selling, general and administrative ("SG&A") expenses were 24.1% of net sales, up slightly from 23.5% in the prior year. However, SG&A declined $4.9 million. None of the fluctuations in SG&A reported by the Company's three segments were individually significant and corresponded with the changes in net sales discussed above. A restructuring charge of $5.4 million was recorded in the previous year. Also, during fiscal 2000, 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. An increase of $427,000 in interest expense for the year was due primarily to a small increase in average net borrowings. As a result of the above factors, income before income taxes was $42.5 million compared to $46.9 million in the prior year. The effective tax rate increased to 41.4% as compared to 40.9% in the prior year since a greater portion of the Company's income was generated in higher taxed countries. Net income decreased $2.8 million or 10.1% from the prior year. Other Matters Inflation - Certain of the Company's expenses, such as wages and benefits, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures. However, the Company expects significant price increases in the steel products it uses in its manufacturing processes due to the steel tariffs which were implemented in the US this past Spring. Although management believes it can pass these price increases on to its customers, there is no assurance that the Company will be able to fully recover them from its customers. Environmental Matters - The Company is party to various claims and legal proceedings, generally incidental to its business and has recorded an appropriate provision for the resolution of such matters. As explained more fully in the Notes to the Consolidated Financial Statements, the Company does not expect the ultimate disposition of these matters to have a material adverse effect on its financial statements. Segments - During fiscal 2002 the Company realigned its internal organization in a manner that caused the composition of its reportable segments to change. The segment information for prior years has been recast to reflect the realignment. Critical Accounting Policies The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and assumptions, and the effects of revisions are reflected in the consolidated financial statements in the period in which they are determined to be necessary. These policies and estimates are more fully described in the Notes to Consolidated Financial Statements. Adoption of SFAS No. 141 and No. 142 Effective July 1, 2001, the Company adopted the provisions of SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangibles." SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. In connection with the adoption of SFAS No. 142 there were no identified intangible assets. The result of the Company's initial assessment of goodwill for impairment in accordance with SFAS No. 142 resulted in a non- cash charge of $3.8 million, which is reported as a cumulative effect of a change in accounting principle in the accompanying Statements of Consolidated Income. There was no tax benefit for this change in accounting principle as it was not deductible for tax purposes. New Accounting Pronouncements In October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS No. 121, and the provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. The statement creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets including discontinued operations. SFAS No. 144 will be effective for July 1, 2002. The impact of the adoption of SFAS No. 144 is not expected to be significant. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical Corrections," which, among other things, restricts the classification of gains and losses from extinguishment of debt as extraordinary to only those transactions that are unusual and infrequent in nature as defined by APB Opinion No. 30 as extraordinary. SFAS No. 145 is effective for fiscal 2004. Upon adoption, gains and losses on certain future debt extinguishment, if any, will be recorded in pre-tax income. In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company believes that the adoption of SFAS No. 146 will not have a material impact on its financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. The Company mitigates certain of its foreign currency exchange rate risk by entering into forward foreign currency contracts. These contracts are primarily used as a hedge against anticipated foreign cash flows, such as dividend and loan payments, and are not used for trading or speculative purposes. The fair value of the forward foreign currency exchange contracts is sensitive to changes in foreign currency exchange rates, as an adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts. However, any such losses or gains would generally be offset by corresponding gains and losses, respectively, on the related hedged asset or liability. Due to the absence of forward foreign currency contracts at June 30, 2002, the Company did not have any fair value exposure. The Company's interest rate exposure is limited primarily to interest rate changes on its variable rate borrowings. As of June 30, 2002, a hypothetical 10% immediate increase in interest rates would increase the Company's annual interest expense by $158,000. The Company has an interest rate swap agreement to fix the interest rate on $10 million of its variable rate borrowings. At June 30, 2002, the fair value of the Company's interest rate swap agreement would not be materially affected by a 10% change in interest rates. In addition to the $10 million of variable rate borrowings covered by the interest rate swap agreement, the Company also has $54 million of long-term debt at fixed interest rates as of June 30, 2002. There would be no immediate impact on the Company's interest expense associated with its long-term debt due to fluctuations in market interest rates. However, based on a hypothetical 10% immediate decrease in market interest rates, the fair value of the Company's long-term debt would be increased by approximately $1.7 million as of June 30, 2002. Such fair value changes may affect the Company's determination as to whether to retain, replace or retire its long-term debt. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Statements of Consolidated Income
Standex International Corporation and Subsidiaries Year Ended June 30 (In thousands, except per share data) 2002 2001 2000 Net Sales $573,992 $600,152 $637,049 Cost of Products Sold 386,775 402,003 427,711 Gross profit 187,217 198,149 209,338 Selling, General and Administrative 148,654 144,886 149,825 Restructuring charge - - 5,408 Income from Operations 38,563 53,263 54,105 Other income (expense): Interest expense (8,546) (10,998) (10,571) Other, net (132) 200 608 Gain on stock received - - 2,711 Total (8,678) (10,798) (7,252) Income Before Income Taxes 29,885 42,465 46,853 Provision for Income Taxes 9,488 17,568 19,150 Income before cumulative effect of a change in accounting principle $20,397 $24,897 $27,703 Cumulative effect of a change in accounting principle (3,779) - - Net Income $16,618 $24,897 $27,703 Earnings Per Share (before cumulative effect of a change in accounting principle): Basic $1.68 $2.05 $2.19 Diluted $1.66 $2.02 $2.17 Earnings Per Share (due to cumulative effect of a change in accounting principle): Basic $(0.31) Diluted $(0.31) Earnings Per Share (after cumulative effect of a change in accounting principle): Basic $1.37 $2.05 $2.19 Diluted $1.35 $2.02 $2.17 See notes to consolidated financial statements.
