Form 10-K





 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

 

 

 

 

 

 

FORM 10-K

 

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended June 30, 2010

Commission File Number 1-7233

 

 

 

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its Charter)

 

 

 

DELAWARE

31-0596149

(State of incorporation)

(I.R.S. Employer Identification No.)

 

 

11 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

SECURITIES EXCHANGE ACT OF 1934:

 

 

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, Par Value $1.50 Per Share

 

New York Stock Exchange

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES [   ]     NO [X]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES [   ]     NO [X]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES [X]     NO [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  YES [   ]     NO [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):  

Large accelerated filer  __                    Accelerated filer  X                    Non-accelerated filer  __                  Smaller Reporting Company __

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [   ]     NO [X]

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant at the close of business on December 31, 2009 was approximately $250,000,000.  Registrant’s closing price as reported on the New York Stock Exchange for December 31, 2009 was $20.09 per share.

The number of shares of Registrant's Common Stock outstanding on August 23, 2010 was 12,472,648

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant’s 2010 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III of this report.


Forward Looking Statement






Statements contained in this Annual Report on Form 10-K 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," ”intends,” "continue," or similar terms or variations of those terms or the negative of those terms.  There are many factors that affect the Company’s business and the results of its operations and may cause the actual results of operations in future periods to differ materially from those currently expected or desired.  These factors include, but are not limited to conditions in the financial and banking markets, including fluctuations in the exchange rates and the inability to repatriate foreign cash, general and international recessionary economic conditions, including the impact, length and degree of the current recessionary conditions on the customers and markets we serve and more specifically conditions in the food service equipment, automotive, construction, aerospace, energy, housing transportation and general industrial markets, lower-cost competition, the relative mix of products which impact margins and operating efficiencies, both domestic and foreign, in certain of our businesses, the impact of higher raw material and component costs, particularly steel, petroleum based products and refrigeration components,  an inability to realize the expected cost savings from restructuring activities, 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 inability to achieve the savings expected from the sourcing of raw materials from and diversification efforts in emerging markets  and the inability to achieve synergies contemplated by the Company.  Other factors that could impact the Company include changes to future pension funding requirements and the failure by the purchaser of our former Berean bookstore chain to satisfy its obligations under those leases where the Company remains an obligor.  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.  


PART I


Item 1.  Business


Standex International Corporation (the "Company" or "we" (1)) was incorporated in 1975 and is the successor of a corporation organized in 1955.  We have paid dividends each quarter since Standex became a public corporation in November 1964.  


We are a leading manufacturer of a variety of products and services for diverse industrial market segments.  We have 12 operating segments, aggregated and organized for reporting purposes into five segments:  Food Service Equipment Group, Air Distribution Products Group (ADP), Engraving Group, Engineering Technologies Group and Electronics and Hydraulics Group.  Overall management, strategic development and financial control are maintained by the executive staff from our corporate headquarters located in Salem, New Hampshire.  


Our corporate strategy has several primary components.

·

It is our objective to grow larger and more profitable business units through both organic initiatives and acquisitions.  On an ongoing basis we identify and implement organic growth initiatives such as new product development, geographic expansion, introduction of products and technologies into new markets and applications and leveraging of sales synergies between business units, key accounts and strategic sales channel partners.  Also, we utilize strategically aligned or “bolt on” acquisitions to create both sales and cost synergies with our core business platforms to accelerate their growth and margin improvement.  There is a particular focus on identifying and investing in opportunities to increase the global presence and capabilities of our businesses.  From time to time we have divested businesses that we felt were not strategic or did not meet our growth and return expectations.

·

Our focus is on the growth and development of businesses that provide customer solutions or engineered products that provide higher levels of value add to our customers.  These types of businesses generally demonstrate the ability to sustain sales and profit growth over time and provide superior operating margins to enhance shareholder returns.

·

We have a focus on operational excellence through the continuous improvement in the cost structure of our businesses and in management of working capital.  We recognize that our businesses are competing in a global economy that requires that we constantly strive to improve our competitive position.  We have deployed a number of management competencies including lean enterprise, the use of low cost manufacturing facilities in countries such as Mexico and China, the consolidation of manufacturing facilities to achieve economies of scale and leveraging of fixed infrastructure costs, alternate sourcing to achieve procurement cost reductions, and capital improvements to increase shop floor productivity, which drives improvements in the cost structure of our business units.  Further, we have made a priority of improving the utilization and efficiency in the investment of working capital in our business units.

·

Finally, we have a constant focus on cash flow generation.  We recognize that cash flow is fundamental in our ability to invest in organic and acquisitive growth for our business units, to allow us to return cash to our shareholders in the form of dividends and that it is a measure of the quality of the earnings that we generate over time.


(1)

References in this Annual Report on Form 10-K to "Standex" or the "Company" or “we,” “our” or “us” shall mean





Standex International Corporation and its subsidiaries.


(2)

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


Please visit our web site at www.standex.com to learn more about us or to review our most recent SEC filings.  The information on our web site is for informational purposes only and is not incorporated into this Annual Report on Form 10-K.


Description of Segments


Food Service Equipment Group


Our Food Service Equipment businesses are leading, broad-line manufacturers of commercial food service equipment which includes products on the “cold” or in the refrigerated segment of food service applications and on the “hot” in the cooking segment of the market.  Our products are used throughout the entire food service process; from storage, to preparation, to cooking and to display.  The equipment that we design and manufacture is utilized in restaurants, convenience stores, quick-service restaurants, supermarkets, drug stores and institutions such as hotels, casinos and corporate and school cafeterias to meet the challenges of providing food and beverages that are fresh and appealing with the comfort of knowing the food safety and reliability of the equipment.  The Food Service Equipment Group also applies technology and product expertise in the health science and medical markets.  Customers in this segment include laboratories, health care institutions, and blood banks.  Our products are sold direct, through dealer buying groups and through industry representatives.  Through innovation and acquisition, we continue to expand this segment.  Our brands and products include:  


-

Master-Bilt® refrigerated cabinets, cases, display units, and walk-in coolers and freezers

-

Nor-Lake, Incorporated and Kool Star refrigerated walk-in coolers, freezers, refrigeration systems and cases to meet food service and scientific needs

-

APW Wyott, American Permanent Ware, Bakers Pride and BevLes commercial ovens, griddles, char broilers and toasters used in cooking, toasting, warming and merchandising food

-

American Foodservice custom-fabricated food service counters, buffet tables and cabinets

-

Barbecue King® and BKI® commercial cook and hold units, rotisseries, pressure fryers, ovens and baking equipment

-

Federal Industries merchandizing display cases

-

Procon® rotary vane pumps used in beverage and industrial fluid handling applications


Air Distribution Products Group


Our Air Distribution Products (“ADP”) business is a leading manufacturer of metal duct and fittings for residential heating, ventilating and air conditioning applications.  With manufacturing locations throughout the United States, ADP’s ability to service national accounts seamlessly gives ADP a competitive advantage over its smaller regional competitors.  Our total procurement leverage on the purchase of galvanized steel used in the production of our products and the investment in technology allows ADP to produce high-volume output at a lower cost while providing superior customer service.  Our products are sold through both HVAC wholesalers and through large scale do-it-yourself stores throughout the continental United States.  Our brand names in Air Distribution Products include Snappy®, ACME, ALCO and Standex.  


