UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-07233

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	31-0596149
(State of incorporation)	(IRS Employer Identification No.)

23 Keewaydin drive, Salem, New Hampshire	03079
(Address of principal executive offices)	(Zip Code)

(603) 893-9701

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $1.50 Per Share	SXI	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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐    No ☒

The number of shares of Registrant's Common Stock outstanding on November 1, 2022 was 11,986,204.

1

STANDEX INTERNATIONAL CORPORATION

INDEX

		Page No.
PART I.  FINANCIAL INFORMATION:
Item 1.
	Condensed Consolidated Balance Sheets as of September 30, 2022 and June 30, 2022 (unaudited)	3
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2022 and 2021 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2022 and 2021 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2022 and 2021 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2022 and 2021 (unaudited)	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	34
PART II.  OTHER INFORMATION:
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36

2

PART I. FINANCIAL INFORMATION

ITEM 1

STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Balance Sheets

	September 30,			June 30,
(In thousands, except per share data)	2022			2022
ASSETS
Current Assets:
Cash and cash equivalents	$	103,428		$	104,844
Accounts receivable, less allowance for credit losses of $2,245 and $2,214 at September 30, 2022 and June 30, 2022, respectively		113,556			117,075
Inventories		109,639			105,339
Prepaid expenses and other current assets		51,435			45,210
Income taxes receivable		6,809			6,530
Total current assets		384,867			378,998
Property, plant, and equipment, net		124,792			128,584
Intangible assets, net		81,766			85,770
Goodwill		261,064			267,906
Deferred tax asset		6,458			8,186
Operating lease right-of-use asset		37,421			39,119
Other non-current assets		24,891			25,876
Total non-current assets		536,392			555,441
Total assets	$	921,259		$	934,439
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	66,289		$	74,520
Accrued liabilities		53,421			67,773
Income taxes payable		4,708			8,475
Total current liabilities		124,418			150,768
Long-term debt		198,915			174,830
Operating lease long-term liabilities		30,092			31,357
Accrued pension and other non-current liabilities		76,144			78,141
Total non-current liabilities		305,151			284,328
Contingencies (Note 15)
Stockholders' equity:
Common stock, par value $1.50 per share, 60,000,000 shares authorized, 27,984,278 shares issued, 11,865,582 and 11,824,128 shares outstanding at September 30, 2022 and June 30, 2022		41,976			41,976
Additional paid-in capital		91,446			91,200
Retained earnings		916,549			901,421
Accumulated other comprehensive loss		(171,099	)		(153,312	)
Treasury shares: 16,118,696 and 16,160,150 shares at September 30, 2022 and June 30, 2022		(387,182	)		(381,942	)
Total stockholders' equity		491,690			499,343
Total liabilities and stockholders' equity	$	921,259		$	934,439

See notes to unaudited condensed consolidated financial statements 

3

STANDEX INTERNATIONAL CORPORATION

Unaudited Condensed Consolidated Statements of Operations

	Three Months Ended
	September 30,
(In thousands, except per share data)	2022			2021
Net sales	$	180,600		$	175,610
Cost of sales		112,347			109,373
Gross profit		68,253			66,237
Selling, general, and administrative expenses		41,089			42,752
Restructuring costs		582			440
Acquisition related costs		292			217
Total operating expenses		41,963			43,409
Income from operations		26,290			22,828
Interest expense		1,187			1,720
Other non-operating (income) expense, net		1,018			23
Income from continuing operations before income taxes		24,085			21,085
Provision for income taxes		5,769			5,264
Income from continuing operations		18,316			15,821
Income (loss) from discontinued operations, net of tax		(46	)		(3	)
Net income	$	18,270		$	15,818
Basic earnings (loss) per share:
Continuing operations	$	1.55		$	1.32
Discontinued operations		-			-
Total	$	1.55		$	1.32
Diluted earnings (loss) per share:
Continuing operations	$	1.53		$	1.30
Discontinued operations		-			-
Total	$	1.53		$	1.30
Weighted average number of shares:
Basic		11,823			12,023
Diluted		11,952			12,149

See notes to unaudited condensed consolidated financial statements 

4

STANDEX INTERNATIONAL CORPORATION 

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

	Three Months Ended
	September 30,
(In thousands)	2022			2021
Net income	$	18,270		$	15,818
Other comprehensive income (loss):
Defined benefit pension plans:
Actuarial gains (losses) and other changes in unrecognized costs, net of tax	$	96		$	85
Amortization of unrecognized costs, net of tax		710			1,112
Derivative instruments:
Change in unrealized gains (losses), net of tax		2,796			158
Amortization of unrealized gains (losses) into interest expense, net of tax		154			935
Foreign currency translation gains (losses), net of tax		(21,543	)		(2,416	)
Other comprehensive income (loss), net of tax	$	(17,787	)	$	(126	)
Comprehensive income	$	483		$	15,692

See notes to unaudited condensed consolidated financial statements 

5

STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES 

Unaudited Condensed Consolidated Statements of Stockholders' Equity 

									Accumulated Other
For the three month period ended			Additional						Comprehensive									Total
September 30, 2022	Common		Paid-in			Retained			Income			Treasury Stock						Stockholders’
(in thousands, except as specified)	Stock		Capital			Earnings			(Loss)			Shares			Amount			Equity
Balance, June 30, 2022	$	41,976	$	91,200		$	901,421		$	(153,312	)		16,160		$	(381,942	)	$	499,343
Stock issued under incentive compensation plans and employee purchase plans		-		(2,318	)		-			-			(131	)		3,153			835
Stock-based compensation		-		2,564			-			-			-			-			2,564
Treasury stock acquired		-		-			-			-			90			(8,393	)		(8,393	)
Comprehensive income:
Net income		-		-			18,270			-			-			-			18,270
Foreign currency translation adjustment		-		-						(21,543	)		-			-			(21,543	)
Pension, net of tax of $0.3 million		-		-			-			806			-			-			806
Change in fair value of derivatives, net of tax of $0.9 million		-		-			-			2,950			-			-			2,950
Dividends declared ($0.26 per share)		-		-			(3,142	)		-			-			-			(3,142	)
Balance, September 30, 2022	$	41,976	$	91,446		$	916,549		$	(171,099	)		16,119		$	(387,182	)	$	491,690
For the three month period ended September 30, 2021
(in thousands, except as specified)
Balance, June 30, 2021	$	41,976	$	80,788		$	852,489		$	(116,140	)		15,940		$	(352,688	)	$	506,425
Stock issued under incentive compensation plans and employee purchase plans		-		(812	)		-			-			(80	)		1,788			976
Stock-based compensation		-		2,089			-			-			-			-			2,089
Treasury stock acquired		-		-			-			-			97			(9,500	)		(9,500	)
Comprehensive income:
Net income		-		-			15,818			-			-			-			15,818
Foreign currency translation adjustment		-		-			-			(2,416	)		-			-			(2,416	)
Pension, net of tax of $0.4 million		-		-			-			1,197			-			-			1,197
Change in fair value of derivatives, net of tax of $0.1 million		-		-			-			1,093			-			-			1,093
Dividends declared ($0.24 per share)		-		-			(2,952	)		-			-			-			(2,952	)
Balance, September 30, 2021	$	41,976	$	82,065		$	865,355		$	(116,266	)		15,957		$	(360,400	)	$	512,730

See notes to unaudited condensed consolidated financial statements 

6

STANDEX INTERNATIONAL CORPORATION

 Unaudited Condensed Consolidated Statements of Cash Flows

	Three Months Ended
	September 30,
(In thousands)	2022			2021
Cash flows from operating activities
Net income	$	18,270		$	15,818
Income (loss) from discontinued operations		(46	)		(3	)
Income from continuing operations		18,316			15,821
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		7,008			7,725
Stock-based compensation		2,564			2,089
Non-cash portion of restructuring charge		(1,066	)		(49	)
Contributions to defined benefit plans		(52	)		(52	)
Changes in operating assets and liabilities, net		(29,475	)		(12,448	)
Net cash provided by (used in) operating activities - continuing operations		(2,705	)		13,086
Net cash provided by (used in) operating activities - discontinued operations		2			(15	)
Net cash provided by (used in) operating activities		(2,703	)		13,071
Cash flows from investing activities
Expenditures for property, plant, and equipment		(5,267	)		(5,022	)
Other investing activity		43			(31	)
Net cash provided by (used in) investing activities		(5,224	)		(5,053	)
Cash flows from financing activities
Proceeds from borrowings		24,000			-
Contingent consideration payment		(1,167	)		(1,167	)
Activity under share-based payment plans		835			976
Purchases of treasury stock		(8,393	)		(9,500	)
Cash dividends paid		(3,074	)		(2,890	)
Net cash provided by (used in) financing activities		12,201			(12,581	)
Effect of exchange rate changes on cash and cash equivalents		(5,690	)		(1,121	)
Net change in cash and cash equivalents		(1,416	)		(5,684	)
Cash and cash equivalents at beginning of year		104,844			136,367
Cash and cash equivalents at end of period	$	103,428		$	130,683
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest	$	1,098		$	1,269
Income taxes, net of refunds	$	9,420		$	6,622

See notes to unaudited condensed consolidated financial statements

7

STANDEX INTERNATIONAL CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

1)     Management Statement

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations for the three months ended September 30, 2022 and 2021, the cash flows for the three months ended September 30, 2022 and 2021 and the financial position of Standex International Corporation (“Standex”, the “Company”, “we”, “us”, or “our”), at September 30, 2022. The interim results are not necessarily indicative of results for a full year. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 2022. The condensed consolidated balance sheet at June 30, 2022 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The financial statements contained herein should be read in conjunction with the Annual Report on Form 10-K and in particular the audited consolidated financial statements for the year ended June 30, 2022. Unless otherwise noted, references to years are to the Company’s fiscal years. Currently our fiscal year end is June 30.  For further clarity, our fiscal year 2023 includes the twelve-month period from July 1, 2022 to June 30, 2023.