Statements of Consolidated Stockholders' Equity
Unamortized Accumulated Additional Value of Other Treasury Stock Total Paid-in Restricted Retained Comprehensive ------------------ Stockholders' Year End (In thousands) Common Stock Capital Stock Awards Earnings Income Shares Amount Equity ----------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1999 $41,976 $9,157 $345,613 $(3,478) 15,089 $(230,969) $162,299 Stock issued for employee stock options and stock purchase plan, net of related income tax benefit 117 (127) 1,952 2,069 Treasury stock acquired 698 (12,757) (12,757) Comprehensive income Net income 27,703 27,703 Foreign currency translation adjustment (4,487) (4,487) -------- Total comprehensive income 23,216 Dividends paid ($.79 per share) (10,013) (10,013) ----------------------------------------------------------------------------------------------- Balance, June 30, 2000 41,976 9,274 363,303 (7,965) 15,660 (241,774) 164,814 Stock issued for employee stock options and stock purchase plan, net of related income tax benefit 1,372 (311) 4,828 6,200 Restricted stock awards 111 $(1,450) (86) 1,339 - Amortization of restricted stock awards 401 401 Stock issued in conjunction with acquisition 193 (29) 446 639 Treasury stock acquired 587 (12,483) (12,483) Comprehensive income Net income 24,897 24,897 Foreign currency translation adjustment (1,109) (1,109) Interest rate swap liability (1,060) (1,060) Total comprehensive income 22,728 -------- Dividends paid ($.83 per share) (10,125) (10,125) -------- Balance, June 30, 2001 41,976 10,950 (1,049) 378,075 (10,134) 15,821 (247,644) 172,174 ----------------------------------------------------------------------------------------------- Stock issued for employee stock options and stock purchase plan, net of related income tax benefit 1,125 (221) 3,548 4,673 Amortization of restricted stock awards 394 394 Treasury stock acquired 297 (6,984) (6,984) Comprehensive income Net income 16,618 16,618 Foreign currency translation adjustment 1,091 1,091 Interest rate swap liability 570 570 Total comprehensive income 18,279 -------- Dividends paid ($.84 per share) (10,104) (10,104) -------- Balance, June 30, 2002 $41,976 $12,075 $ (655) $384,589 $ (8,473) 15,897 $(251,080) $178,432 -----------------------------------------------------------------------------------------------
See notes to consolidated financial statements. Notes to consolidated financial statements. Consolidated Balance Sheets
Standex International Corporation and Subsidiaries (In thousands, except share data) 2002 2001 June 30 ASSETS Current Assets Cash and cash equivalents $ 8,092 $ 8,955 Receivables - less allowance of $4,609 in 2002 and $3,433 in 2001 93,219 98,470 Inventories 92,931 102,674 Prepaid expenses 4,570 4,845 Total current assets 198,812 214,944 Property, Plant and Equipment Land and buildings 89,449 86,246 Machinery and equipment 184,181 177,367 Total 273,630 263,613 Less accumulated depreciation 160,738 149,769 Property, plant and equipment - net 112,892 113,844 Other Assets Prepaid pension cost 47,405 43,625 Goodwill - net 36,250 41,069 Other 10,680 10,782 Total other assets 94,335 95,476 Total $406,039 $424,264 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of debt $ 82,221 $ 2,532 Accounts payable 35,209 33,554 Accrued payroll and employee benefits 14,944 16,118 Income taxes 1,221 4,296 Other 21,184 18,637 Total current liabilities 154,779 75,137 Long-Term Debt - less current portion 50,087 153,019 Deferred Income Taxes 18,909 19,831 Other Non-current Liabilities 3,832 4,103 Commitments and Contingencies Stockholders' Equity Common stock-authorized, 60,000,000 shares in 2002 and 2001; par value, $1.50 per share; issued 27,984,278 shares in 2002 and 2001 41,976 41,976 Additional paid-in capital 12,075 10,950 Retained earnings 384,589 378,075 Unamortized Value of Restricted Stock (655) (1,049) Accumulated other comprehensive income (8,473) (10,134) Less cost of treasury shares: 15,897,213 shares in 2002 and 15,821,421 shares in 2001 (251,080) (247,644) Total stockholders' equity 178,432 172,174 Total $406,039 $424,264 See notes to consolidated financial statements.
Statement of Consolidated Cash Flows
Standex International Corporation and Subsidiaries Year Ended June 30 (In thousands) 2002 2001 2000 Cash Flows from Operating Activities Net Income $ 16,618 $ 24,897 $ 27,703 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle 3,779 - - Depreciation and amortization 12,887 13,680 13,622 Amortization of restricted stock awards 394 401 - Profit improvement incentive plan - - (40) Deferred income taxes (432) 3,118 1,874 Net pension credit (2,025) (3,608) (1,998) (Gain) Loss on sale of investments, real estate and equipment 34 182 203 Increase (Decrease) in cash from changes in assets and liabilities, net of effects from acquisitions & dispositions: Receivables - net 5,270 8,160 (7,303) Inventories 9,760 10,867 7,924 Prepaid expenses and other (2,212) (2,743) (3,209) Accounts payable 1,662 (3,342) 334 Accrued payroll, employee benefits and other liabilities 1,695 (8,455) 5,647 Income taxes (3,069) (1,059) (549) Net cash provided by operating activities 44,361 42,098 44,208 Cash Flows from Investing Activities Expenditures for property and equipment (10,021) (13,832) (22,787) Expenditures for acquisitions, net of cash acquired - (15,048) - Proceeds from sale of investments, real estate and equipment 268 1,906 858 Proceeds from disposition of businesses - 532 - Net cash used for investing activities (9,753) (26,442) (21,929) Cash Flows from Financing Activities Proceeds from additional borrowings 7,825 7,051 12,828 Payments of debt (31,068) (7,292) (9,110) Stock issued under employee stock option and purchase plans 4,673 6,199 2,068 Cash dividends paid (10,104) (10,125) (10,013) Purchase of treasury stock (6,984) (12,483) (12,757) Net cash used for financing activities (35,658) (16,650) (16,984) Effect of Exchange Rate Changes on Cash and Cash Equivalents 187 (489) (766) Net Changes in Cash and Cash Equivalents (863) (1,483) 4,529 Cash and Cash Equivalents at Beginning of Year 8,955 10,438 5,909 Cash and Cash Equivalents at End of Year $8,092 $8,955 $10,438 Supplemental Disclosure of Cash Flow Information Stock issued for acquisition $- $639 $- Cash paid during the year for: Interest 8,921 11,195 10,800 Income taxes 13,484 15,408 17,766 See notes to consolidated financial statements.
Standex International Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of Accounting Policies Basis of Presentation and Consolidation Standex International Corporation (the "Company") is a diversified manufacturing and distribution company with operations primarily in the United States and Europe. The accompanying consolidated financial statements include the accounts of Standex International Corporation and its subsidiaries and is prepared in accordance with generally accepted accounting principles in the United States of America. All significant intercompany transactions are eliminated. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments purchased with a maturity of three months or less. Such investments are carried at cost, which approximates fair value, due to the short period of time until maturity. Inventories and Revenue Recognition Inventories are stated at the lower of first-in, first- out cost or market. The Company generally recognizes product and related services revenue when the price to the customer is fixed or determinable, the collectibility of the invoice is evaluated and delivery has occurred. Revenues under certain fixed price contracts are generally recorded at the time deliveries are made or, in a limited number of cases, on a percentage of completion basis. Property, Plant and Equipment Property, plant and equipment are depreciated over their estimated useful lives using primarily the straight- line method. Lives for fixed assets are as follows: Buildings 40 to 50 years Leasehold Improvements 10 to 15 years Machinery and Equipment 8 to 15 years Furniture and Fixtures 3 to 10 years Computer hardware and software 3 to 7 years Minor maintenance costs are expensed as incurred. Major improvements which extend the life, increase the capacity or improve the safety or the efficiency of property owned are capitalized. Major improvements to leased buildings are capitalized as leasehold improvements and depreciated. Long-Lived Assets In accordance with SFAS No. 121, the Company reviews long-lived assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate, to the carrying amount. The operations are generally distinguished by the business segment, division or geographic region in which they operate. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long- lived assets of the operation, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, and provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. The statement creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets including discontinued operations. SFAS No. 144 will be effective on July 1, 2002. The impact of the adoption of SFAS No. 144 is not expected to be significant. Goodwill and Identifiable Intangible Assets Prior to July 1, 2001, the excess of purchase price of acquired businesses over the fair value of net identifiable assets at date of acquisition has been recorded as goodwill and has been amortized on a straight-line basis over a forty- year period. Accumulated amortization aggregated $12,184,000 at June 30, 2001. The Company's amortization of goodwill was $1,113,000 and $1,149,000 for fiscal 2001 and 2000, respectively. Prior to July 1, 2002, the Company evaluated the net balance of goodwill based on the projected operating income of the respective businesses on an undiscounted cash flow basis. Effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. In connection with the adoption of SFAS No. 142 there were no newly identified intangible assets. The result of the Company's initial assessment of goodwill for impairment in accordance with SFAS No. 142 resulted in a non-cash charge of $3,779,000, which is reported as cumulative effect of a change in accounting principle in the accompanying Statements of Consolidated Income. There was no tax benefit for this change in accounting principle as goodwill was not deductible for tax purposes. Future adjustments for impairment of goodwill, if any, will be recognized as an operating expense. Net goodwill was $36,250,000 and $41,069,000 at June 30, 2002 and 2001, respectively.