Engraving Group


Our Engraving Group is a world leader in texturizing molds used in the production of plastic components, giving the final product the cosmetic appearance and appeal that our consumers require. We provide texturizing services for molds used to produce plastic components used in automotive applications and consumer products including toys, computers and other electronics devices. Our worldwide locations enable us to better serve our customers within key geographic areas, including the United States, Canada, Europe, China, Southeast Asia, Australia and South America.  In addition to mold texturizing, the Engraving Group also produces embossed and engraved rolls and plates and process tooling and machinery serving a wide variety of industries.  Through the development of new digital based process technology and acquisitions, the Engraving Group continues to build its market leadership position and to expand the breadth of products and services it provides to its customers.  The companies and products within the Engraving Group include Roehlen®, I R International and Eastern Engraving which engrave and emboss rolls and plates used in manufacturing continuous length materials; Innovent which makes specialized tooling used to manufacture absorbent cores of many consumer and medical products; Mold-Tech® which texturizes molds used in manufacturing plastic injected components; Mullen® Burst Testers; and Perkins converting and finishing machinery.  Our products are sold direct and through manufacturers’ representatives.  The Engraving Group serves a number of industries including the automotive, plastics, building products, synthetic materials, converting, textile and paper industry, computer, houseware and construction industries.  


Engineering Technologies Group






Our Engineering Technologies Group, consisting of our Spincraft® operating segment (formerly reported as part of the Engineered Products Group), provides customized solutions in the fabrication and machining of engineered components.  Sales are made directly to our customers in the aerospace, energy, defense, marine, and aviation markets.


Electronics and Hydraulics Group


Our Electronics and Hydraulics Group consists of operating segments not otherwise aggregated under segment reporting criteria.  The following describes the businesses and products of our Electronics and Hydraulics Group.  


-

Custom Hoists (formerly reported as the Hydraulic Products Group) which provides single and double acting telescopic and piston rod hydraulic cylinders to manufacturers of dump truck and dump trailers and other material handling applications.  Sales are made directly to OEMs manufacturing dump trucks, trash collection vehicles, lift trucks and other mobile units requiring hydraulic power.


-

Standex Electronics (formerly reported as part of the Engineered Products Group), which manufactures reed switches, electrical connectors, sensors, toroids and relays, fixed and variable inductors and electronic assemblies, fluid sensors, tunable inductors, transformers and magnetic components.  Sales are made both directly to customers and through manufacturers’ representatives, dealers and distributors.  End user market segments include automotive, white goods, lighting, HVAC, aerospace, military, medical, security, and general industrial applications.


Raw Materials


Raw materials and components necessary for the manufacture of our products are generally available from numerous sources.  Generally, we are not dependent on a single source of raw materials and supplies.  We do not foresee unavailability of materials or supplies which would have a significant adverse effect on any of our businesses, nor any of our segments, in the near term.  The prices of many commodities that we use generally remain at higher levels than in past years.  Discussion of the impacts of these materials is included in Management’s Discussion and Analysis.  


Seasonality


We are a diversified business with generally low levels of seasonality, however our fiscal third quarter is typically the period with the lowest level of sales volume.


Patents and Trademarks


We hold approximately 70 United States patents and patents pending covering processes, methods and devices and approximately 52 United States trademarks.  Many counterparts of these patents have also been registered in various foreign countries.  In addition, we have various foreign registered and common law trademarks.  


While we believe that many of our patents are important, we credit our competitive position in our niche markets to engineering capabilities, manufacturing techniques and skills, marketing and sales promotions, service and the delivery of quality products.  


Due to the diversity of our businesses and the markets served, the loss of any single patent or trademark would not, in our opinion, materially affect any individual segment.  


Customers


Our business is not dependent upon a single customer or very few customers, the loss of any one of which would have a material adverse effect on our operations.  No customer accounted for more than 5% of our consolidated revenue in fiscal 2010 or any of the years presented.  


Working Capital


Our primary source of working capital is the cash generated from continuing operations.  No segments require any special working capital needs outside of the normal course of business.  


Backlog


Backlog orders believed to be firm at June 30, 2010 and 2009 are as follows (in thousands):  


 

2010

 

2009

Food Service Equipment

$37,009

 

$37,523








Air Distribution Products

898

 

726

Engraving

10,308

 

11,543

Engineering Technologies

51,844

 

65,261

Electronics and Hydraulics

15,825

 

9,290

          Total

115,884

 

124,343

Net realizable beyond one year

16,415

 

28,008

Net realizable within one year

$99,469

 

$96,335

 

 

 

 


Competition


Standex manufactures and markets products many of which have achieved a unique or leadership position in their market.  However, we encounter competition in varying degrees in all product groups and for each product line.  Competitors include domestic and foreign producers of the same and similar products.  The principal methods of competition are price, delivery schedule, quality of services, other terms and conditions of sale and product performance.


U. S. Domestic Housing Market


Our ADP segment is dependent upon demand in the new residential housing construction market.  This market is in the midst of a cyclical downtown with demand at its lowest point in over 50 years.  Discussion of the impact of this downturn on this segment is included in Management’s Discussion and Analysis.


International Operations


Substantially all of our international operations are included in the Food Service Equipment, Engraving Group, and Electronics and Hydraulics Products business segments.  International operations are conducted at 26 locations, in Europe, Canada, China, India, Singapore, Australia, Mexico and Brazil.  See the Notes to Consolidated Financial Statements for international operations financial data.  Our international operations contributed approximately 15% of operating revenues in 2010 and 13% in 2009.  International operations are subject to certain inherent risks in connection with the conduct of business in foreign countries including, exchange controls, price controls, limitations on participation in local enterprises, nationalizations, expropriation and other governmental action and changes in currency exchange rates.  


Research and Development


Developing new and improved products, broadening the application of established products, and continuing efforts to improve and develop new methods, processes and equipment, have driven our success.  However, due to the nature of our manufacturing operations and the types of products manufactured, expenditures for research and development are not significant to any individual segment or in the aggregate.  Research and development costs are quantified in the Notes to Consolidated Financial Statements.  We develop and design new products to meet customer needs or in order to offer enhanced products or to provide customized solutions for customers.  