The estimates and assumptions used in the preparation of the consolidated financial statements have considered the implications on the Company as a result of the COVID-19 pandemic and its related economic impacts. As a result of the COVID-19 pandemic, there is heightened volatility and uncertainty around supply chain performance, labor availability, and customer demand. However, the magnitude of such impact on the Company’s business and its duration is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of  September 30, 2022 and the issuance date of the Quarterly Report on Form 10-Q.

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The Company evaluated subsequent events through the date and time its unaudited condensed consolidated financial statements were issued. 

Recently Issued Accounting Pronouncements

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. The guidance in ASU 2021-10 is effective for all entities for fiscal years beginning after December 15, 2021 with early adoption permitted. The Company adopted ASU 2021-10 in fiscal year 2023. The adoption did not have a material impact on the consolidated financial statements.

2)     Acquisitions

At the time of the acquisition and September 30, 2022, the Company evaluated the significance of each acquisition on a standalone basis and in aggregate, considering both qualitative and quantitative factors.

Sensor Solutions

During the third quarter of fiscal year 2022, the Company acquired Sensor Solutions, a designer and manufacturer of customized standard magnetic sensor products including hall effect switch and latching sensors, linear and rotary sensors, and specialty sensors. Sensor Solutions' customer base in automotive, industrial, medical, aerospace, military and consumer electronics end markets are a strategic fit and expand the Company's presence in these markets. Sensor Solutions operates one light manufacturing facility in Colorado. Sensor Solutions' results are reported within the Company's Electronics segment.

8

 

The Company paid $9.9 million in cash for all the issued and outstanding equity interests of Sensor Solutions. The purchase price was allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation of their fair values on the closing date. Goodwill recorded from this transaction is attributable to Sensor Solutions' technical and applications expertise in sectors such as electric vehicles, industrial automation and medical end markets, which is highly complementary to the Company's existing business.

Identifiable intangible assets of $2.8 million consist primarily of $0.8 million for indefinite lived tradenames, and $2.0 million of customer relationships to be amortized over 10 years. The goodwill of $6.0 million created by the transaction is deductible for income tax purposes. The accounting for business combinations requires estimates and judgments regarding expectations for future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets, in determining the assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management's best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. 

The components of the fair value of the Sensor Solutions acquisition, including the preliminary allocation of the purchase price are as follows (in thousands): 

	Preliminary Allocation					Preliminary Allocation
	March 31, 2022			Adjustments		September 30, 2022
Fair value of business combination:
Cash payments	$	10,016			-	$	10,016
Less cash acquired		(114	)		-		(114	)
Total	$	9,902		$	-	$	9,902

	Preliminary Allocation						Preliminary Allocation
	March 31, 2022			Adjustments			September 30, 2022
Identifiable assets acquired and liabilities assumed:
Other acquired assets	$	490		$	(2	)	$	488
Inventories		531			(2	)		529
Property, plant, & equipment		232			188			420
Identifiable intangible assets		2,800			(20	)		2,780
Goodwill		6,001			(161	)		5,840
Liabilities assumed		(152	)		(3	)		(155	)
Total	$	9,902		$	-		$	9,902

Other Acquisitions

During the fourth quarter of fiscal year 2022, the Company paid $3.1 million in cash for acquired assets and liabilities of a manufacturer of magnetic components. The results are reported within the Company's Electronics segment. The transaction resulted in $2.5 million of goodwill that is deductible for income tax purposes. 

Acquisition Related Costs

Acquisition related costs include costs related to acquired businesses and other pending acquisitions. These costs consist of (i) deferred compensation arrangements and (ii) acquisition related professional service fees and expenses, including financial advisory, legal, accounting, and other outside services incurred in connection with acquisition activities, and regulatory matters related to acquired entities. These costs do not include purchase accounting expenses, which we define as acquired backlog and the step-up of inventory to fair value, or the amortization of the acquired intangible assets.

Acquisition related costs for the three months ended September 30, 2022, and 2021 were $0.3 million and $0.2 million, respectively.

9

 

3)     Revenue From Contracts With Customers

Most of the Company’s contracts have a single performance obligation which represents the product or service being sold to the customer. Some contracts include multiple performance obligations such as a product and the related installation and/or extended warranty. Additionally, most of the Company’s contracts offer assurance type warranties in connection with the sale of a product to customers. Assurance type warranties provide a customer with assurance that the product complies with agreed-upon specifications. Assurance type warranties do not represent a separate performance obligation.

In general, the Company recognizes revenue at the point in time control transfers to its customer based on predetermined shipping terms. Revenue is recognized over time under certain long-term contracts within the Engineering Technologies and Engraving groups for highly customized customer products that have no alternative use and in which the contract specifies the Company has a right to payment for its costs, plus a reasonable margin. For products manufactured over time, the transfer of control is measured pro rata, based upon current estimates of costs to complete such contracts. Losses on contracts are fully recognized in the period in which the losses become determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known.

Disaggregation of Revenue from Contracts with Customers

The following table presents revenue disaggregated by product line and segment (in thousands):

	Three Months Ended
Revenue by Product Line	September 30, 2022		September 30, 2021
Electronics	$	75,199	$	75,836
Engraving Services		33,585		32,917
Engraving Products		1,439		2,253
Total Engraving		35,024		35,170
Scientific		18,456		21,529
Engineering Technologies		16,999		17,573
Hydraulics Cylinders and Systems		16,737		10,653
Merchandising & Display		9,565		6,688
Pumps		8,620		8,161
Total Specialty Solutions		34,922		25,502
Total revenue by product line	$	180,600	$	175,610

The following table presents revenue from continuing operations disaggregated by geography based on company’s locations (in thousands):

	Three Months Ended		Three Months Ended
Net sales	September 30, 2022		September 30, 2021
United States	$	110,159	$	98,984
Asia Pacific		32,793		37,256
EMEA (1)		33,925		36,001
Other Americas		3,723		3,369
Total	$	180,600	$	175,610

⁽¹⁾ EMEA consists primarily of Europe, Middle East and S. Africa. 

10

 

The following table presents revenue from continuing operations disaggregated by timing of recognition (in thousands) for the three months ended:

	Three Months Ended
Timing of Revenue Recognition	September 30, 2022		September 30, 2021
Products and services transferred at a point in time	$	173,075	$	164,423
Products transferred over time		7,525		11,187
Net sales	$	180,600	$	175,610

Contract Balances

Contract assets represent sales recognized in excess of billings related to work completed but not yet shipped for which revenue is recognized over time. Contract assets are recorded as prepaid expenses and other current assets. Contract liabilities are customer deposits for which revenue has not been recognized. Current contract liabilities are recorded as accrued liabilities.

The timing of revenue recognition, invoicing and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheets. When consideration is received from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the goods and services are transferred to the customer and all revenue recognition criteria have been met.

The following table provides information about contract assets and liability balances (in thousands):

	Balance at Beginning of Period		Additions		Amount Recognized		Balance at End of Period
Three months ended September 30, 2022
Contract assets:
Prepaid expenses and other current assets	$	24,679	$	16,315	$	11,456	$	29,538
Contract liabilities:
Customer deposits		41		2,635		2,638		38

	Balance at Beginning of Period		Additions		Amount Recognized		Balance at End of Period
Three months ended September 30, 2021
Contract assets:
Prepaid expenses and other current assets	$	15,013	$	9,087	$	5,965	$	18,135
Contract liabilities:
Customer deposits		471		2,955		3,174		252

We recognized the following revenue which was included in the contract liability beginning balances (in thousands):

	September 30, 2022
Revenue recognized in the period from:	Three months ended
Amounts included in the contract liability balance at the beginning of the period	$	41

	September 30, 2021
Revenue recognized in the period from:	Three months ended
Amounts included in the contract liability balance at the beginning of the period	$	471

11

 

4)      Fair Value Measurements

The financial instruments shown below are presented at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied.

Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities and the methodologies used in valuation are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets and liabilities. The Company’s deferred compensation plan assets consist of shares in various mutual funds (investments are participant-directed) which invest in a broad portfolio of debt and equity securities. These assets are valued based on publicly quoted market prices for the funds’ shares as of the balance sheet dates.

Level 2 – Inputs, other than quoted prices in an active market, that are observable either directly or indirectly through correlation with market data. For foreign exchange forward contracts and interest rate swaps, the Company values the instruments based on the market price of instruments with similar terms, which are based on spot and forward rates as of the balance sheet dates. The Company has considered the creditworthiness of counterparties in valuing all assets and liabilities.

Level 3 – Unobservable inputs based upon the Company’s best estimate of what market participants would use in pricing the asset or liability.

There were no transfers of assets or liabilities between any levels of the fair value measurement hierarchy at September 30, 2022 and June 30, 2022. The Company’s policy is to recognize transfers between levels as of the date they occur.

Cash and cash equivalents, accounts receivable, accounts payable, and debt are carried at cost, which approximates fair value.

The fair values of financial instruments were as follows (in thousands):

	September 30, 2022
	Total		Level 1		Level 2		Level 3
Assets
Marketable securities - deferred compensation plan	$	2,939	$	2,939	$	-	$	-
Interest rate swaps		12,191		-		12,191		-
Liabilities
Foreign exchange contracts	$	1,445	$	-		1,445	$	-

	June 30, 2022
	Total		Level 1		Level 2		Level 3
Assets
Marketable securities - deferred compensation plan	$	3,033	$	3,033	$	-	$	-
Foreign exchange contracts		122		-		122		-
Interest rate swaps		8,420		-		8,420		-
Liabilities
Foreign exchange contracts	$	711	$	-	$	711	$	-
Contingent consideration (a)		1,167		-		-		1,167

^(a) The fair value of contingent consideration arrangements is determined based on the Company's evaluation as to the probability and amount of any contingent consideration that has been earned to date.

12

 

The financial liabilities based upon Level 3 inputs include contingent consideration arrangements relating to the acquisitions of Renco Electronics. The Company is contractually obligated to pay contingent consideration payments to the Sellers of these businesses based on the achievement of certain criteria.

The Company is contractually obligated to pay contingent consideration to the sellers of GS Engineering in the event that certain revenue and gross margin targets are achieved during the five years following acquisition. The targets set in the GS Engineering stock purchase agreement were not met for the first, second, or third year, which concluded in the fourth quarter of fiscal years 2020, 2021 and 2022, respectively. As of September 30, 2022, the Company could be required to pay up to $12.8 million for contingent consideration arrangements if the revenue and gross margin targets are met in fiscal years 2023 through 2024.

In connection with its acquisition of Renco Electronics, the Company was obligated to pay contingent consideration over a three year period of up to $3.5 million to the sellers of Renco. During the first quarter of fiscal year 2022, the Company paid $1.2 million to the sellers as Renco exceeded the earnings targets during the first year of the measurement period. During the third quarter of fiscal year 2022, the parties agreed to reduce and fix the aggregate earnout payments to a total of $3.4 million. The parties also agreed to accelerate the payment of the remaining unpaid amounts. During the fourth quarter of fiscal year 2022, the Company paid $1.0 million to the sellers of Renco. The remaining unpaid amount of $1.2 million was paid in the first quarter of fiscal year 2023 and the obligation is considered settled. 

The Company has determined the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future payments was based on several factors, the most significant of which are the financial performance of the acquired businesses and the risk-adjusted discount rate for the fair value measurement.

The Company will update its assumptions each reporting period based on new developments and record such amounts at fair value based on the revised assumptions until the agreements expire.

5)     Inventories

Inventories from continuing operations are comprised of the following (in thousands):

	September 30, 2022		June 30, 2022
Raw materials	$	57,036	$	56,321
Work in process		21,759		20,592
Finished goods		30,844		28,426
Total	$	109,639	$	105,339

Distribution costs associated with the sale of inventory, which are recorded as a component of selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations were $2.9 million and $3.7 million for the three months ended  September 30, 2022 and 2021, respectively.

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6)     Goodwill

Changes to goodwill by segment during the period were as follows (in thousands):

	June 30, 2022		Acquisitions		Translation Adjustment			September 30, 2022
Electronics	$	136,969	$	-	$	(5,567	)	$	131,402
Engraving		76,250		-		(568	)		75,682
Scientific		15,454		-		-			15,454
Engineering Technologies		35,928		-		(707	)		35,221
Specialty Solutions		3,305		-		-			3,305
Total	$	267,906	$	-	$	(6,842	)	$	261,064

7)     Warranty Reserves

The expected cost associated with warranty obligations on our products is recorded as a component of cost of sales when the revenue is recognized. The Company’s estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Since warranty estimates are forecasts based on the best available information, claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable.

The change in warranty reserves from continuing operations, which are recorded as a component of accrued liabilities were as follows (in thousands):

	September 30, 2022			June 30, 2022
Balance at beginning of year	$	1,918		$	2,086
Acquisitions and other charges		(27	)		(29	)
Warranty expense		385			1,083
Warranty claims		(340	)		(1,222	)
Balance at end of period	$	1,936		$	1,918

8)     Debt

Long-term debt is comprised of the following (in thousands):

	September 30, 2022			June 30, 2022
Bank credit agreements	$	199,000		$	175,000
Total funded debt		199,000			175,000
Issuance cost		(85	)		(170	)
Total long-term debt	$	198,915		$	174,830

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Bank Credit Agreements

During the second quarter of fiscal year 2019, the Company entered into a five-year Amended and Restated Credit Agreement (“Credit Facility”, or “facility”). The facility has a borrowing limit of $500 million, which can be increased by an amount of up to $250 million, in accordance with specified conditions contained in the agreement. The facility also includes a $10 million sublimit for swing line loans and a $35 million sublimit for letters of credit.

At September 30, 2022, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $6.1 million and had the ability to borrow $294.2 million under the facility. Funds borrowed under the facility  may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes.  The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants which the Company was compliant with as of  September 30, 2022.  At September 30, 2022, the carrying value of the current borrowings approximate fair value.

9) Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	September 30, 2022		June 30, 2022
Payroll and employee benefits	$	21,626	$	31,211
Operating lease current liability		7,681		7,891
Litigation accrual		-		5,745
Warranty reserves		1,936		1,918
Fair value of derivatives		1,445		-
Restructuring costs		674		1,740
Workers' compensation		1,521		1,664
Contingent consideration		-		1,166
Other		18,538		16,438
Total	$	53,421	$	67,773

10)      Derivative Financial Instruments

The Company is exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency rates. The Company selectively uses derivative financial instruments in order to manage certain of these risks. Information about the Company’s derivative financial instruments is as follows:

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Interest Rate Swaps

From time to time as dictated by market opportunities, the Company enters into interest rate swap agreements designed to manage exposure to interest rates on the Company’s variable rate indebtedness. The Company recognizes all derivatives on its balance sheet at fair value. The Company has designated its interest rate swap agreements, including those that may be forward-dated, as cash flow hedges, and changes in the fair value of the swaps are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with the swaps will be reported by the Company in interest expense.

The Company’s effective swap agreements convert the base borrowing rate on $175 million of debt due under our revolving credit agreement from a variable rate equal to 1 month LIBOR to a weighted average fixed rate of 1.18% at September 30, 2022. The fair value of the swaps, recognized in accrued liabilities and in other comprehensive income, is as follows (in thousands, except percentages):

Effective Date	Notional Amount	Fixed Interest Rate	Maturity	September 30, 2022		June 30, 2022
August 6, 2018	25,000	2.83%	August 6, 2023	$	310	$	48
March 23, 2020	100,000	0.91%	March 23, 2025		7,891		5,538
April 24, 2020	25,000	0.88%	April 24, 2025		2,019		1,447
May 24, 2020	25,000	0.91%	March 24, 2025		1,971		1,387
				$	12,191	$	8,420

The Company reported no losses for the three months ended September 30, 2022, as a result of hedge ineffectiveness. Future changes in these swap arrangements, including termination of the agreements, may result in a reclassification of any gain or loss reported in accumulated other comprehensive income (loss) into earnings as an adjustment to interest expense. Accumulated other comprehensive income (loss) related to these instruments is being amortized into interest expense concurrent with the hedged exposure.