A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization follows: (In thousands) 2002 2001 Reported net income $20,397 $24,897 Add back: Goodwill amortization 1,113 Adjusted net income $20,397 $26,010 Basic earnings per share: Reported net income $1.68 $2.05 Goodwill amortization .09 Adjusted net income $1.68 $2.14 Diluted Earnings per share: Reported net income $1.66 $2.02 Goodwill amortization .09 Adjusted net income $1.66 $2.11 Fiscal 2002 excludes a cumulative effect of a change in accounting principle of $3,779,000 or 31 cents per share.
Income Taxes Deferred assets and liabilities are recorded for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statements and the tax bases of assets and liabilities using enacted tax rates. Valuation allowances are provided when the Company does not believe it more likely than not the benefit of identified tax assets will be realized. Research and Development Research and development expenditures are expensed as incurred. Stock-Based Compensation The Company has elected to continue to account for stock options at their intrinsic value with disclosure of the effects of fair value accounting on net income and earnings per share on a proforma basis. Foreign Currency Translation Assets and liabilities of non-U.S. operations are translated into U.S. dollars at year-end exchange rates. Revenues and expenses are translated using average exchange rates. The resulting translation adjustment is reported as a component of comprehensive income in the Statements of Consolidated Stockholders' Equity. Gains and losses from currency transactions are included in results of operations. Derivative Instruments and Hedging Activities Effective July 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Standex manages its debt portfolio by periodically 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 year ended June 30, 2002, the Company completed an assessment of the cash flow hedge instruments and determined these hedges to be highly effective. For all qualifying and highly effective cash flow hedges, the changes in the fair value of the derivatives are recorded in other comprehensive income. 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. 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 year ended June 30, 2001. Concentration of Credit Risk The Company is subject to credit risk through trade receivables and short-term cash investments. Credit risk with respect to trade receivables is minimized because of the diversification of the Company's operations, as well as its large customer base and its geographical dispersion. No individual customer generally accounts for more than 3% of revenues or accounts receivable. Short-term cash investments are placed with high credit- quality financial institutions or in short-duration, high quality debt securities. The Company limits the amount of credit exposure in any one institution or type of investment instrument. The Company is also subject to credit risk exposure relating to its interest rate swap agreements as described in the debt footnote below. Accounting Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an on-going basis, the Company evaluates the estimates used, including those related to the allowance for doubtful accounts, potentially obsolete inventory, impairments of tangible and intangible assets, income taxes, self-insurance liabilities, incentive compensation liabilities, and contingencies. The Company bases its estimates on historical experience, actuarial estimates, current conditions and various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources. The Company uses these estimates to assist in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of their short-term nature. The carrying amount of the Company's debt instruments approximates fair value. Earnings Per Share
The following table sets forth the number of shares (in thousands) used in the computation of basic and diluted earnings per share: 2002 2001 2000 Basic - Average Shares Outstanding 12,113 12,172 12,672 Effect of Dilutive Securities - Stock Options 203 166 91 Diluted - Average Shares Outstanding 12,316 12,338 12,763 Both basic and dilutive income are the same for computing earnings per share. Options, which were not included in the computation of diluted earnings per share because to do so would have had an anti-dilutive effect, totaled 294,090; 565,091; and 731,103 for the years ended June 30, 2002, 2001 and 2000, respectively.
Reclassifications Certain prior years' amounts have been reclassified to conform to the 2002 financial statement presentation. New Accounting Pronouncements In October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS No. 121, and the provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. The statement creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets including discontinued operations. SFAS No. 144 will be effective for July 1, 2002. The impact of the adoption of SFAS No. 144 is not expected to be significant. In April 2002, the Financial Accounting Standards Board issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical Corrections," which among other things, restricts the classification of gains and losses from extinguishment of debt as extraordinary to only those transactions that are unusual and infrequent in nature as defined by Accounting Principles Board Opinion No. 30 as extraordinary, SFAS No. 145 for fiscal 2004. Upon adoption, gains and losses on certain future debt extinguishment, if any, will be recorded in pre-tax income. In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company believes that the adoption of SFAS No. 146 will not have a material impact on its financial statements. Inventories
Inventories are comprised of (in thousands): June 30 2002 2001 Raw materials $33,257 $35,724 Work in process 21,779 20,678 Finished goods 37,895 46,272 Total $92,931 $102,674
Debt
Debt is comprised of (in thousands): June 30 2002 2001 Bank credit agreements $74,732 $90,297 Institutional investors 6.8% to 7.13% (due 2003-2008) 53,571 60,714 Other 3.0% to 4.85% (due 2003-2018) 4,005 4,540 Total 132,308 155,551 Less current portion 82,221 2,532 Total long-term debt $50,087 $153,019