Environmental Matters


During 2008, the Company entered into an Administrative Order of Consent with the U.S. Environmental Protection Agency related to the removal of various PCB-contaminated materials and soils at a site where the Company leased a building and conducted operations from 1967-1979.  See the notes to our consolidated financial statements for further information regarding this event.


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.  


Financial Information about Geographic Areas


Information regarding revenues from external customers attributed to: the United States, all foreign countries and any individual foreign country, if material, is contained in the Notes to Consolidated Financial Statements for “Industry Segment Information.”  


Number of Employees


As of June 30, 2010, we employed approximately 3,800 employees of which approximately 2,200 were in the United States.  About 500 of our U.S. employees were represented by unions.  Approximately 39% of our workforce is situated in low-cost manufacturing regions such as Mexico and Asia.  






Executive Officers of Standex


The executive officers of the Company as of June 30, 2010 were as follows:


Name

Age

Principal Occupation During the Past Five Years

 

 

 

Roger L. Fix

57

Chief Executive Officer of the Company since January 2003; President of the Company since December 2001

Thomas D. DeByle

50

Vice President, Chief Financial Officer, and Treasurer of the Company since March 2008; Vice President of Finance and Chief Financial Officer of Bobcat Company Doosan Infracore November 2007 – March 2008 due to the divestiture of the Compact Equipment businesses from Ingersoll Rand, prior thereto various senior financial positions in Ingersoll Rand from September 2001 through November 2007 including Sector CFO of the Compact Vehicle Technologies Sector (Club Car and Bobcat).

Deborah A. Rosen

55

Chief Legal Officer of the Company since October 2001; Vice President of the Company since July 1999; Secretary of the Company since 1997.

John Abbott

51

Group Vice President of the Food Service Group since December 2006; and prior thereto President of Filtration Group of Pentair from 2004 to 2006.

 

 

 


The executive officers are elected each year at the first meeting of the Board of Directors subsequent to the annual meeting of stockholders, to serve for one-year terms of office.  There are no family relationships among any of the directors or executive officers of the Company.


Long-Lived Assets


Long-lived assets are described and discussed in the Notes to Consolidated Financial Statements under the caption “Long-Lived Assets.”  


Available Information


Standex’s corporate headquarters are at 11 Keewaydin Drive, Salem, New Hampshire 03079, and our telephone number at that location is (603) 893-9701.


The U. S. Securities and Exchange Commission (the “SEC”) maintains an internet website at http://www.sec.gov that contains our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto.  All reports that we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information about the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Standex’s internet website address is www.standex.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto, are available free of charge on our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.  In addition, our code of business conduct, our code of ethics for senior financial management, our corporate governance guidelines, and the charters of each of the committees of our Board of Directors (which are not deemed filed by this reference), are available on our website and are available in print to any Standex shareholder, without charge, upon request in writing to “Chief Legal Officer, Standex International Corporation, 11 Keewaydin Drive, Salem, New Hampshire, 03079.”


The certifications of Standex’s Chief Executive Officer and Chief Financial Officer, as required by the rules adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, are filed as exhibits to this Form 10-K.  


Item 1A.  Risk Factors


An investment in the Company’s common shares involves various risks, including those mentioned below and those that are discussed from time to time in our other periodic filings with the SEC.  Investors should carefully consider these risks, along with the other information filed in this report, before making an investment decision regarding our common shares.  There may be additional risks which the Company is currently unaware of or which we currently consider immaterial.  All of these risks could have a material adverse effect on our financial condition, results of operations and/or value of our common shares.


A continuation of the deterioration in the economic environment could adversely affect our operating results and financial condition.






Recessionary economic conditions coupled with a tightening of credit could continue to adversely impact major markets served by our businesses, including cyclical markets such as residential housing, automotive, heavy construction vehicle, general industrial and food service.  A continuation of the economic recession could adversely affect our business by:


reducing demand for our products and services, particularly in markets where demand for our products and services is cyclical;

causing delays or cancellations of orders for our products or services;

reducing capital spending by our customers;

increasing price competition in our markets;

increasing difficulty in collecting accounts receivable;

increasing the risk of excess or obsolete inventories;

increasing the risk of impairment to long-lived assets due to reduced use of manufacturing facilities;

increasing the risk of supply interruptions that would be disruptive to our manufacturing processes; and

reducing the availability of credit for our customers.


We rely on our credit facility to provide us with sufficient capital to operate our businesses.


We rely on our revolving credit facility to provide us with sufficient capital to operate our businesses.  The availability of borrowings under our revolving credit facility is dependent upon our compliance with the covenants set forth in the facility, including the maintenance of certain financial ratios.  Our ability to comply with these covenants is dependent upon our future performance, which is subject to economic conditions in our markets along with factors that are beyond our control.  Violation of those covenants, whether as a result of recording goodwill impairment charges, incurring operating losses or otherwise, could result in our lenders restricting or terminating our borrowing ability under our credit facility, cause us to be liable for covenant waiver fees or other obligations, or trigger an event of default under the terms of our credit facility which could result in acceleration of the debt under the facility and require prepayment of the debt before its due date.  Even if new financing is available in the event of a default under our current credit facility, the interest rate charged on any new borrowing could be substantially higher than under the current credit facility, thus adversely affecting our overall financial condition.  If our lenders reduce or terminate our access to amounts under our credit facility, we may not have sufficient capital to fund our working capital needs or we may need to secure additional capital or financing to fund our working capital requirements or to repay outstanding debt under our credit facility.


Our credit facility contains covenants that restrict our activities.


Our revolving credit facility contains covenants that restrict our activities, including our ability to:


incur additional indebtedness;

make investments;

create liens;

pay cash dividends unless we are in compliance with certain financial covenants; and

sell material assets.


Our global operations subject us to international business risks.


We operate in 26 locations outside of the United States in North America, South America, Europe, Australia, and Asia.  If we are unable to successfully manage the risks inherent to the operation and expansion of our global businesses, those risks could have a material adverse effect on our business, results of operations or financial condition.  Those international business risks include:


fluctuations in currency exchange rates;

restrictions on repatriation of earnings;

import and export controls;

political, social and economic instability or disruptions;

potential adverse tax consequences;

difficulties in staffing and managing multi-national operations;

difficulties in our ability to enforce legal rights and remedies; and

changes in regulatory requirements.


Failure to achieve expected savings and synergies could adversely impact our operating profits and cash flows.


We focus on reducing operating costs through lean and low cost sourcing and manufacturing initiatives, improving working capital management, developing new and enhanced products, consolidating factories where appropriate, automating manufacturing capabilities, diversification efforts and completing acquisitions which deliver synergies to supplement sales and growth.  If we were unable to reduce costs and expenses through such programs, this failure could adversely affect our





operating profits and cash flows.  In addition, actions we may take to consolidate manufacturing operations to achieve cost savings or adjust to market developments may result in restructuring charges that adversely affect our profits.