Foreign Exchange Contracts

Forward foreign currency exchange contracts are used to limit the impact of currency fluctuations on certain anticipated foreign cash flows, such as collections from customers and loan payments between subsidiaries. The Company enters into such contracts for hedging purposes only. The Company has designated certain of these currency contracts as hedges, and changes in the fair value of these contracts are recognized in other comprehensive income until the hedged items are recognized in earnings. Hedge ineffectiveness, if any, associated with these contracts will be reported in net income. At September 30, 2022 and June 30, 2022, the Company had outstanding forward contracts related to hedges of intercompany loans with net unrealized losses of $1.4 million and losses of $0.6 million, respectively, which approximate the unrealized gains and losses on the related loans. The contracts have maturity dates ranging from fiscal year 2024 to 2025, which correspond to the related intercompany loans.

The notional amounts of the Company’s forward contracts, by currency, are as follows (in thousands):

Currency	September 30, 2022		June 30, 2022
EUR		5,750		5,750
CAD		16,600		16,600
JPY		1,000,000		1,000,000

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The table below presents the fair value of derivative financial instruments as well as their classification on the balance sheet (in thousands):

	Asset Derivatives
	September 30, 2022			June 30, 2022
Derivative designated	Balance			Balance
as hedging instruments	Sheet			Sheet
	Line Item	Fair Value		Line Item	Fair Value
Interest rate swaps	Prepaid expenses and other current assets	$	12,191	Prepaid expenses and other current assets	$	8,420
Foreign exchange contracts	Prepaid expenses and other current assets		-	Prepaid expenses and other current assets		122
		$	12,191		$	8,542

	Liability Derivatives
	September 30, 2022			June 30, 2022
Derivative designated	Balance			Balance
as hedging instruments	Sheet			Sheet
	Line Item	Fair Value		Line Item	Fair Value
Foreign exchange contracts	Accrued liabilities	$	263	Accrued liabilities	$	-
		$	263		$	-

The table below presents the amount of gain (loss) recognized in comprehensive income on our derivative financial instruments (effective portion) designated as hedging instruments and their classification within comprehensive income for the periods ended (in thousands):

	Three Months Ended
	September 30,
	2022			2021
Interest rate swaps	$	4,225		$	(61	)
Foreign exchange contracts		(389	)		204
	$	3,836		$	143

The table below presents the amount reclassified from accumulated other comprehensive income (loss) to net income for the periods ended (in thousands):

Details about Accumulated						Affected line item
Other Comprehensive	Three Months Ended					in the Unaudited
Income (Loss) Components	September 30,					Condensed Statements
	2022			2021		of Operations
Interest rate swaps	$	(454	)	$	602	Interest expense
Foreign exchange contracts		496			482	Other non-operating (income) expense, net
	$	42		$	1,084

11)     Retirement Benefits

The Company has defined benefit pension plans covering certain current and former employees both inside and outside of the U.S. The Company’s pension plan for U.S. employees is frozen for substantially all participants and has been replaced with a defined contribution benefit plan.

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Net periodic benefit cost for the Company’s U.S. and Foreign pension benefit plans for the periods ended consisted of the following components (in thousands):

	U.S. Plans						Non-U.S. Plans
	Three Months Ended						Three Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Service cost	$	-		$	1		$	44		$	63
Interest cost		2,397			1,830			262			190
Expected return on plan assets		(2,993	)		(3,260	)		(245	)		(211	)
Recognized net actuarial loss		953			1,384			(15	)		84
Amortization of prior service cost		-			-			(1	)		(1	)
Net periodic benefit cost	$	357		$	(45	)	$	45		$	125

The following table sets forth the amounts recognized for the Company's defined benefit pension plans (in thousands):

Amounts recognized in the consolidated balance sheets consist of:	September 30, 2022			June 30, 2022
Prepaid benefit cost	$	5,823		$	6,295
Current liabilities		(521	)		(456	)
Non-current liabilities		(46,602	)		(47,695	)
Net amount recognized	$	(41,300	)	$	(41,856	)

The contributions made to defined benefit plans are presented below along with remaining contributions to be made for fiscal year 2023 (in thousands):

	Fiscal Year 2023		Fiscal Year 2022		Remaining
	Three Months Ended		Three Months Ended		Contributions
Contributions to defined benefit plans	September 30, 2022		September 30, 2021		FY 2023
United States, funded plan	$	-	$	-	$	-
United States, unfunded plan		52		52		148
United Kingdom		-		-		-
Germany, unfunded plan		-		-		234
Ireland		-		-		58
	$	52	$	52	$	440

12)     Income Taxes

The Company's effective tax rate from continuing operations for the first quarter of fiscal year 2023 was 24.0% compared with 25.0% for the prior year quarter. The tax rate was impacted in the current period by the following items: (i) a discrete tax benefit related to equity compensation, (ii) the jurisdictional mix of earnings, (iii) foreign withholding taxes, and (iv) federal research and development tax credits. The tax rate was impacted in the prior period by the following items: (i) a discrete tax benefit related to equity compensation, (ii) the jurisdictional mix of earnings, (iii) foreign withholding taxes, and (iv) increased capacity to utilize foreign tax credits.

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13)     Earnings Per Share

The following table sets forth a reconciliation of the number of shares (in thousands) used in the computation of basic and diluted earnings per share:

	Three Months Ended
	September 30,
	2022		2021
Basic - Average shares outstanding		11,823		12,023
Dilutive effect of unvested, restricted stock awards		129		126
Diluted - Average shares outstanding		11,952		12,149

Earnings available to common stockholders are the same for computing both basic and diluted earnings per share. There were no outstanding instruments that had an anti-dilutive effect at September 30, 2022 or 2021.

Performance stock units of 141,918 and 131,888 for the three months ended September 30, 2022 and 2021, respectively, are excluded from the diluted earnings per share calculation as the performance criteria have not been met.

14)     Accumulated Other Comprehensive Income (Loss)

The components of the Company’s accumulated other comprehensive income (loss) are as follows (in thousands):

	September 30, 2022			June 30, 2022
Foreign currency translation adjustment	$	(89,222	)	$	(67,679	)
Unrealized pension losses, net of tax		(91,835	)		(92,641	)
Unrealized gains (losses) on derivative instruments, net of tax		9,958			7,008
Total	$	(171,099	)	$	(153,312	)

15)     Contingencies

From time to time, the Company is subject to various claims and legal proceedings, including claims related to environmental remediation, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, the Company’s management does not believe that the outcome of any of the currently existing legal matters will have a material impact on the Company’s consolidated financial position, results of operations or cash flow. The Company accrues for losses related to a claim or litigation when the Company’s management considers a potential loss probable and can reasonably estimate such potential loss.

Litigation

As reported in the Company's annual report on Form 10-K file on August 5, 2022, during the fourth quarter of fiscal year 2022, the Company agreed to a full and comprehensive settlement of its pending lawsuit with Miniature Precision Components, Inc., and, as a result, recorded $5.7 million as accrued liabilities in the consolidated balance sheet.  During the first quarter of fiscal year 2023, the liability was paid and the matter is considered settled.

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16)     Industry Segment Information

The Company has five reportable segments organized around the types of products sold:

• Electronics – manufactures and sells electronic components for applications throughout the end user market spectrum;

• Engraving – provides mold texturizing, slush molding tools, project management and design services, roll engraving, hygiene product tooling, low observation vents for stealth aircraft, and process machinery for a number of industries; 

• Scientific – sells specialty temperature-controlled equipment for the medical, scientific, pharmaceutical, biotech and industrial markets; 

• Engineering Technologies – provides net and near net formed single-source customized solutions in the manufacture of engineered components for the aviation, aerospace, defense, energy, industrial, medical, marine, oil and gas, and manned and unmanned space markets; 

• Specialty Solutions – an aggregation of three operating segments that manufacture and sell refrigerated, heated and dry merchandizing display cases, custom fluid pump solutions, and single and double acting telescopic and piston rod hydraulic cylinders. 

Net sales and income (loss) from continuing operations by segment were as follows (in thousands):

	Three Months Ended September 30,
	Net Sales				Income from Operations
	2022		2021		2022			2021
Industry segment:
Electronics	$	75,199	$	75,836	$	18,141		$	18,273
Engraving		35,024		35,170		5,854			4,874
Scientific		18,456		21,529		3,723			4,508
Engineering Technologies		16,999		17,573		1,865			899
Specialty Solutions		34,922		25,502		6,077			2,815
Corporate		-		-		(8,496	)		(7,884	)
Restructuring costs		-		-		(582	)		(440	)
Acquisition related costs		-		-		(292	)		(217	)
Sub-total	$	180,600	$	175,610	$	26,290		$	22,828
Interest expense						1,187			1,720
Other non-operating (income) expense						1,018			23
Income from continuing operations before income taxes					$	24,085		$	21,085

Net sales include only transactions with unaffiliated customers and include no intersegment sales. Income (loss) from operations by segment excludes interest expense and other non-operating (income) expense.