Bank Credit Agreements The Company has a revolving credit agreement with eight banks. The agreement provides for a maximum credit line of $175,000,000 until May 2003, at which time outstanding loans will be due and payable. As of June 30, 2002, the effective rate of interest under the agreement was 2.43%. The Company is required to pay a commitment fee of 0.2% on the average daily-unused amount. As of June 30, 2002 and 2001, the Company had borrowings of $50 million and $65 million, respectively, under the agreement. The Company is currently in negotiation to renew this facility and has classified this debt as current in its balance sheet based on the May 2003 maturity. In addition, the Company has the option to borrow up to $175,000,000 on an unsecured short-term basis at rates which are based on LIBOR and varied from 2.26% to 5.02% during 2002. Available borrowings under the revolving credit agreement described above are reduced by unsecured short- term borrowings. At June 30, 2002, the Company had the ability to borrow an additional $100,268,000 under the aforementioned bank credit agreements. Institutional Investor Agreements At June 30, 2002 and 2001, the Company had a $25,000,000 note purchase agreement with two institutional investors. The notes bear interest at 6.8% annually and are due and payable in October 2008. Additionally, the Company has a note purchase agreement with two institutional investors with a balance of $28,571,000 which bears interest at 7.13% annually and is payable in annual installments of $7,143,000 which is due in September. Interest Rate Swap Agreements The Company 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. At June 30, 2002, the Company had one interest rate swap contract with a notional amount of $10.0 million. The agreement converts variable rate to a fixed rate of 7.5% and matures in 2003. Neither the Company nor the counterparty to the agreement, which is a prominent financial institution, is required to collateralize their respective obligations under the swap. The Company is exposed to loss if the counterparty defaults. At June 30, 2002, Standex had no exposure to credit loss on the interest rate swap. The Company does not believe that any likely change in interest rates would have a material adverse effect on its financial position, results of operations or cash flows. Open interest rate contracts are reviewed regularly by the Company to ensure that they remain effective as hedges of interest rate exposure. This review revealed that the interest rates swaps were highly effective for fiscal 2002. Gains or losses associated with interest rates swaps determined to be ineffective will result in the reclassification into earnings of the gains/losses previously reported in Other Comprehensive Income. Management believes that the fair value of the rate swap agreement approximates the recorded amount. Loan Covenants and Repayment Schedule The Company's loan agreements contain a limited number of provisions relating to the maintenance of certain financial ratios and restrictions on additional borrowings and investments. The most restrictive of these provisions requires that the Company maintain a minimum ratio of earnings to fixed charges, as defined, on a trailing four quarters basis. Debt is due as follows: 2003, $82,221,000; 2004, $7,502,000; 2005, $7,143,000; 2006, $7,142,000; and thereafter, $28,300,000. Accrued Payroll and Employee Benefits
This current liability caption consists of (in thousands): June 30 2002 2001 Payroll $13,091 $13,484 Benefits 1,654 2,227 Taxes 199 407 Total $14,944 $16,118
Commitments The Company leases certain property and equipment under agreements with initial terms ranging from one to twenty years. Rental expense for the years ended June 30, 2002, 2001 and 2000 was approximately $8,200,000; $7,500,000; and $8,000,000, respectively. At June 30, 2002, the minimum annual rental commitments under non-cancelable operating leases, principally real estate, were approximately: 2003, $4,800,000; 2004, $4,100,000; 2005, $3,200,000; 2006, $2,200,000; 2007, $1,900,000; and thereafter, $5,300,000. 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 SFAS No. 5, "Accounting for Contingencies." Management believes that such provision is sufficient to cover any future payments, including legal costs, under such proceedings. Income Taxes
The provision for income before taxes and the cumulative effect of the change in accounting principle consists of (in thousands): 2002 2001 2000 Current: Federal $7,165 $11,244 $13,088 State 1,166 1,023 1,304 Non-U.S. 2,079 2,080 2,884 Total 10,410 14,347 17,276 Deferred (922) 3,221 1,874 Total $9,488 $17,568 $19,150 The components of income before income taxes and cumulative effect of the change in accounting principle are as follows (in thousands): 2002 2001 2000 U.S. Operations $24,539 $36,357 $42,694 Non-U.S. Operations 5,346 6,108 4,159 Total $29,885 $42,465 $46,853 A reconciliation of the U.S. Federal income tax rate to the effective income rate is as follows: 2002 2001 2000 Statutory tax rate 35.0% 35.0% 35.0% Non-U.S. 0.4 2.9 2.6 State taxes 2.8 3.0 3.8 Non-deductible goodwill 1.0 .8 Other, including change in contingency levels (6.5) (0.5) (1.3) Effective income tax rate 31.7% 41.4% 40.9%
The Company changed its tax contingency reserve by $1.3 million to income taxes in 2002. This was a result of a change of tax rates at local domestic taxing jurisdictions, thus reducing previously recorded deferred income taxes and management's evaluation of the need for certain liabilities that had been established for various tax contingencies. The Company considered the level of currently recorded amounts, the status of tax filings currently under examination by the Internal Revenue Service and the ability to benefit from distributions from foreign subsidiaries.
Significant components of the Company's net deferred tax liabilities are as follows (in thousands): 2002 2001 Deferred tax liabilities: Accelerated depreciation $ 9,291 $ 9,040 Net pension credit 15,774 15,098 Other items 327 352 Deferred tax assets: Expense accruals (5,930) (4,051) Compensation costs (553) (608) Net deferred tax liability $18,909 $19,831
2002 2001 2000 Deferred taxes: Accelerated deprecation $ 1,118 $ 1,163 $ 983 Net pension credit 1,352 2,011 1,517 Compensation costs 28 (79) (220) Restructuring charge - 456 (456) Expense accruals (1,520) (82) (13) Other items (1,900) (248) 63 Total $ (922) $ 3,221 $ 1,874
At June 30, 2002, accumulated retained earnings of non- U.S. subsidiaries totaled $34,213,000. No provision for U.S. income and foreign withholding taxes has been made because it is expected that such earnings will be reinvested indefinitely or the distribution of any remaining amount would be principally offset by foreign tax credits. The determination of the withholding taxes that would be payable upon remittance of these earnings and the amount of unrecognized deferred tax liability on these un- remitted earnings is not practicable. Industry Segment Information The Company is composed of three product groups. These groups are described on pages 2 and 3. The Company has determined that it has three distinct reportable segments: Food Service, Consumer and Industrial. These three segments are managed separately, and the operating results of each segment are regularly reviewed and evaluated separately by the Company's senior management. During fiscal 2002, the Company realigned how certain operations are managed and reported to the chief decision maker. The segment information for prior years has been recast to reflect the realignment of management practices of the Company. Net sales include only transactions with unaffiliated customers and include no significant intersegment or export sales. Operating income by segment and geographic area excludes general corporate and interest expenses. Assets of the Corporate segment consist primarily of cash, administrative buildings, equipment, prepaid pension cost, goodwill and other non-current assets.