We face significant competition in our markets and, if we are not able to respond to competition in our markets, our net sales, profits and cash flows could decline.


Our businesses operate in highly competitive markets.  In order to effectively compete, we must retain longstanding relationships with significant customers, offer attractive pricing, develop enhancements to products that offer performance features that are superior to our competitors and which maintain our brand recognition, continue to automate our manufacturing capabilities, continue to grow our business by establishing relationships with new customers, diversify into emerging markets and penetrate new markets.  If we are unable to compete effectively, our net sales, profitability and cash flows could decline.  Pricing pressures resulting from competition may adversely affect our net sales and profitability.


If we are unable to successfully introduce new products and product enhancements, our future growth could be impaired.


Our ability to develop new products and innovations to satisfy customer needs or demands in the markets we serve can affect our competitive position and often requires significant investment of resources.  Difficulties or delays in research, development or production of new products and services or failure to gain market acceptance of new products and technologies may significantly reduce future net sales and adversely affect our competitive position.


Increased prices or significant shortages of the commodities that we use in our businesses could result in lower net sales, profits and cash flows.


We purchase large quantities of steel, refrigeration components, foam insulation and other metal commodities for the manufacture of our products.  Historically, prices for these commodities have fluctuated, and we have not entered into long term contracts or other arrangements to hedge the risk of price increases in these commodities.  Significant price increases for these commodities could adversely affect our operating profits if we cannot timely mitigate the price increases by successfully sourcing lower cost commodities or by passing the increased costs on to customers.  Shortages or other disruptions in the supply of these commodities could delay sales or increase costs.


An inability to identify or complete future acquisitions could adversely affect our future growth.


As part of our growth strategy, we intend to pursue acquisitions that provide opportunities for profitable growth for our businesses and which enable us to leverage our competitive strengths.  For example, in 2007, we made two acquisitions in our Food Service Equipment Group which significantly increased the size of that group.  While we continue to evaluate potential acquisitions, we may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, obtain regulatory approval for certain acquisitions or otherwise complete acquisitions in the future.  An inability to identify or complete future acquisitions could limit our future growth.


We may experience difficulties in integrating acquisitions.


Integration of acquired companies involves a number of risks, including:


inability to operate acquired businesses profitably;

failure to accomplish strategic objectives for those acquisitions;

unanticipated costs relating to acquisitions or to the integration of the acquired businesses;

difficulties in achieving planned cost-savings and synergies; and

possible future impairment charges for goodwill and non-amortizable intangible assets that are recorded as a result of acquisitions.


Additionally, our level of indebtedness may increase in the future if we finance acquisitions with debt, which would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing.  We cannot assure that future acquisitions will not have a material adverse effect on our financial condition, results of operations and cash flows.


Impairment charges could reduce our profitability.


We test goodwill and our other intangible assets with indefinite useful lives for impairment on an annual basis or on an interim basis if an event occurs that might reduce the fair value of the reporting unit below its carrying value.  During fiscal 2009, we incurred an impairment charge of $21.3 million relating to goodwill and intangible assets in our Food Service Equipment Group.  Various uncertainties, including continued adverse conditions in the capital markets or changes in general economic conditions, could impact the future operating performance at one or more of our businesses which could significantly affect our valuations and could result in additional future impairments.  The recognition of an impairment of a significant portion of goodwill would negatively affect our results of operations, the effect of which could be material to us.  






Material adverse or unforeseen legal judgments, fines, penalties or settlements could have an adverse impact on our profits and cash flows.


We are and may, from time to time, become a party to legal proceedings incidental to our businesses, including, but not limited to, alleged claims relating to product liability, environmental compliance, patent infringement, commercial disputes and employment matters.  In accordance with United States generally accepted accounting principles, we have established reserves based on our assessment of contingencies.  Subsequent developments in legal proceedings may affect our assessment and estimates of loss contingencies recorded as reserves which could require us to record additional reserves or make additional material payments which could adversely affect our profits and cash flows.  Even the successful defense of legal proceedings may cause us to incur substantial legal costs and may divert management's time and resources away from our businesses.


The costs of complying with existing or future environmental regulations, and of correcting any violations of these regulations, could increase our expenses and reduce our profitability.


We are subject to a variety of environmental laws relating to the storage, discharge, handling, emission, generation, use and disposal of chemicals, hazardous waste and other toxic and hazardous materials used to manufacture, or resulting from the process of manufacturing, our products.  We cannot predict the nature, scope or effect of regulatory requirements to which our operations might be subject or the manner in which existing or future laws will be administered or interpreted.  We are also exposed to potential legacy environmental risks relating to businesses we no longer own or operate.  Future regulations could be applied to materials, products or activities that have not been subject to regulation previously.  The costs of complying with new or more stringent regulations, or with more vigorous enforcement of these or existing regulations, could be significant.


In addition, properly permitted waste disposal facilities used by us as a legal and legitimate repository for hazardous waste may in the future become mismanaged or abandoned without our knowledge or involvement.  In such event, legacy landfill liability could attach to or be imposed upon us in proportion to the waste deposited at any disposal facility.


Environmental laws require us to maintain and comply with a number of permits, authorizations and approvals and to maintain and update training programs and safety data regarding materials used in our processes.  Violations of these requirements could result in financial penalties and other enforcement actions.  We could be required to halt one or more portions of our operations until a violation is cured.  Although we attempt to operate in compliance with these environmental laws, we may not succeed in this effort at all times.  The costs of curing violations or resolving enforcement actions that might be initiated by government authorities could be substantial.


Contingent liabilities from businesses that we have sold could adversely affect our results of operations and financial condition.


We have retained responsibility for some of the known and unknown contingent liabilities related to a number of businesses we have sold, such as lawsuits, tax liabilities, product liability claims and environmental matters and have agreed to indemnify purchasers of these businesses for certain of those contingent liabilities.  The purchaser of Berean Christian Bookstores, a former subsidiary of the Company, filed a Chapter 11 bankruptcy petition on June 9, 2009.  On July 27, 2009, the Bankruptcy Court approved a sale under Section 363 of the Bankruptcy Code of substantially all of the assets of Berean to a newly-formed entity, Berean Christian Stores Endeavor, LLC ("Berean Endeavor"), which has assumed all of the Berean leases on which we remain an obligor.  The failure of Berean Endeavor to improve the performance of the business could make it unable to satisfy its obligations under the leases, which could trigger our continuing obligation.


The trading price of our common stock has been volatile, and investors in our common stock may experience substantial losses.