17)      Restructuring

The Company has undertaken a number of initiatives that have resulted in severance, restructuring, and related charges.

2023 Restructuring Initiatives

The Company continues to focus its efforts to reduce cost and improve productivity across its businesses, particularly through headcount reductions, facility closures, and consolidations. Restructuring expenses primarily related to headcount reductions and other cost saving initiatives. The Company expects the 2023 restructuring activities to be completed by fiscal year 2024. 

Prior Year Restructuring Initiatives 

Restructuring expenses primarily related to headcount reductions and facility rationalization within our Specialty Solutions segment. The Company also incurred restructuring expenses related to third party assistance with analysis and implementation of these activities. The Company expects the prior year restructuring activities to be completed by fiscal year 2023.

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A summary of charges by initiative is as follows (in thousands):

	Three Months Ended
	September 30, 2022
Fiscal Year 2023	Involuntary Employee Severance and Benefit Costs		Other		Total
Current year initiatives	$	94	$	43	$	137
Prior year initiatives		251		194		445
	$	345	$	237	$	582

	Three Months Ended
	September 30, 2021
Fiscal Year 2022	Involuntary Employee Severance and Benefit Costs		Other		Total
Current year initiatives	$	375	$	65	$	440
Prior year initiatives		-		-		-
	$	375	$	65	$	440

Activity in the reserve related to the initiatives is as follows (in thousands):

Current Year Initiatives	Involuntary Employee Severance and Benefit Costs			Other			Total
Restructuring liabilities at June 30, 2022	$	-		$	-		$	-
Additions and adjustments		94			43			137
Payments		(94	)		(43	)		(137	)
Restructuring liabilities at September 30, 2022	$	-		$	-		$	-

Prior Year Initiatives	Involuntary Employee Severance and Benefit Costs			Other			Total
Restructuring liabilities at June 30, 2022	$	1,045		$	695		$	1,740
Additions and adjustments		251			194			445
Payments		(1,042	)		(469	)		(1,511	)
Restructuring liabilities at September 30, 2022	$	254		$	420		$	674

Prior Year Initiatives	Involuntary Employee Severance and Benefit Costs			Other			Total
Restructuring liabilities at June 30, 2021	$	39		$	10		$	49
Additions and adjustments		375			65			440
Payments		(414	)		(75	)		(489	)
Restructuring liabilities at September 30, 2021	$	-		$	-		$	-

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The Company’s total restructuring expenses by segment are as follows (in thousands):

	Three Months Ended
	September 30, 2022
	Involuntary Employee Severance and Benefit Costs		Other		Total
Electronics	$	131	$	123	$	254
Engraving		214		114		328
	$	345	$	237	$	582

	Three Months Ended
	September 30, 2021
	Involuntary Employee Severance and Benefit Costs		Other		Total
Engraving	$	284	$	65	$	349
Engineering Technologies		91		-		91
	$	375	$	65	$	440

Restructuring expense is expected to be approximately $1.0 million for the remainder of fiscal year 2023.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Statements contained in this Quarterly Report 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 “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “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 that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated. These factors include, but are not limited to: the impact of pandemics such as the current coronavirus on employees, our supply chain, and the demand for our products and services around the world; materially adverse or unanticipated legal judgments, fines, penalties or settlements; conditions in the financial and banking markets, including fluctuations in exchange rates and the inability to repatriate foreign cash; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the automotive, construction, aerospace, defense, transportation, food service equipment, consumer appliance, energy, oil and gas and general industrial markets; lower-cost competition; the relative mix of products which impact margins and operating efficiencies in certain of our businesses; the impact of higher raw material and component costs, particularly steel, certain materials used in electronics parts, petroleum based products, and refrigeration components; the impact of higher transportation and logistics costs, especially with respect to transportation of goods from Asia; the impact of inflation on the costs of providing our products and services; an inability to realize the expected cost savings from restructuring activities including effective completion of plant consolidations, cost reduction efforts including procurement savings and productivity enhancements, capital management improvements, strategic capital expenditures, and the implementation of lean enterprise manufacturing techniques; the potential for losses associated with the exit from or divestiture of businesses that are no longer strategic or no longer meet our growth and return expectations; the inability to achieve the savings expected from global sourcing of raw materials and diversification efforts in emerging markets; the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs; the inability to attain expected benefits from acquisitions and the inability to effectively consummate and integrate such acquisitions and achieve synergies envisioned by the Company; market acceptance of our products; our ability to design, introduce and sell new products and related product components; the ability to redesign certain of our products to continue meeting evolving regulatory requirements; the impact of delays initiated by our customers; our ability to increase manufacturing production to meet demand including as a result of labor shortages; and potential changes to future pension funding requirements. In addition, any forward-looking statements represent management's estimates only as of the day made and should not be relied upon as representing management's estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management's estimates change.

Overview

We are a diversified industrial manufacturer with leading positions in a variety of products and services that are used in diverse commercial and industrial markets. Headquartered in Salem, New Hampshire, we have seven operating segments aggregated into five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. Three operating segments are aggregated into Specialty Solutions. Our businesses work in close partnership with our customers to deliver custom solutions or engineered components that solve their unique and specific needs, an approach we call "Customer Intimacy". 

Our long-term business strategy is to create, improve, and enhance shareholder value by building more profitable, focused industrial platforms through our Standex Value Creation System. This methodology employs four components: Balanced Performance Plan, Growth Disciplines, Operational Excellence, and Talent Management and provides both a company-wide framework and tools used to achieve our goals. We intend to continue investing organically and inorganically in high margin and growth businesses using this balanced and proven approach. 

It is our objective to grow larger and more profitable business units through both organic and inorganic initiatives. We have a particular focus on identifying and investing in opportunities that complement our products and will increase the overall scale, global presence and capabilities of our businesses.  We recently established an innovation and technology function focused on accelerating new, longer-term growth opportunities for emerging technologies, including our ongoing development project with a global renewable energy company. We continue to execute on acquisitions where strategically aligned with our businesses and where the opportunity meets our investment metrics. We have divested, and likely will continue to divest, businesses that we feel are not strategic or do not meet our growth and return expectations. 

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As part of our ongoing strategy:

● In the third quarter of fiscal year 2022, we acquired Sensor Solutions, a designer and manufacturer of customized standard magnetic sensor products including hall effect switch and latching sensors, linear and rotary sensors, and specialty sensors. Sensor Solutions' customer base in automotive, industrial, medical, aerospace, military and consumer electronics end markets are a strategic fit and expand our presence in these markets. Sensor Solution's operates one light manufacturing facility in Colorado. Its results are reported within our Electronics segment.

As a result of our portfolio moves over the past several years, we have transformed Standex to a company with a more focused group of businesses selling customized solutions to high value end markets via a compelling customer value proposition.  The narrowing of the portfolio allows for greater management focus on driving operational disciplines and positions us well to use our cash flow from operations to invest selectively in our ongoing pipeline of organic and inorganic opportunities.

The Company’s strong historical cash flow has been a cornerstone for funding our capital allocation strategy.  We use cash flow generated from operations to fund investments in capital assets to upgrade our facilities, improve productivity and lower costs, invest in the strategic growth programs described above, including organic growth and acquisitions, and to return cash to our shareholders through payment of dividends and stock buybacks. 

Restructuring expenses reflect costs associated with our efforts of continuously improving operational efficiency and expanding globally in order to remain competitive in our end user markets. We incur costs for actions to size our businesses to a level appropriate for current economic conditions, improve our cost structure, enhance our competitive position and increase operating margins. Such expenses include costs for moving facilities to locations that allow for lower fixed and variable costs, external consultants who provide additional expertise starting up plants after relocation, downsizing operations because of changing economic conditions, and other costs resulting from asset redeployment decisions.  Shutdown costs include severance, benefits, stay bonuses, lease and contract terminations, asset write-downs, costs of moving fixed assets, and moving and relocation costs. Vacant facility costs include maintenance, utilities, property taxes and other costs.

Because of the diversity of the Company’s businesses, end user markets and geographic locations, management does not use specific external indices to predict the future performance of the Company, other than general information about broad macroeconomic trends.  Each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to its business and which could impact its performance. Those units report pertinent information to senior management, which uses it to the extent relevant to assess the future performance of the Company. A description of any such material trends is described below in the applicable segment analysis.

We monitor a number of key performance indicators (“KPIs”) including net sales, income from operations, backlog, effective income tax rate, gross profit margin, and operating cash flow. A discussion of these KPIs is included below. We may also supplement the discussion of these KPIs by identifying the impact of foreign exchange rates, acquisitions, and other significant items when they have a material impact on a specific KPI. 