DEPRECIATION AND NET SALES AMORTIZATION Year Ended June 30 (In thousands) 2002 2001 2000 2002 2001 2000 Food Service $138,704 $146,793 $144,089 $1,911 $2,105 $2,120 Consumer 110,150 115,615 115,276 1,217 1,404 1,575 Industrial 325,138 337,744 377,684 9,576 9,950 9,694 Corporate and Other - - - 183 221 233 Total $573,992 $600,152 $637,049 $12,887 $13,680 $13,622
ASSETS EMPLOYED CAPITAL EXPENDITURES As of and Year Ended June 30 (In thousands) 2002 2001 2000 2002 2001 2000 Food Service $64,559 $73,927 $75,018 $540 $1,644 $2,018 Consumer 42,971 45,078 48,576 1,626 527 1,180 Industrial 255,330 264,011 258,168 7,783 11,484 19,412 Corporate and Other 43,179 41,248 42,438 72 177 177 Total $406,039 $424,264 $424,200 $10,021 $13,832 $22,787
INCOME FROM OPERATIONS GOODWILL YEAR ENDED JUNE 30 (In thousands) June 30, 2002 2002 2001 2000 Food Service $672 $9,624 $13,870 $12,165 Consumer 1,571 7,114 9,680 9,594 Industrial 33,734 33,167 37,770 47,911 Corporate and Other 273 (11,342) (8,057) (10,157) Restructuring charge - - - (5,408) Total $36,250 $38,563 $53,263 $54,105
Product Net Sales Information: Year Ended June 30 (In thousands) 2002 2001 2000 Food preparation, storage and presentation products $201,443 $217,749 $225,768 Printing and publishing products 113,685 126,115 134,198 Home and road construction products 123,084 118,483 130,985 Aerospace, automotive and electronic products 116,090 117,612 126,639 Miscellaneous 19,690 20,193 19,459 Total $573,992 $600,152 $637,049
Financial Data related to non-U.S. operations: As of and Year Ended June 30 Non-US (In thousands) 2002 2001 2000 Net Sales $68,345 $72,911 $89,496 Income from Operations 5,628 6,330 8,032 Long-Lived Assets 30,488 32,511 23,072 The restructuring charge in 2000 is excluded from the above table.
Employee Benefit Plans Retirement Plans The Company has defined benefit pension plans covering the majority of its employees, including certain employees in foreign countries. Plan assets are invested primarily in common stocks and fixed income securities. The Company makes contributions generally equal to the minimum amounts required by federal laws and regulations. Foreign plans are funded in accordance with the requirements of regulatory bodies governing each plan.
The components of net pension credit are as follows (in thousands): Year Ended June 30 2002 2001 2000 Service cost $5,165 $4,687 $5,329 Interest cost 11,732 10,949 10,357 Expected return on plan assets (18,620) (17,874) (16,526) Amortization of prior service cost 252 214 248 Recognized actuarial loss 521 153 340 Amortization of transition asset (1,075) (1,738) (1,746) Total (2,025) (3,609) (1,998) Curtailment/settlement - - 5 Net pension credit $(2,025) $(3,609) $(1,993)
The following table sets forth the funded status and amounts recognized as of June 30, 2002 and 2001 for the Company's U.S. and non-U.S. defined benefit pension plans (in thousands): Year Ended June 30 2002 2001 Change in benefit obligation: Benefit obligation, beginning of year $157,083 $143,197 Service cost 5,165 4,687 Interest cost 11,732 10,949 Employee contributions 212 239 Amendments/settlements/curtailments 308 (85) Actuarial (gain)/loss 8,656 7,993 Foreign currency exchange rate changes 254 (1,007) Benefits paid (11,666) (8,890) Benefit obligation, end of year $171,744 $157,083 Year Ended June 30 2002 2001 Change in plan assets: Fair value of plan assets, beginning of year $170,703 $183,822 Return on plan assets 8,319 (5,411) Employer contribution 596 933 Employee contributions 212 239 Foreign currency exchange rate changes 278 (683) Benefits paid (10,861) (8,197) Fair value of plan assets, end of year $169,247 $170,703 Funded status $(2,447) $13,622 Unrecognized transition asset (290) (1,370) Unrecognized net actuarial loss/(gain) 44,747 26,115 Unrecognized prior service cost 2,053 2,215 Net amount recognized 44,063 40,582 Amounts recognized in the balance sheet consist of: Prepaid benefit cost 47,405 43,625 Accrued benefit liability (3,342) (3,043) Net amount recognized $44,063 $40,582 Year Ended June 30 2002 2001 Weighted average assumptions as of June 30 Discount rate 4.00-7.30% 6.00-7.75% Expected return on assets 8.50-9.60% 8.50-10.00% Rate of compensation increase 3.50-4.00% 3.50-4.50%
Included in the above are the following assumptions relating to the defined benefit pension plans in the United States: discount rate 7.3%, expected return on assets 9.6% and rate of compensation increase 4.0%. The US defined benefit pension plans represent the majority of the Company's pension obligations. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $6,204,000, $5,323,000 and $0, respectively, as of June 30, 2002 and $6,606,000, $5,867,000 and $0, respectively as of June 30, 2001. Certain U.S. employees are covered by union-sponsored, collectively bargained, multi-employer pension plans. Contributions and costs are determined in accordance with the provisions of negotiated labor contracts or terms of the plans. Pension expense for these plans was $1,973,000; $1,953,000; and $1,863,000 in 2002, 2001 and 2000, respectively. Deferred Contribution Plans The Company had an Employee Stock Ownership Plan (ESOP) covering certain salaried employees. The ESOP was merged into the 401(k) savings plan discussed below in fiscal 2000. Employee Savings Plan The Company has established 401(k) savings plans covering substantially all of the Company's full-time domestic employees. Under the provisions of the plans, employees may contribute a portion of their compensation within certain limitations. The Company, at the discretion of the Board of Directors, may make contributions on behalf of its employees under these plans. Such contributions, if any, become fully vested immediately. The Company contributions, including contributions previously made to the ESOP, were approximately $1,775,000, $1,975,000 and $2,119,000 for the years ended June 30, 2002, 2001 and 2000, respectively. These benefits are funded by insurance policies owned by the Company. At June 30, 2002, the 401(k) holds approximately 1.1 million shares of Company stock, representing approximately 57% of the holdings of the plan. Profit Improvement Participation Share Plan The Company has maintained a profit improvement incentive plan in which certain officers and employees participate. The plan has been phased-out and, consequently, no new units have been awarded since 1995. Units under this plan were issued at the discretion of the Compensation Committee of the Board of Directors and were assigned a value equal to a multiple of earnings per share payable in five years based upon the net increase in earnings per share over the five-year period. Each fiscal year, amounts were charged or credited to operations to reflect this liability. The amounts credited to operations for the year ended June 30, 2000 was $40,000. Other Plans The Company also sponsors a Supplemental Retirement Income Plan for certain executives. The aggregate present value of current outstanding benefits was $1,532,000 at June 30, 2002. Postretirement Benefits Other Than Pensions The Company sponsors unfunded postretirement medical and life plans covering certain full-time employees who retire and have attained the requisite age and years of service. Retired employees are required to contribute toward the cost of coverage according to various rules established by the Company. The Company records postretirement benefits (such as health care and life insurance benefits) during the years an employee provides services.