The trading price of our common stock has been volatile and may become volatile again in the future.  The trading price of our common stock could decline or fluctuate in response to a variety of factors, including:


our failure to meet the performance estimates of securities analysts;

changes in financial estimates of our net sales and operating results or buy/sell recommendations by securities analysts;

fluctuations in our quarterly operating results;

substantial sales of our common stock;

changes in the amount or frequency of our payment of dividends or repurchases of our common stock;

general stock market conditions; or

other economic or external factors.






Decreases in discount rates and actual rates of return could require future pension contributions to our pension plans which could limit our flexibility in managing our company.


Key assumptions inherent in our actuarially calculated pension plan obligations and pension plan expense are the discount rate and the expected rate of return on plan assets.  If discount rates and actual rates of return on invested plan assets were to decrease significantly, our pension plan obligations could increase materially.  The size of future required pension contributions could require us to dedicate a greater portion of our cash flow from operations to making contributions, which could negatively impact our financial flexibility.


Various restrictions in our charter documents, Delaware law and our credit agreement could prevent or delay a change in control of us that is not supported by our board of directors.


We are subject to a number of provisions in our charter documents, Delaware law and our credit facility that may discourage, delay or prevent a merger, acquisition or change of control that a stockholder may consider favorable.  These anti-takeover provisions include:


maintaining a classified board and imposing advance notice procedures for nominations of candidates for election as directors and for stockholder proposals to be considered at stockholders' meetings;

a provision in our certificate of incorporation that requires the approval of the holders of 80% of the outstanding shares of our common stock to adopt any agreement of merger, the sale of substantially all of the assets of Standex to a third party or the issuance or transfer by Standex of voting securities having a fair market value of $1 million or more to a third party, if in any such case such third party is the beneficial owner of 10% or more of the outstanding shares of our common stock, unless the transaction has been approved prior to its consummation by all of our directors;

requiring the affirmative vote of the holders of at least 80% of the outstanding shares of our common stock for stockholders to amend our amended and restated by-laws;

covenants in our credit facility restricting mergers, asset sales and similar transactions; and

the Delaware anti-takeover statute contained in Section 203 of the Delaware General Corporation Law.


Section 203 of the Delaware General Corporation Law prohibits a merger, consolidation, asset sale or other similar business combination between Standex and any stockholder of 15% or more of our voting stock for a period of three years after the stockholder acquires 15% or more of our voting stock, unless (1) the transaction is approved by our board of directors before the stockholder acquires 15% or more of our voting stock, (2) upon completing the transaction the stockholder owns at least 85% of our voting stock outstanding at the commencement of the transaction, or (3) the transaction is approved by our board of directors and the holders of 66 2/3% of our voting stock, excluding shares of our voting stock owned by the stockholder.


Item 1B.  Unresolved Staff Comments


None.


Item 2.  Properties


We operate a total of 65 manufacturing plants and warehouses located throughout the United States, Europe, Canada, Australia, Singapore, China, India, Brazil and Mexico.  The Company owns 29 of the facilities and the balance are leased.   The approximate building space utilized by each product group is as follows (in thousands):  


 

Area in Square Feet

 

Owned

 

Leased

Food Service Equipment

1,273

 

230

Air Distribution Products

269

 

245

Engraving

321

 

293

Engineering Technologies

174

 

45

Electronics and Hydraulics

152

 

107

Corporate and other

43

 

12

        Total

2,232

 

932

 

 

 

 

In general, the buildings are in sound operating condition and are considered to be adequate for their intended purposes and current uses.


We own substantially all of the machinery and equipment utilized in our businesses.


Item 3.  Legal Proceedings






There are no material pending legal proceedings.


Item 4.  Reserved


PART II


Item 5.  Market for Standex Common Stock


Related Stockholder Matters and Issuer Purchases of Equity Securities


The principal market in which the Common Stock of Standex is traded is the New York Stock Exchange under the ticker symbol “SXI”.  The high and low sales prices for the Common Stock on the New York Stock Exchange and the dividends paid per Common Share for each quarter in the last two fiscal years are as follows:  


 

Common Stock Price Range

 

Dividends Per Share

2010

 

2009

 

Year Ended June 30

High

Low

 

High

Low

 

2010

2009

First quarter

$20.93

$9.56

 

$30.00

$18.84

 

$0.05

$0.21

Second quarter

21.96

16.94

 

29.48

17.00

 

0.05

0.21

Third quarter

28.58

19.49

 

20.82

7.85

 

0.05

0.05

Fourth quarter

30.93

21.21

 

15.04

8.30

 

0.05

0.05

 

 

 

 

 

 

 

 

 

The approximate number of stockholders of record on August 23, 2010 was 2,200.  


Additional information regarding our equity compensation plans is presented in the Notes to Consolidated Financial Statements under the caption “Stock-Based Compensation and Purchase Plans” and Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”


On May 8, 2009, the Company issued 42,783 shares of common stock from its treasury shares to the former owners of IR International, which was acquired by Standex in 2003.  The shares, along with a cash payment of $3.6 million, were issued upon the receipt of a Certificate of Satisfactory Completion of Remediation from the Virginia Department of Environmental Quality for the Company’s Richmond, Virginia, Engraving Group facility, which was a contingent requirement of the acquisition whereby Standex purchased the facility.  An exemption from registration of the shares was claimed under Regulation D, Rule 506 of the Securities Act.  The exemption applied because there were fewer than 35 purchasers, each purchaser was an accredited investor and the transaction did not involve a public offering.



Issuer Purchases of Equity Securities (1)

Quarter Ended June 30, 2010

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

April 1, 2010 -

 

 

 

 

 

 

 

April 30, 2010

         7,092

 

$29.91

 

             7,092

 

             651,022

May 1, 2010 -

 

 

 

 

 

 

 

May 31, 2010

         3,588

 

$27.59

 

             3,588

 

            647,434

June 1, 2010 -

 

 

 

 

 

 

 

June 30, 2010

         6,728

 

$29.41

 

             6,728

 

            640,706

     TOTAL

       17,408

 

$29.24

 

           17,408

 

             640,706








1The Company has a Stock Buyback Program (the “Program”) which was originally announced on January 30, 1985. Under the Program, the Company may repurchase its shares from time to time, either in the open market or through private transactions, whenever it appears prudent to do so.  On December 15, 2003, the Company authorized an additional 1 million shares for repurchase pursuant to its Program.  The Program has no expiration date, and the Company from time to time may authorize additional increases of 1 million share increments for buyback authority so as to maintain the Program.


The following graph compares the cumulative total stockholder return on the Company’s Common Stock as of the end of each of the last five fiscal years, with the cumulative total stockholder return on the Standard & Poor’s Small Cap 600 (Industrial Segment) Index and on the Russell 2000 Index, assuming an investment of $100 in each at their closing prices on June 30, 2005 and the reinvestment of all dividends.