We believe the discussion of these items provides enhanced information to investors by disclosing their impact on the overall trend which provides a clearer comparative view of the KPI, as applicable.  For discussion of the impact of foreign exchange rates on KPIs, we calculate the impact as the difference between the current period KPI calculated at the current period exchange rate as compared to the KPI calculated at the historical exchange rate for the prior period.  For discussion of the impact of acquisitions, we isolate the effect on the KPI amount that would have existed regardless of such acquisition.  Sales resulting from synergies between the acquisition and existing operations of the Company are considered organic growth for the purposes of our discussion.

Unless otherwise noted, references to years are to fiscal years.

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Impact of COVID-19 Pandemic on the Company

Given the global nature of our business and the number of our facilities worldwide, we continue to be impacted globally by COVID-19 related issues. We have taken effective action around the world to protect our health and safety, continue to serve our customers, support our communities and manage our cash flows.  Our priority was and remains the health and safety of all of our employees.  Each of our facilities is following safe practices as defined in their local jurisdictions as well as sharing experiences and innovative ways of overcoming challenges brought on by the crisis during updates with global site leaders.  We are rigorously following health protocols in our plants, including changing work cell configurations and revising shift schedules when appropriate, in order to do our best to maintain operations.  While overall customer demand has rebounded from the impact of the pandemic, more recently we have been impacted by (i) supply chain shortages, (ii) increased material costs, (iii) labor shortages, especially in North America, and (iv) lockdowns implemented by the Chinese government in select cities in which we operate. Like other industrial manufacturers, we are impacted by rising inflation which we attempt to manage through appropriate pricing actions and enhanced production efficiency measures.

We exited the first quarter of fiscal year 2023 with $103.4 million in cash and $198.9 million of borrowings under our revolving credit facility.  Our leverage ratio covenant, as defined in our revolving credit agreement, was 1.16 to 1 and allowed us the capacity to borrow an additional $294.2 million at September 30, 2022. We believe that we have sufficient liquidity around the world and access to financing to execute on our short and long-term strategic plans. 

Finally, we continue to monitor our ability to participate in any governmental assistance programs available to us in each of our global locations and participate in these programs as available and appropriate. 

Results from Continuing Operations

	Three Months Ended
	September 30,
(In thousands, except percentages)	2022			2021
Net sales	$	180,600		$	175,610
Gross profit margin		37.8	%		37.7	%
Income from operations		26,290			22,828

	Three Months Ended
(In thousands)	September 30, 2022
Net sales, prior year period	$	175,610
Components of change in sales:
Organic sales change		12,810
Effect of acquisitions		1,116
Effect of exchange rates		(8,936	)
Net sales, current period	$	180,600

Net sales increased in the first quarter of fiscal year 2023 by $5.0 million or 2.8% when compared to the prior year quarter. Organic sales increased $12.8 million or 7.3%, primarily due to pricing actions and strong demand in our Engraving and Specialty segments, acquisitions had a $1.1 million impact on sales, while foreign currency had an $8.9 million or 5.1% negative impact on sales. 

Gross Profit Margin

Our gross margin for the first quarter of fiscal year 2023 was 37.8%, which increased slightly from the prior year quarter’s gross margin of 37.7%. This increase is primarily a result of organic sales increases, productivity and targeted pricing initiatives and the absence of a one-time project related charge at Engineering Technologies during the first quarter of fiscal year 2022, partially offset by foreign currency, raw material availability and inflationary headwinds. 

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Selling, General, and Administrative Expenses

Selling, General, and Administrative (“SG&A”) expenses for the first quarter of fiscal year 2023 were $41.1 million, or 22.8% of sales, compared to $42.8 million, or 24.3% of sales, during the prior year quarter. SG&A expenses during the quarter were primarily impacted by decreased distribution expenses, partially offset by increased research and development spending to drive future product initiatives.

Restructuring Charges

We incurred restructuring expenses of $0.6 million in the first quarter of fiscal year 2023, primarily related to productivity improvements, facility rationalization activities, and global headcount reductions within our Engraving and Electronics segments.

We expect to incur restructuring costs of approximately $1.0 million throughout the remainder of fiscal year 2023, as we continue to focus our efforts to reduce cost and improve productivity across our businesses, particularly through headcount reductions and productivity initiatives.

Acquisition Related Expenses

We incurred acquisition related expenses of $0.3 million in the first quarter of fiscal year 2023. Acquisition related expenses typically consist of due diligence, integration, and valuation expenses incurred in connection with recent or pending acquisitions.

Income from Operations

Income from operations for the first quarter of fiscal year 2023 was $26.3 million, compared to $22.8 million during the prior year quarter.  The increase of $3.5 million, or 15.2%, is primarily due to income from organic sales increases and pricing actions, along with cost reduction activities and productivity improvement initiatives, partially offset by foreign currency, material inflation, and increased logistics and labor costs.

Interest Expense

Interest expense for the first quarter of fiscal year 2023 was $1.2 million, a 31.0% decrease from interest expense of $1.7 million during the prior year quarter. Our effective interest rate in the first quarter of fiscal year 2023 was 2.52%.

Income Taxes

Our effective tax rate from continuing operations for the first quarter of fiscal year 2023 was 24.0% compared with 25.0% for the prior year quarter. The tax rate was impacted in the current period by the following items: (i) a discrete tax benefit related to equity compensation, (ii) the jurisdictional mix of earnings, (iii) foreign withholding taxes, and (iv) federal research and development tax credits. The tax rate was impacted in the prior period by the following items: (i) a discrete tax benefit related to equity compensation, (ii) the jurisdictional mix of earnings, (iii) foreign withholding taxes, and (iv) increased capacity to utilize foreign tax credits.

The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases and introduces a 15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income. The income tax provisions are effective for fiscal years beginning after December 31, 2022. The 1% excise tax on share repurchases is effective as of January 1, 2023. We currently are not expecting the IRA to have a material impact to our financial statements.

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Backlog

Backlog includes all active or open orders for goods and services. Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules. Backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems, with the exception of Engineering Technologies. Customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Due to the nature of long-term agreements in the Engineering Technologies segment, the timing of orders and delivery dates can vary considerably resulting in significant backlog changes from one period to another. 

	As of September 30, 2022				As of September 30, 2021
	Total Backlog		Backlog under 1 year		Total Backlog		Backlog under 1 year
Electronics	$	174,810	$	146,977	$	134,974	$	131,111
Engraving		22,380		17,008		25,483		19,333
Scientific		5,649		5,649		7,446		7,446
Engineering Technologies		58,880		50,319		56,667		43,283
Specialty Solutions		49,022		46,211		40,205		35,256
Total	$	310,741	$	266,164	$	264,775	$	236,429

Total backlog realizable under one year increased $29.7 million, or 12.6%, to $266.2 million at September 30, 2022 from $236.4 million at September 30, 2021. Electronics total backlog increased approximately 28.1% primarily due to the global recovery from the pandemic and new business opportunities, plus an additional $1.9 million due to the acquisition of Sensor Solutions.

Changes in backlog under one year are as follows (in thousands):

	As of
(In thousands)	September 30, 2022
Backlog under 1 year, prior year period	$	236,429
Components of change in backlog:
Organic change		27,877
Effect of acquisitions		1,858
Backlog under 1 year, current period	$	266,164

Segment Analysis

Overall

Looking forward to the remainder of fiscal year 2023, we expect to be well positioned to build on fiscal year 2022 and the three months ended September 30, 2022 momentum, with anticipated year over year improvement in key financial metrics, supported by orders growth and productivity initiatives.

In general, for fiscal year 2023, we expect: 

● continued growth in transportation markets from electric vehicle programs, both the ramp up of existing business and new business opportunities;

● vaccine storage demand to decline after record COVID-19 related surge in fiscal year 2021 and early fiscal year 2022, countered by a return of demand from universities and research institutions;

● commercial aviation and defense end markets to remain strong with double digit sales increase from the prior year based on current program expectations;

● space markets to remain attractive, with an anticipated moderate volume decline due to timing of production versus launch;

● refuse and dump truck and dump trailer end markets to remain stable while being supported by investments in the U.S. infrastructure bill;

● strong Merchandising and Pumps business to benefit from return to pre-COVID-19 demand levels in food service equipment markets. 

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Electronics Group

	Three Months Ended
	September 30,						%
(In thousands, except percentages)	2022			2021			Change
Net sales	$	75,199		$	75,836			(0.8	%)
Income from operations		18,141			18,273			(0.7	%)
Operating income margin		24.1	%		24.1	%

Net sales in the first quarter of fiscal year 2023 decreased $0.6 million, or 0.8%, when compared to the prior year quarter.  Organic sales increased by $3.2 million or 4.3%, reflecting positive trends in end markets such as industrial applications, medical, power management and electric vehicle related applications, with some softness in white goods. Sensor Solutions was acquired in the third quarter of fiscal year 2022, adding $1.1 million in sales for the quarter. The foreign currency impact decreased sales by $5.0 million, or 6.6%.