The following table sets forth the funded status of the Company's postretirement benefit plans and accrued postretirement benefit cost reflected in the Company's balance sheet at year end (in thousands): Year Ended June 30 2002 2001 Change in benefit obligation: Benefit obligation, beginning of year $8,692 $7,743 Service cost 131 86 Interest cost 653 476 Participant contributions 361 221 Actuarial loss (gain) (3,190) 908 Benefits paid (903) (742) Benefit obligation, end of year 5,744 8,692 Fair value of plan assets - - Funded status (5,744) (8,692) Unrecognized net actuarial gain (3,895) (743) Unrecognized transition obligation 4,886 5,331 Net amount recognized $(4,753) $(4,104)
The assumed weighted average discount rate as of June 30, 2002 and 2001 was 7.30% and 7.75% respectively. The annual assumed rate of increase in the per capita cost of covered health care benefits is 9.0% for retirees under age 65 in 2002 and 10.0% in 2001, trending down to 5.0% in 2006 and is assumed to remain at that level thereafter. A 1% increase in the assumed health care cost trend rate would have increased the accumulated benefit obligation by $563,000 and the net postretirement cost by $101,000 in 2002.
Net postretirement benefit costs are as follows (in thousands): Year Ended June 30 2002 2001 2000 Service cost $131 $86 $137 Interest cost 653 476 638 Amortization of transition obligation 445 445 444 Net amortization and deferral (37) (184) - Net postretirement benefit cost $1,192 $823 $1,219
STOCK BASED COMPENSATION AND PURCHASE PLANS Stock Based Compensation Plans Under incentive compensation plans, the Company is authorized to, and has made grants of, stock options, restricted stock and performance share units to provide equity incentive compensation to key employees. At June 30, 2002, 1,747,129 shares of common stock were reserved for issuance under these plans. Of this amount, and as noted in the table below, 789,318 shares are for options granted but unexercised and 178,075 shares are for restricted stock grants outstanding. Stock Option Plans Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," encourages, but does not require companies to record compensation cost for stock based employee compensation plans at fair value. The Company has chosen to continue to account for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, the compensation cost of stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the option exercise price and is charged to operations over the vesting period. At June 30, 2002, the Company has made grants of options under various Stock Option Plans. Generally, these options may be granted at or below fair market value as of the date of grant and must be exercised within the period prescribed by the Compensation Committee of the Board of Directors at the time of grant but no later than ten years from the date of grant. Certain options granted at fair value can be exercised anytime after six months from the date of grant, and other options can only be exercised in accordance with the vesting schedules prescribed by the Committee. Restricted Stock Awards The Company may award shares of restricted stock to eligible employees at no cost, giving them in most instances all of the rights of stockholders, except that they may not sell, assign, pledge or otherwise encumber such shares and rights. Such shares and rights are subject to forfeiture if certain employment conditions are not met. During the restriction period, recipients of the shares are entitled to dividends on such shares, providing that such shares are not forfeited. Dividends are accumulated and paid out at the end of the restriction period. During 2002 and 2001, the Company granted 45,000, and 19,051 shares, respectively, of restricted stock to eligible employees. At June 30, 2002, restrictions on the stock lapse between 2002 through 2010. Through June 30, 2002, restrictions on 3,285 shares have lapsed. Upon issuance of the shares, an unamortized compensation expense on the dates of the grant was charged to stockholders' equity and will be amortized over the restriction period. For the years ended June 30, 2002 and 2001, $601,791 and $771,695, respectively, was recognized as compensation expense. Executive Compensation Program The Company operates a compensation program for key employees. The plan contains both an annual component as well as long-term component. Under the annual component, participants are required to receive 20% (and may elect to receive up to 50%) of their annual incentive compensation in restricted stock which is purchased at a discount to the market based on the lower closing price on the date of the grant or the date the award is paid out. During the restriction period, recipients of the shares are entitled to dividends on such shares, providing that such shares are not forfeited. Dividends are accumulated and paid out at the end of the restriction period. The restrictions on the stock expire after three years. At June 30, 2002 and 2001, respectively, 53,115 and 44,452 shares of restricted stock are outstanding and subject to restrictions that lapse between 2003 and 2004. The compensation expense associated with this short-term incentive program is charged to income ratably over the restriction period. The Company recorded compensation expense related to this program of $166,000 and $70,000 for the years ended June 30, 2002 and 2001, respectively. Under the long-term component, grants of incentive performance share units ("PSU's") are made annually to key employees and are earned based on the achievement of certain overall corporate financial performance targets over a three- year period. In addition, stock options are awarded under this program at the fair market value as of the date of grant. These options vest ratably over five years and must be exercised within seven years. In certain circumstances, such as retirement or a change in control, vesting of the options granted are accelerated and PSU's are paid off on a pro-rata basis. At June 30, 2002, under this program 50,300 shares were subject to the restrictions related to the PSU's. Compensation expense, if any, associated with the PSU's is recorded to expense as the achievement of future performance objectives appears likely. Recipients of the PSU's do not receive dividend rights until such time as the shares have been issued. A summary of stock options issued under the above plans is as follows:
Number Weighted Average Year Ended June 30 of Options Exercise Price Outstanding, June 30, 1999 ($0.00 to $32.1875 per share) 638,555 $24.50 Granted ($0.00 to $23.375 per share) 352,514 14.81 Exercised ($0.00 to $15.8125 per share) (35,525) 10.74 Canceled ($0.00 to $31.5625 per share) (41,072) 27.35 Outstanding, June 30, 2000 ($0.00 to $32.1875 per share) 914,472 21.17 Granted ($0.00 to $18.6875 per share) 205,551 16.95 Exercised ($0.00 to $23.375 per share) (165,642) 18.62 Canceled ($0.00 to $31.5625 per share) (41,649) 26.18 Outstanding, June 30, 2001 ($0.00 to $32.1875 per share) 912,732 20.45 Granted ($0.00 to $21.45 per share) 228,000 15.43 Exercised ($0.00 to $25.875 per share) (66,450) 18.99 Canceled ($0.00 to $32.1875 per share) (106,889) 23.51 Outstanding, June 30, 2002 ($0.00 to $32.1875 per share) 967,393 19.03 Exercisable, June 30, 2002 ($0.00 to $31.5625 per share) 446,442 $25.94
The following table sets forth information regarding options outstanding at June 30, 2002: Weighted Weighted Average Weighted Average Number Exercise Prices Number Range of Average Remaining Currently for Currently of Options Exercise Prices Exercise Price Life (Years) Exercisable Exercisable 178,075 $0.00 $0.00 2 2,700 $0.00 152,873 $16.4375 - $18.6875 $18.56 5 33,508 $18.38 241,754 $18.85 - $ 23.00 $20.50 5 43,434 $23.00 171,351 $23.375 - $25.875 $24.53 4 143,460 $24.75 146,900 $27.00 - $28.375 $28.14 6 146,900 $28.14 76,440 $28.50 - $31.5625 $29.84 4 76,440 $29.84 967,393 $0.00 - $31.5625 $23.33 4 446,442 $25.94