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Item 6.  Selected Consolidated Financial Data


Selected financial data for the five years ended June 30, 2010 is as follows:

See Item 7 for discussions on comparability of the below.


 

 

2010

 

2009

 

2008

 

2007

 

2006

SUMMARY OF OPERATIONS (in thousands)

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

     Food Service Equipment

 

$337,578

 

$350,358

 

$381,254

 

$299,009

 

$245,049

     Air Distribution Products

 

50,974

 

66,534

 

88,334

 

110,081

 

129,383

     Engraving

 

77,372

 

77,311

 

92,167

 

84,223

 

87,377

     Engineering Technologies

 

58,732

 

51,693

 

51,615

 

41,829

 

37,616

     Electronics and Hydraulics

 

53,798

 

61,190

 

84,171

 

86,069

 

90,513








          Total

 

$578,454

 

$607,086

 

$697,541

 

$621,211

 

 $  589,938

Gross profit

 

$183,403

 

$175,975

 

$201,847

 

$172,804

 

$172,614

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

     Food Service Equipment (a)

 

$39,682

 

$9,900

 

$31,460

 

$18,242

 

$18,771

     Air Distribution Products

 

(3,186)

 

713

 

(340)

 

2,610

 

11,089

     Engraving

 

9,395

 

7,028

 

9,611

 

7,595

 

12,835

     Engineering Technologies

 

13,843

 

8,667

 

9,770

 

6,824

 

6,665

     Electronics and Hydraulics

 

4,888

 

3,459

 

8,106

 

9,158

 

9,257

     Restructuring (b)

 

(3,772)

 

(7,839)

 

(590)

 

(286)

 

(930)

     Gain on sale of real estate

 

1,405

 

--

 

--

 

1,023

 

410

     Corporate

 

(19,989)

 

(15,907)

 

(19,088)

 

(15,069)

 

(19,346)

          Total

 

$42,266

 

$6,021

 

$38,929

 

$30,097

 

$38,751

Interest expense

 

(3,624)

 

(6,532)

 

(9,510)

 

(9,025)

 

(7,681)

Other non-operating Income

 

754

 

215

 

324

 

1,464

 

893

Provision for income taxes

 

(11,436)

 

(1,594)

 

(10,459)

 

(6,611)

 

(11,028)

Income from continuing operations

 

27,960

 

(1,890)

 

19,284

 

15,925

 

20,935

Income/(loss) from discontinued operations

 

739

 

(3,515)

 

(774)

 

5,317

 

2,208

Net income

 

$28,699

 

($5,405)

 

$18,510

 

$21,242

 

$23,143

 

 

 

 

 

 

 

 

 

 

 

(a)

Includes $21.3 million of impairment of goodwill and intangible assets during 2009.

(b)

See discussion of restructuring activities in Note 16 of the consolidated financial statements.


Financial results after January 1, 2007, reflect the acquisition of Associated American Industries and American Foodservice.


PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$2.25

 

($0.15)

 

$1.57

 

$1.30

 

$1.71

Income/(loss) from discontinued operations

 

0.06

 

(0.29)

 

(0.06)

 

0.44

 

0.18

          Total

 

$2.31

 

($0.44)

 

$1.51

 

$1.74

 

$1.89

Diluted

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$2.20

 

($0.15)

 

$1.55

 

$1.28

 

$1.67

Income/(loss) from discontinued operations

 

0.06

 

(0.29)

 

(0.06)

 

0.43

 

0.18

          Total

 

$2.26

 

($0.44)

 

$1.49

 

$1.71

 

$1.85

 

 

 

 

 

 

 

 

 

 

 

Dividends paid

 

$0.20

 

$0.68

 

$0.84

 

$0.84

 

$0.84

 

 

 

 

 

 

 

 

 

 

 



 

 

2010

 

2009

 

2008

 

2007

 

2006

BALANCE SHEET (in thousands)

 

 

 

 

 

 

 

 

 

Total assets

 

$446,279

 

$433,709

 

$523,034

 

$539,900

 

$478,673

Accounts receivable

 

92,520

 

81,893

 

103,055

 

106,116

 

99,310

Inventories

 

69,554

 

75,634

 

87,619

 

91,301

 

91,719

Accounts payable

 

(58,514)

 

(58,802)

 

(66,174)

 

(65,977)

 

(62,742)

Goodwill

 

102,804

 

101,722

 

120,650

 

118,911

 

73,272

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

     $        --

 

     $        --

 

$28,579

 

$4,162

 

$3,873

Long-term debt

 

93,300

 

94,300

 

106,086

 

164,158

 

113,729

Total debt

 

93,300

 

94,300

 

106,086

 

168,320

 

117,602

Less cash

 

33,630

 

8,984

 

28,657

 

24,057

 

32,590

Net debt

 

59,670

 

85,316

 

77,429

 

144,263

 

85,012

Stockholders' equity

 

192,063

 

176,286

 

223,158

 

204,431

 

200,295

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$14,407

 

$15,541

 

$17,113

 

$15,198

 

$12,033

Capital expenditures

 

$4,273

 

$5,689

 

$10,989

 

$10,341

 

$15,144








 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, inventories, and accounts payable in the above table include the applicable amounts from discontinued operations in fiscal year 2006

 

 

 

 

 

 

 

 

 

 

 

KEY STATISTICS

 

2010

 

2009

 

2008

 

2007

 

2006

Gross profit margin

 

31.71%

 

28.99%

 

28.94%

 

27.82%

 

29.30%

Operating income margin (a)

 

7.31%

 

0.99%

 

5.58%

 

4.84%

 

6.57%

 

 

 (a) Includes $21.3 million of impairment of goodwill and intangible assets during 2009.


 


Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations


Overview

We are a leading manufacturer of a variety of products and services for diverse commercial and industrial market segments.  We have five reporting segments:  Food Service Equipment Group, Air Distribution Products Group (ADP), Engraving Group, Engineering Technologies Group, and Electronics and Hydraulics.  Our continuing objective is to identify those of our businesses which hold the greatest potential for profitable growth, and direct our resources to supporting both organic growth and acquisition opportunities in those businesses.

Our customer base in the food service equipment, automotive, U.S. residential housing and general industrial sectors have all experienced difficult recessionary market conditions that have negatively impacted our sales volume.  During the second half of 2010, we began to see an uneven sales recovery across all of our segments, indicating that end-user markets have begun to stabilize.  This trend is evidenced by an upturn in sales beginning in the third quarter of 2010, as sales were up 3.4% in the third quarter and up 8.7% in the fourth quarter.  We remain cautiously optimistic, however, as we expect to continue to experience challenging market conditions in the near term, especially in the construction and housing markets.