Income from operations in the first quarter of fiscal year 2023 decreased by $0.2 million, or 0.7%, when compared to the prior year quarter. The operating income decrease was the result of inflationary and currency impacts almost fully offset by organic sales growth and various cost saving initiatives.

In the second quarter of fiscal year 2023, on a sequential basis, we expect revenue to be similar, as relay and magnetic components growth in North America is offset by softness in white goods end markets in Europe. We expect a slight decrease in operating margin mostly due to mix and higher growth investments, partially offset by continued price actions.

Engraving Group

	Three Months Ended
	September 30,						%
(In thousands, except percentages)	2022			2021			Change
Net sales	$	35,024		$	35,170			(0.4	%)
Income from operations		5,854			4,874			20.1	%
Operating income margin		16.7	%		13.9	%

Net sales in the first quarter of fiscal year 2023 decreased by $0.1 million, or 0.4%, when compared to the prior year quarter. Organic sales increased by $2.8 million, or 7.9% as a result of timing of projects. The sales increase was offset by foreign exchange impacts of $2.9 million, or 8.3%. 

Income from operations in the first quarter of fiscal year 2023 increased by $1.0 million, when compared to the prior year quarter.  Operating income increased during the quarter reflecting the organic sales increase and productivity actions, offsetting the foreign exchange impacts.

Sequentially during the second quarter of fiscal year 2023, we expect revenue to be similar operating margin to decrease slightly due to project mix.

Scientific

	Three Months Ended
	September 30,						%
(In thousands, except percentages)	2022			2021			Change
Net sales	$	18,456		$	21,529			(14.3	%)
Income from operations		3,723			4,508			(17.4	%)
Operating income margin		20.2	%		20.9	%

Net sales in the first quarter of fiscal year 2023 decreased by $3.1 million, or 14.3% when compared to the prior year quarter. The net sales decreased as expected due to lower demand for cold storage surrounding COVID-19 vaccine distribution partially offset by pricing actions.

Income from operations in the first quarter of fiscal year 2023 decreased $0.8 million, or 17.4% when compared to the prior year quarter. The decrease reflects lower sales volume, partially offset by pricing and productivity actions.

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Sequentially during the second quarter of fiscal year 2023 we expect a slight revenue increase and a slightly lower to similar operating margin due primarily to R&D investments and higher spend on advertising and tradeshows. 

Engineering Technologies Group

	Three Months Ended
	September 30,						%
(In thousands, except percentages)	2022			2021			Change
Net sales	$	16,999		$	17,573			(3.3	%)
Income from operations		1,865			899			107.5	%
Operating income margin		11.0	%		5.1	%

Net sales in the first quarter of fiscal year 2023 decreased by $0.6 million, or 3.3%, compared to the prior year quarter. Net sales decreased as expected due a decline in space segment sales as a result of project timing partially offset by increases in the aviation sector and increased defense sales for missile production and development programs.

Income from operations increased $1.0 million, or 107.5%, in the first quarter of fiscal year 2023 compared to the prior year quarter primarily due to productivity and efficiency initiatives and the impact of a one-time project related charge in fiscal first quarter 2022 that did not repeat.

Sequentially during the second quarter of fiscal year 2023, we expect a moderate to significant increase in revenue and operating margin reflecting an increased level of project activity. 

Specialty Solutions Group

	Three Months Ended
	September 30,						%
(In thousands, except percentages)	2022			2021			Change
Net sales	$	34,922		$	25,502			36.9	%
Income from operations		6,077			2,815			115.9	%
Operating income margin		17.4	%		11.0	%

Net sales in the first quarter of fiscal year 2023 increased $9.4 million or 36.9% when compared to the prior year quarter. Organic sales increased $10.0 million, or 39.3%. Increased sales volume is primarily due to pricing realization, strong market demand in the Hydraulics business and absence of the labor work stoppage in two plants during the prior year quarter.

Income from operations increased $3.3 million or 115.9% in the first quarter of fiscal year 2023 when compared to the prior year quarter primarily as a result of pricing actions and volume increases.

Sequentially during the second quarter of fiscal year 2023, we expect revenue to decrease slightly due to seasonality in the food service equipment end market. We expect similar operating margin due to volume decline offset by pricing and productivity initiatives.

Corporate and Other

	Three Months Ended
	September 30,						%
(In thousands, except percentages)	2022			2021			Change
Income (loss) from operations:
Corporate	$	(8,496	)	$	(7,884	)		7.8	%
Restructuring		(582	)		(440	)		32.3	%
Acquisition related costs		(292	)		(217	)		34.6	%

Corporate expenses in the first quarter of fiscal year 2023 increased by 7.8%, when compared to the prior year period. The increase is related to employee related compensation accruals and research and development costs.

The restructuring and acquisition related costs have been discussed above in the Company Overview.

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Discontinued Operations

In pursuing our business strategy, the Company may divest certain businesses.  Future divestitures may be classified as discontinued operations based on their strategic significance to the Company. Net loss from discontinued operations was less than $0.1 million for the three months ended September 30, 2022 and 2021, respectively. 

Liquidity and Capital Resources

At September 30, 2022, our total cash balance was $103.4 million, of which $93.9 million was held by foreign subsidiaries.  During the first quarter of fiscal year 2023, we did not repatriate any cash to the United States from our foreign subsidiaries. We expect to repatriate between $30.0 million and $35.0 million during the remainder of fiscal year 2023, however, the amount and timing of cash repatriation during the fiscal year will be dependent upon each business unit’s operational needs including requirements to fund working capital, capital expenditures, and jurisdictional tax payments. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to capital controls; however, those balances are generally available without legal restrictions to fund ordinary business operations.

Net cash used in continuing operating activities for the three months ended September 30, 2022, was $2.7 million compared to net cash provided by continuing operating activities of $13.1 million in the prior year.  We generated $26.8 million from operating activities and used $29.5 million of cash to fund working capital and other balance sheet increases.  Cash flow used in investing activities for the three months ended September 30, 2022 totaled $5.2 million and primarily consisted of $5.3 million used for capital expenditures. Cash provided by financing activities for the three months ended September 30, 2022 was $12.2 million and consisted primarily of borrowings of $24.0 million offset by purchases of stock of $8.4 million, cash paid for dividends of $3.1 million, and contingent consideration payments due to the seller of the Renco business of $1.2 million.

During the second quarter of fiscal year 2019, we entered into a five-year Amended and Restated Credit Agreement (“credit agreement”, or “facility”) with a borrowing limit of $500 million.  The facility can be increased by an amount of up to $250 million, in accordance with specified conditions contained in the agreement.  The facility also includes a $10 million sublimit for swing line loans and a $35 million sublimit for letters of credit. 

Under the terms of the Credit Facility, we pay a variable rate of interest and a commitment fee on borrowed amounts as well as a commitment fee on unused amounts under the facility.  The amount of the commitment fee depends upon both the undrawn amount remaining available under the facility and the Company’s funded debt to EBITDA (as defined in the agreement) ratio at the last day of each quarter.  As our funded debt to EBITDA ratio increases, the commitment fee increases. 

Funds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes.  As of September 30, 2022, the Company used $6.1 million against the letter of credit sub-facility and had the ability to borrow $294.2 million under the facility based on our current trailing twelve-month EBITDA.  The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants. The Company’s current financial covenants under the facility are as follows:

Interest Coverage Ratio - The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Facility”), to interest expense for the trailing twelve months of at least 2.75:1.  Adjusted EBIT per the Credit Facility specifically excludes extraordinary and certain other defined items such as cash restructuring and acquisition related charges up to the lower of $20.0 million or 10% of EBITDA.  The facility also allows for unlimited non-cash charges including purchase accounting and goodwill adjustments.  At September 30, 2022, the Company’s Interest Coverage Ratio was 18.1.

Leverage Ratio - The Company’s ratio of funded debt to trailing twelve month Adjusted EBITDA per the Credit Facility, calculated as Adjusted EBIT per the Credit Facility plus depreciation and amortization, may not exceed 3.5:1.  Under certain circumstances in connection with a Material Acquisition (as defined in the Facility), the Facility allows for the leverage ratio to go as high as 4.0:1 for a four-fiscal quarter period.  At September 30, 2022, the Company’s Leverage Ratio was 1.16.

As of September 30, 2022, we had borrowings under our facility of $199.0 million. In order to manage our interest rate exposure on these borrowings, we are party to $175.0 million of active floating to fixed rate swaps.  These swaps convert our interest payments from LIBOR to a weighted average fixed rate of 1.18%.  The effective rate of interest for our outstanding borrowings, including the impact of the interest rate swaps, was 2.52%.