As discussed above, the Company has chosen to continue to account for stock based compensation using the intrinsic value method to measure compensation expense. Had the Company used the fair value method to measure compensation for grants after fiscal 1995, net income and earnings per share would have been as follows: Year Ended June 30 (In thousands) 2002 2001 2000 Income Before Income Tax Provision $28,636 $40,839 $45,361 Income Tax Provision (9,354) (17,389) (19,008) Net Income $19,282 $23,450 $26,353 Earnings Per Share Basic $1.59 $1.93 $2.08 Diluted $1.57 $1.90 $2.07
Fiscal 2002 excludes a cumulative effect of a change in accounting principle of $3,779,000 or 31 cents per share. Options granted during 2002, 2001 and 2000 had a weighted average grant date fair value of $3.93, $5.13, and $6.59, respectively. The fair value of options on the grant date, including the valuation of the option feature implicit in the Company's stock purchase plan, was measured using the Binomial option pricing model. Key assumptions used to apply this pricing model are as follows: Year Ended June 30 2002 2001 2000 Range of risk-free interest rates 4.41% to 4.50% 4.29% to 6.18% 5.72% to 6.83% Range of expected life of option grants (in years) 5 to 7 3 to 7 3 to 7 Expected volatility of underlying stock 30.0% to 30.6% 34.4% to 35.8% 30.6% to 33.6% Range of expected quarterly dividends (per share) $0.21 $0.20 to $0.21 $0.19 to $0.20
It should be noted that the option pricing model used was designed to value readily tradable stock options with relatively short lives. The options granted to employees are not tradable and have contractual lives of up to ten years. However, management believes that the assumptions used and the model to value the awards yields a reasonable estimate of the fair value of the grants made under the circumstances. Employee Stock Purchase Plan The Company has an Employee Stock Purchase Plan that allows employees to purchase shares of common stock of the Company at a 15% discount from market value. Shares of stock reserved for the plan were 230,285 at June 30, 2002. Shares purchased under this plan aggregated 67,540, 76,081; and 92,568; in 2002, 2001 and 2000, respectively. Rights Plan The Company has a Sharholder Rights Plan for which purchase rights have been distributed as a dividend at the rate of one right for each share of common stock held. The rights may be exercised only if an entity has acquired beneficial ownership of 15% or more of the Company's common stock, or announces an offer to acquire 15% or more of the Company. Acquisitions and Dispositions ATC-Frost Magnetics, Inc. was purchased for a total of $15,700,000 in cash and stock in April 2001. ATC-Frost is a leading manufacturer of custom magnetic components in Canada. This transaction was accounted for as a purchase and, accordingly, the consolidated financial statements include the results of the acquired company from its acquisition date. The purchase price of the acquisition was allocated to the assets acquired based on their fair market values and resulted in the recognition of goodwill of approximately $10,000,000. If the acquisition had occurred as of July 1, 1999, consolidated results would not have been materially affected. Restructuring 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" on the Statements of Consolidated Income. As part of this restructuring the Company sold for cash and a note the assets and operations of its Keller-Dorian and Goyot subsidiaries in September.
The following schedule reflects the Company's restructuring activities (in thousands) since the charge was recorded: Involuntary Employee Severance and Asset Shutdown Benefits Costs Impairment Costs Total Reserve beginning balance $1,036 $3,775 $597 $5,408 Expended: Cash 1,013 - 775 1,788 Non-cash (disposals and write-offs) - 3,620 - 3,620 Total expenditures 1,013 3,620 775 5,408 Expenditures under (over) reserve $23 $155 $(178) $-
Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for the years ended June 30, 2002 and 2001 are as follows: Sales and Earnings by Quarter (Unaudited) Year Ended June 30 2002 (In thousands, except per share data) First Second Third Fourth Net sales $143,710 $149,927 $136,865 $143,490 Gross profit margin 45,913 52,511 43,397 45,396 Net income 1,719 6,378 3,589 4,932 EARNINGS PER SHARE Basic 0.45 0.53 0.29 0.41 Diluted 0.45 0.52 0.29 0.40 Year Ended June 30 2001 (In thousands, except per share data) First Second Third Fourth Net sales $151,279 $158,652 $140,233 $149,988 Gross profit margin 48,065 54,483 44,841 50,760 Net income 7,038 7,553 4,037 6,269 EARNINGS PER SHARE Basic 0.57 0.62 0.34 0.52 Diluted 0.57 0.61 0.33 0.51
The first quarter of fiscal 2002 excludes a cumulative effect of a change in accounting principle of $3,779,000 or 31 cents per share. During the fourth quarter of fiscal 2002, the Company recorded certain tax adjustments discussed in the Income Tax Note to the Consolidated Financial Statements. In addition, during the fourth quarter of fiscal 2002, the Company provided $3.4 million of additional reserves for potentially obsolete and slow moving inventory. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF STANDEX The Company will file with the Securities and Exchange Commission ("SEC") a definitive Proxy Statement no later than 120 days after the close of the fiscal year ended June 30, 2002 (the "Proxy Statement"). The information required by this item and not provided in Item 4 "Executive Officers of Standex" is incorporated by reference from the Proxy Statement under the captions "Election of Directors," "Stock Ownership in the Company," "Other Information Concerning the Company" and "Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from the Proxy Statement under the captions "Report of the Compensation Committee," "Executive Compensation," and "Directors' Fees." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The stock ownership of each person known to Standex to be the beneficial owner of more than 5% of its Common Stock and the stock ownership of all directors and executive officers of Standex as a group are incorporated by reference in the Proxy Statement under the caption "Stock Ownership in the Company." The beneficial ownership of Standex Common Stock of all directors and executive officers of the Company is incorporated by reference in the Proxy Statement under the caption "Stock Ownership in the Company." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is incorporated by reference in the Proxy Statement under the caption "Indebtedness of Management." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Schedule (i) The financial statements required in response to this item are listed in response to Part II, Item 8 of this Annual Report on Form 10-K. (ii) The financial statement schedule listed in the accompanying index to the Consolidated Financial Statements and Schedules is filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K Standex filed no reports on Form 8-K with the Securities and Exchange Commission during the last quarter of the fiscal year ended June 30, 2002. (c) Exhibits 3. (i) Restated Certificate of Incorporation of Standex, dated October 27, 1998, is incorporated by reference to the exhibits to the Quarterly Report of Standex on Form 10- Q for the fiscal quarter ended December 31, 1998. (ii) By-Laws of Standex, as amended, and restated on July 27, 1994 are incorporated by reference to the exhibits to the Annual Report of Standex on Form 10-K for the fiscal year ended June 30, 1994 (the "1994 10- K"). 