Since the beginning of 2009, our focus had been on reducing our cost structure through company-wide headcount reductions, plant consolidations, procurement savings, and improved productivity in all aspects of our operations.  Over the course of their phase-in, these cost reduction efforts have allowed the Company to substantially improve margins and increase its bottom line despite substantial year over year sales declines.  The cost reduction initiatives that have been undertaken, which are expected to deliver sustainable annual savings of $36 million per year, allowed the Company to improve margins and improve its bottom line in 2010 despite a year over year sales decline of 5%.   Substantially all of our remaining restructuring initiatives were completed during 2010, and we expect to see their full impact in our run rate beginning in 2011, with an additional $4 million of savings.

In addition to the focus on cost reductions, we have improved the Company’s liquidity through better working capital management, more strategic capital expenditures, and sale of excess land and buildings. We retired substantially all of our private placement debt during 2009, and in 2010, we further reduced our net debt by an additional $25.6 million even while expending $2.5 million on dividends, $4.0 million on capital expenditures, and $20.2 million in total pension plan contributions.  $16.7 million of these pension contributions were voluntary, and, at current borrowing rates, will be accretive to future earnings.  Our net debt to capital ratio improved from 32.6% on June 30, 2009 to 23.7% as of June 30, 2010.

Going forward, we are turning our attention to driving market share gains in a highly competitive environment coupled with what we expect to be low growth in our end-user markets.  Each of our business units has developed a series of top-line initiatives that we believe will provide opportunities for market share gains which should supplement future natural growth in our markets.  These growth initiatives include new product introductions , expansion of product offerings through private labeling, geographic expansion of sales coverage, the use of new channels of sales, leveraging strategic customer relationships, development of energy efficient products, new applications for existing products and technology  and next generation products and services for our end-user markets.  At the same time, over the past several years we have created a strong lean enterprise culture within our business units whereby we seek continuous improvement in our manufacturing processes, working capital management, and overall cost structure.

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 their businesses and which could impact their performance.  Those units report any such 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 including net sales, income from operations, backlog and gross profit





margin.  A discussion of these key performance indicators is included within the discussion below.

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


Consolidated Results from Continuing Operations (in thousands):


 

2010

2009

2008

Net sales

$578,454

$607,086

$697,541

Gross profit margin

31.7%

29.0%

28.9%

Restructuring costs

($3,772)

($7,839)

($590)

Income from operations

$42,266

$6,021

$38,929

 

 

 

 

Backlog (realizable within 1 year)

$99,469

$96,335

$111,663

 

 

 

 

Net Sales

 

 

 

 

2010

2009

2008

Net sales, as reported

$578,454

$607,086

$697,541

Components of change in sales:

 

 

 

   Effect of acquisitions

--

--

$51,285

   Effect of exchange rates

$1,950

($10,528)

$10,262

   Organic sales/(decline) growth

($30,582)

($79,927)

$14,783

 

 

 

 

Net sales decreased $28.6 million in 2010, a 4.7% decrease from the prior year.  Organic sales decreased $30.6 million or 5.0%, with a positive offset due to exchange rates of $2.0 million.  The decrease was due to the fact that sales for the first half of fiscal 2010 were substantially below sales levels in the first half of fiscal 2009.  Severe recessionary conditions did not begin to significantly affect the Company until the second quarter of fiscal 2009.  Sales for the second half of fiscal 2010 were 6% higher than sales in the second half of 2009.  In 2010 the Engineering Technologies Group reported record sales due to several large projects, while the Engraving Group sales were flat year over year.  The Food Service Equipment Group was down slightly, and the ADP and Electronics and Hydraulics Groups continued to experience sales declines due to ongoing depressed conditions in the housing and dump truck/dump trailer markets.


Net sales decreased $90.5 million in 2009, a 13.0% decrease from the prior year.  Organic sales decreased $79.9 million or 11.5%, with the remaining difference due to exchange rates.  While we experienced a recession-driven decrease in sales across all segments except for the Engineering Technologies Group, sales in our ADP and Electronics and Hydraulics segments had the most significant declines, as continuing downturns in the housing, white goods, and heavy truck industries negatively impacted the sales of these segments.


Gross Profit Margin


Our gross profit margin increased in 2010 to 31.7% from 29.0% in 2009.  This increase in margin is due to our successful reduction in our cost structure, as well as reductions in materials and value added costs.  We believe that our cost reduction actions better position our operations for higher gross margins as macroeconomic recovery occurs, as demonstrated by higher margins on lower sales in 2010. Our gross profit margin increased in fiscal 2009 to 29.0% from 28.9% in 2008.


Restructuring

During 2010, the Company incurred restructuring expense of $3.8 million related to both headcount reductions and a strategic realignment of our manufacturing footprint.  This expense consisted primarily of $2.6 million of restructuring costs in the Food Service Equipment Group, where we consolidated a facility in Dallas into our Nogales, Mexico facility.  Additional expense of $0.7 million was incurred in the European operations of the Engraving Group, where we closed one facility and reduced headcount across the continent, and in our ADP Group, where the costs of a facility move were offset by the settlement of the multi-employer pension liability at the Bartonville, Illinois ADP facility, which was closed in July 2008.

In 2009, the Company incurred restructuring expense of $7.8 million.  Of this amount, $4.6 million consisted of costs to close the Bartonville facility.  In the third quarter of 2009, the Company closed an additional three plants, one each in the Food Service Equipment, Engraving, and Electronics and Hydraulics Groups at a cost of $1.9 million.  Production from these plants was absorbed into other existing facilities as part of our goal of reducing our global manufacturing footprint.

Also during 2009, the Company reduced its US based employment by 25% across all divisions in order to reduce costs in response to the macroeconomic recessionary environment and its expected effects on the Company in the immediate future.  The Company recorded $1.3 million of pre-tax restructuring expense related to this initiative.






Income from Operations


Income from operations during 2010 increased $36.2 million from 2009.  Excluding $21.3 million of impairment charges taken during 2009, income from operations increased $14.9 million.  This improvement reflects the impact of restructuring actions and other cost reductions taken during 2009, as well as the partial impact of additional restructuring projects in the Food Service Equipment and Engraving Groups performed during the year partially offset by reduced sales volume.


Income from operations during 2009 decreased $32.9 million, or 84.5% when compared to 2008.  This includes the impact of $21.3 million of impairment of goodwill and intangible assets during the year, as well as restructuring costs of $7.8 million during the year.  Absent these costs, income from operations decreased $3.7 million, or 9.6%, from 2008, which is attributable to the 13% year-over-year decline in sales offset by the aforementioned improvements in our cost structure.


Discussion of the performance of all of our Groups is more fully explained in the segment analysis that follows.  