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Our primary cash requirements in addition to day-to-day operating needs include interest payments, capital expenditures, acquisitions, share repurchases, and dividends.  Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility.  We expect fiscal year 2023 capital spending to be approximately $35.0 million and $40.0 million which includes amounts not spent in fiscal year 2022.  We expect that fiscal year 2023 depreciation and amortization expense will be between $20.0 and $21.0 million and $7.0 and $9.0 million, respectively.

The following table sets forth our capitalization:

(In thousands)	September 30, 2022			June 30, 2022
Long-term debt	$	198,915		$	174,830
Less cash and cash equivalents		(103,428	)		(104,844	)
Net debt		95,487			69,986
Stockholders' equity		491,690			499,343
Total capitalization	$	587,177		$	569,329

We sponsor a number of defined benefit and defined contribution retirement plans.  The U.S. pension plan is frozen for substantially all participants.  We have evaluated the current and long-term cash requirements of these plans, and our existing sources of liquidity are expected to be sufficient to cover required contributions under ERISA and other governing regulations.

The fair value of the Company's U.S. defined benefit pension plan assets was $138.1 million at September 30, 2022, as compared to $157.9 million at the most recent measurement date, which occurred as of June 30, 2022. The next measurement date to determine plan assets and benefit obligations will be on June 30, 2023.

The Company expects to pay $0.4 million in contributions to its defined benefit plans during the remainder of fiscal year 2023. Contributions of $0.1 million and $0.1 million were made during the three months ended September 30, 2022 and 2021, respectively. There are no required contributions to the United States funded pension plan for fiscal year 2023.  The Company expects to make contributions during the remainder of fiscal year 2023 of $0.1 million and $0.2 million to its unfunded defined benefit plans in the U.S. and Germany, respectively.  Any subsequent plan contributions will depend on the results of future actuarial valuations.

We have an insurance program in place to fund supplemental retirement income benefits for three retired executives.  Current executives and new hires are not eligible for this program.  At September 30, 2022, the underlying policies had a cash surrender value of $11.2 million and are reported net of loans of $5.1 million for which we have the legal right of offset, these amounts are reported net on our balance sheet.

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Other Matters

Inflation – Certain of our expenses, such as wages and benefits, occupancy costs, freight and equipment repair and replacement, are subject to normal inflationary pressures. Inflation for medical costs can impact both our employee benefit costs as well as our reserves for workers' compensation claims. We monitor the inflationary rate and make adjustments to reserves whenever it is deemed necessary. Our ability to control worker compensation insurance medical cost inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit the maximum exposure for us. Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements. We have experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities. These materials are some of the key elements in the products manufactured in these segments.  Wherever possible, we will implement price increases to offset the impact of changing prices.  The ultimate acceptance of these price increases will be impacted by our affected divisions’ respective competitors and the timing of their price increases. In general, we do not enter into purchase contracts that extend beyond one operating cycle. While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.

Foreign Currency Translation – Our primary functional currencies used by our non-U.S. subsidiaries are the Euro, British Pound Sterling (Pound), Japanese (Yen), and Chinese (Yuan).

Defined Benefit Pension Plans – We record expenses related to these plans based upon various actuarial assumptions such as discount rates, mortality rates, and assumed rates of returns.  The Company’s pension plan is frozen for substantially all eligible U.S. employees and participants in the plan ceased accruing future benefits.
 

Environmental Matters – To the best of our knowledge, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position.

Seasonality – We are a diversified business with generally low levels of seasonality.

Employee Relations – The Company has labor agreements with several union locals in the United States and several European employees belong to European trade unions. 

Critical Accounting Policies

The condensed consolidated financial statements include the accounts of Standex International Corporation and all of its subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying condensed consolidated financial statements.  Although we believe that materially different amounts would not be reported due to the accounting policies adopted, the application of certain accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.  Our Annual Report on Form 10-K for the year ended June 30, 2022 lists a number of accounting policies which we believe to be the most critical.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management

We are exposed to market risks from changes in interest rates, commodity prices and changes in foreign currency exchange.  To reduce these risks, we selectively use, from time to time, financial instruments and other proactive management techniques.  We have internal policies and procedures that place financial instruments under the direction of the Treasurer and restrict all derivative transactions to those intended for hedging purposes only.  The use of financial instruments for trading purposes (except for certain investments in connection with the non-qualified defined contribution plan) or speculation is strictly prohibited.  The Company has no majority-owned subsidiaries that are excluded from the consolidated financial statements.  Further, we have no interests in or relationships with any special purpose entities. 

Exchange Rate Risk

We are exposed to both transactional risk and translation risk associated with exchange rates.  The transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts.  We also mitigate certain of our foreign currency exchange rate risks by entering into forward foreign currency contracts from time to time.  The contracts are used as a hedge against anticipated foreign cash flows, such as loan payments, customer remittances, and materials purchases, and are not used for trading or speculative purposes.  The fair values of the forward foreign currency exchange contracts are 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.  At September 30, 2022 the fair value, in the aggregate, of the Company’s open foreign exchange contracts was a liability of $1.4 million.

Our primary translation risk is with the Euro, British Pound Sterling, Peso, Japanese Yen and Chinese Yuan.  A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at September 30, 2022, would not result in a material change in our operations, financial position, or cash flows.  We hedge our most significant foreign currency translation risks primarily through cross currency swaps and other instruments, as appropriate.

Interest Rate Risk

The Company’s effective interest rate on borrowings was 2.52% at September 30, 2022.  Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings and is mitigated by our use of interest rate swap agreements to modify our exposure to interest rate movements.  At September 30, 2022, we have $175.0 million of active floating to fixed rate swaps with terms ranging from one to four years.  These swaps convert our interest payments from LIBOR to a weighted average rate of 1.18%.  At September 30, 2022 the fair value, in the aggregate, of the Company’s interest rate swaps was assets of $12.2 million. A 25-basis point increase in interest rates would not materially change our annual interest expense as most of our outstanding debt is currently converted to fixed rate debts by means of interest rate swaps.

Concentration of Credit Risk

We have a diversified customer base. As such, the risk associated with concentration of credit risk is inherently minimized. As of September 30, 2022, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.

Commodity Prices

The Company is exposed to fluctuating market prices for all commodities used in its manufacturing processes.  Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements.  In general, we do not enter into purchase contracts that extend beyond one operating cycle.  While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.

The Engineering Technologies, Specialty Solutions, and Electronics segments are all sensitive to price increases for steel and aluminum products, other metal commodities such as rhodium and copper, and petroleum-based products.  We have experienced price fluctuations for a number of materials including rhodium, steel, and other metal commodities.  These materials are some of the key elements in the products manufactured in these segments.  Wherever possible, we will implement price increases to offset the impact of changing prices.  The ultimate acceptance of these price increases, if implemented, will be impacted by our affected divisions’ respective competitors and the timing of their price increases.

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ITEM 4.     CONTROLS AND PROCEDURES

At the end of the period covered by this Report, the management of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022 in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in the Company's internal control over financial reporting during the quarterly period ended September 30, 2022 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 5. Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table provides information about purchases by the Company of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

Issuer Purchases of Equity Securities⁽¹⁾

Quarter Ended September 30, 2022

Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or appropriate dollar value) of shares (or units) that may yet be purchased under the plans or programs
July 1 - July 31, 2022		-	$	-		-	$	90,651
August 1 - August 31, 2022		52,957		97.89		52,957		85,467
September 1 - September 30, 2022		37,411		85.79		37,411		82,258
Total		90,368	$	92.88		90,368	$	82,258

⁽¹⁾ The Company has a Stock Buyback Program (the “Program”) which was originally announced on January 30, 1985 and most recently amended on April 28, 2022. Under the Program, the Company is authorized to repurchase up to an aggregate of $200 million of its shares. Under the program, purchases may be made from time to time on the open market, including through 10b5-1 trading plans, or through privately negotiated transactions, block transactions, or other techniques in accordance with prevailing market conditions and the requirements of the Securities and Exchange Commission. The Board’s authorization is open-ended and does not establish a timeframe for the purchases. The Company is not obligated to acquire a particular number of shares, and the program may be discontinued at any time at the Company’s discretion.

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Item 6. Exhibits

(a) Exhibits

31.1	Principal Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Principal Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Principal Executive Officer and Principal Financial Officer Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from this Quarterly Report on Form 10-Q, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

ALL OTHER ITEMS ARE INAPPLICABLE 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		STANDEX INTERNATIONAL CORPORATION
Date:	November 4, 2022	/s/ ADEMIR SARCEVIC
		Ademir Sarcevic
		Vice President/Chief Financial Officer
		(Principal Financial & Accounting Officer)
Date:	November 4, 2022	/s/  SEAN C. VALASHINAS
		Sean C. Valashinas
		Vice President/Chief Accounting Officer/Assistant Treasurer

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