4. (a) Agreement of the Company, dated September 15, 1981, to furnish a copy of any instrument with respect to certain other long-term debt to the Securities and Exchange Commission upon its request is incorporated by reference to the exhibits to the Annual Report of Standex on Form 10-K for the fiscal year ended June 30, 1981. (b) Rights Agreement of the Company is incorporated by reference to Form 8A filed with the Securities and Exchange Commission on December 18, 1998 and to the Form 8-K filed with the Securities and Exchange Commission on December 18, 1998. 10. (a) Employment Agreement dated May 1, 2000, between the Company and David R. Crichton is incorporated by this reference to the exhibits to the Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (the "2000 10-K") and an Amendment to the Employment Agreement dated January 30, 2002 is incorporated by this reference to the exhibits to the Quarterly Report of Standex on Form 10-Q for the fiscal quarter ended March 31, 2002 (the "March 2002 10-Q").* (b) Employment Agreement dated May 1, 2000, between the Company and Edward J. Trainor is incorporated by this reference to the exhibits to the 2000 10-K and an Amendment to the Employment Agreement dated January 30, 2002 is incorporated by this reference to the exhibits to the March 2002 10- Q.* (c) Employment Agreement dated May 1, 2000, between the Company and Edward F. Paquette is incorporated by this reference to the exhibits to the 2000 10-K.* (d) Employment Agreement dated May 1, 2000, between the Company and Deborah A. Rosen is incorporated by this reference to the exhibits to the 2000 10-K and an Amendment to the Employment Agreement dated January 30, 2002 is incorporated by this reference to the exhibits to the March 2002 10- Q.* (e) Employment Agreement dated April 1, 2001 between the Company and Daniel C. Potter is incorporated by this reference to the exhibits to the Annual Report on Form 10-K for the fiscal year ended June 30, 2001 (the "2001 10-K").* (f) Employment Agreement dated September 1, 2001 between the Company and Christian Storch is incorporated by this reference to the exhibits to the Quarterly Report of Standex on Form 10-Q for the fiscal quarter ended September 30, 2001.* (g) Employment Agreement dated December 3, 2001 between the Company and Roger L. Fix is incorporated by this reference to the exhibits to the Quarterly Report of Standex on Form 10-Q for the fiscal quarter ended December 31, 2001.* (h) Standex International Corporation 1998 Long-Term Incentive Plan, effective October 27, 1998 is incorporated by reference to the exhibits to the Quarterly Report of Standex on Form 10-Q of the fiscal quarter ended December 31, 1998.* (i) Standex International Corporation Profit Improvement Participation Shares Plan as amended and restated on April 26, 1995 is incorporated by reference to the exhibits to the Annual Report of Standex on Form 10-K for the fiscal year ended June 30, 1995 (the "1995 10- K").* (j) Standex International Corporation Stock Option Loan Plan, effective January 1, 1985, as amended and restated on January 26, 1994, is incorporated by reference to the exhibits to the 1994 10-K.* (k) Standex International Corporation Executive Security Program, as amended and restated on January 31, 2001 is incorporated by reference to the exhibits to the Quarterly Report of Standex on Form 10-Q for the fiscal quarter ended March 31, 2001 (the "March 2001 10-Q").* (l) Standex International Corporation 1985 Stock Option Plan effective July 31, 1985, as amended on October 30, 1990, is incorporated by reference to the exhibits to the Annual Report of Standex on Form 10-K for the fiscal year ended June 30, 1991.* (m) Standex International Corporation Executive Life Insurance Plan effective April 27, 1994 and as amended and restated on April 25, 2001 is incorporated by reference to the exhibits to the 2001 10-K.* (n) Standex International Corporation 1994 Stock Option Plan effective July 27, 1994 is incorporated by reference to the exhibits to the 1994 10-K.* (o) Standex International Corporation Supplemental Retirement Plan adopted April 26, 1995 and amended on July 26, 1995 is incorporated by reference to the exhibits to the 1995 10-K.* (p) Standex International Corporation Key Employee Share Option Plan dated June 27, 2002 is incorporated by reference to this Annual Report on Form 10-K for the fiscal year ended June 30, 2002.* 21. Subsidiaries of Standex. 23. Independent Auditors' Consent. 24. Powers of Attorney of David R. Crichton, William R. Fenoglio, Roger L. Fix, Walter F. Greeley, Daniel B. Hogan, Thomas L. King, C. Kevin Landry, H. Nicholas Muller, III, Ph.D. and Deborah A. Rosen. 99. Sarbanes-Oxley Act, Section 906 Certification. (d) Schedule The schedule listed in the accompanying Index to the Consolidated Financial Statements and Schedules is filed as part of this Annual Report on Form 10-K. * Management contract or compensatory plan or arrangement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Standex International Corporation has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on August 19, 2002. STANDEX INTERNATIONAL CORPORATION (Registrant) By: /s/EDWARD J. TRAINOR Edward J. Trainor Chairman/Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Standex International Corporation and in the capacities indicated on August 19, 2002: Signature Title /s/ EDWARD J. TRAINOR Chairman/Chief Executive Officer Edward J. Trainor /s/ CHRISTIAN STORCH Vice President/Chief Financial Officer Christian Storch /s/ ROBERT R. KETTINGER Corporate Controller Robert R. Kettinger (Chief Accounting Officer) Edward J. Trainor, pursuant to powers of attorney which are being filed with this Annual Report on Form 10-K, has signed below on August 19, 2002 as attorney-in-fact for the following directors of the Registrant: David R. Crichton Thomas L. King William R. Fenoglio C. Kevin Landry Roger L. Fix H. Nicholas Muller, III, Ph.D. Walter F. Greeley Deborah A. Rosen Daniel B. Hogan /s/ EDWARD J. TRAINOR Edward J. Trainor Supplemental Information to be furnished with reports filed pursuant to Section 15(d) of the Act by Registrants which have not registered securities pursuant to Section 12 of the Act. The Company will furnish its 2002 Annual Report, its Proxy Statement and proxy materials to security holders subsequent to the filing of the annual report of this Form. Copies of such material shall be furnished to the Commission when it is sent to security holders. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Schedule Schedule VIII Valuation and Qualifying Accounts Independent Auditors' Report relating to Schedule VIII Schedules (consolidated) not listed above are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements submitted. INDEX TO ITEMS INCORPORATED BY REFERENCE Page No. Proxy Statement ("P") PART III Item 10 Directors and Executive Officers of Standex Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions Schedule VIII STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Years Ended June 30, 2002, 2001 and 2000
Column A Column B Column C Column D Column E Balance at Additions Beginning Charged to Costs Charged to Balance at Description of Year and Expenses other Accounts Deductions End of Year Allowances deducted from assets to which they apply - for doubtful accounts receivable: June 30, 2002 $3,433,443 $2,724,937 $(1,549,051)(1) $4,609,329 June 30, 2001 $3,397,174 $1,825,947 $(1,789,678)(1) $3,433,443 June 30, 2000 $3,590,395 $1,412,681 $(1,605,902)(1) $3,397,174 (1) Accounts written off - net of recoveries
INDEX TO EXHIBITS PAGE 10. (p) Standex International Corporation Key Employee Share Option Plan dated July 27, 2002 is incorporated by reference to this Annual Report on From 10-K for the fiscal year ended June 30, 2002. 21. Subsidiaries of Standex. 23. Independent Auditors' Consent. 24. Powers of Attorney of David R. Crichton, William R. Fenoglio, Roger L. Fix, Walter F. Greeley, Daniel B. Hogan, Thomas L. King, C Kevin Landry, H. Nicholas Muller, III, Ph.D., Deborah A. Rosen. 99. Sarbanes-Oxley Act, Section 906 Certification.