Income Taxes


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2010 was $11.4 million, or an effective rate of 29.0%, compared to $1.6 million for the fiscal year ended June 30, 2009 and $10.5 million, or an effective rate of 35.2%, for the fiscal year ended June 30, 2008. Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, size of the Company's income or loss and any one time activities occurring during the period.


The Company’s income tax provision from continuing operations for the fiscal year ended June 30, 2010 was impacted by a benefit of $1.1 million from the reversal of a deferred tax asset valuation allowance primarily related to foreign loss carryforwards whose recovery was assessed as more likely than not based on events occurring during the year ended June 30, 2010.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2009 was impacted by the following items (i) a benefit of $0.8 million from the reversal of income tax contingency reserves that were determined to be no longer needed due to the expiration of applicable limitation statutes, (ii) the $21.3 million impairment for which only $1.3 million of tax benefit could be realized, as the goodwill had no tax basis, (iii) a benefit totaling $1.7 million from the reversal of the deferred tax liability that was no longer required due to a change in the U.S. tax classification of one of our foreign entities, (iv) a benefit of $0.6 million related primarily to the retroactive extension of the R&D credit recorded during the second quarter and (v) a benefit related to the receipt of $1.1 million of nontaxable life insurance proceeds during the first quarter.


Capital Expenditures


In general, our capital expenditures over the longer term are expected to be approximately equivalent to our annual depreciation costs.  In 2010 and 2009, capital expenditures of $4.3 million and $5.7 million were below our annual depreciation of $11.1 million and $12.3 million, respectively, and reflect our strategy of cash conservation and debt reduction in response to the current recessionary environment.


Backlog


Backlog at June 30, 2010 increased $3.1 million to $99.5 million when compared to fiscal 2009, a 3.3% increase when compared to prior year.  This increase is correspondent with our increase in sales volume, and was driven primarily by higher backlog in the Electronics and Hydraulics Group.  Backlog was roughly flat year over year for our other segments.


Segment Analysis (in thousands)


Food Service Equipment


 

2010 compared to 2009

 

2009 compared to 2008

 

 

 

%

 

 

 

%

 

2010

 

2009

 

Change

 

2009

 

2008

 

Change

Sales

$337,578

 

$350,358

 

-3.6%

 

$350,358

 

$381,254

 

-8.1%

Income (loss) from operations

    39,682

 

      9,900

 

300.8%

 

     9,900

 

    31,460

 

-68.5%

Operating income margin

11.8%

 

2.8%

 

 

 

2.8%

 

8.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales for the year ended June 30, 2010 decreased $12.8 million, or 3.6%, from the same period one year earlier.  The year over year top line sales comparisons were negatively impacted by a rollout at one of the YUM! Brands restaurants that generated $2 million in sales in the prior year quarter. The effects of foreign exchange rates accounted for $0.3 million of this





total, and the remainder was organic decline offset by price increases.  Pricing pressure offset by market share gains led to a 5% organic sales decline in our Refrigeration Solutions businesses (walk-in cooler and refrigerated cabinets) businesses, which was impacted by the moderation in construction, and we showed a 1.7% organic decline in our Cooking Solutions and Custom Solutions businesses.  Despite the decline, the segment continues to grow market share through its buying group relationships and through new product offerings. Our Procon business posted double-digit year over year sales growth driven by strength in the beverage customer base and increasing demand from industrial customers.


Income from operations for fiscal 2010 increased $29.8 million, or 300.8%, when compared to the same period one year earlier.  Fiscal 2009 included a $21.3 million impairment of goodwill and intangible assets related to our 2007 acquisition of the American Associated Industries (AAI) operating unit.   Excluding the prior year impairment, the group’s fiscal 2010 income from operations increased $8.4 million, or 85.3%. We are continuing to see a recovery in the Cooking Solutions Group as we are benefiting from improving market conditions, increased market penetration in key dealer buying groups and new products.  The impact of the year over year volume decreases and market pricing pressures was more than offset by cost reductions due to facility consolidations, staffing reductions, supply chain cost reductions and labor productivity increases.   With the completion of our consolidation of two Cooking Solutions Group facilities into Nogales, Mexico, during the year, the beginning of 2011 will mark the full run rate of our initiatives from the last two years.


Net sales in 2009 decreased $30.9 million, or 8.1%, from 2008.   The effects of foreign exchange rates accounted for $3.7 million of the decline.  When removing the effect of foreign exchange rate impact, sales decreased $27.3 million, or 7.2%, when compared with the same period one year earlier.  We achieved slight organic growth in our Refrigerated Solutions businesses generally due to market share gains and nominal price increases.  Our Cooking Solutions and Custom Solutions businesses experienced sales declines primarily due to the market deterioration that began in the second fiscal quarter.


Income from operations for fiscal 2009 decreased approximately $21.6 million, or 68.5%, when compared to the same period one year earlier.  Excluding the effect of a $21.3 million impairment of goodwill and intangible assets during the third quarter, operating income was approximately flat year-over-year.  A 8.1% decline in sales volume was offset by staffing reductions, material and labor productivity improvements, and nominal price increases.  These savings initiatives were partially offset by commodity cost increases in the first half and negative sales mix in the first quarter..


Air Distribution Products


 

2010 compared to 2009

 

2009 compared to 2008

 

 

 

%

 

 

 

%

 

2010

 

2009

 

Change

 

2009

 

2008

 

Change

Sales

 $ 50,974

 

 $ 66,534

 

-23.4%

 

 $ 66,534

 

 $ 88,334

 

-24.7%

Income (loss) from operations

    (3,186)

 

         713

 

N/A

 

        713

 

       (340)

 

N/A

Operating income margin

-6.3%

 

1.1%

 

 

 

1.1%

 

-0.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Net sales for the fiscal year ended June 30, 2010 declined 23.4% or $15.6 million.   Standex evaluates the available market for ADP by monitoring new housing start data, published monthly by the U.S. Department of Housing and Urban Development. Sales to the Group’s customers typically lag new home starts by three to four months. Comparing the period from April 2009 to March 2010 to the same period one year earlier, housing starts declined 30.2%.  Pricing declined 17.9% and sales unit volume was lower by 7.7%.  ADP continues to pursue market share gains through its traditional wholesaler channels by emphasizing our ability to service nationwide wholesalers and large “do-it-yourself” retailers through our network of factory locations and by working in conjunction with our wholesalers to target contractor business.  We continue to roll out our flex duct product, and have also expanded our product line to include other HVAC supplies, which enables us to be a “one-stop shop” for our customers in a down market so that they can more easily meet minimum order requirements and thereby improve their working capital management.  The relatively low decline in unit volume as compared to the precipitous decline in housing starts is a testament to the success of this strategy, which we expect to leave us well positioned when markets recover.


Income from operations for the year ended June 30, 2010 decreased $3.9 million to a loss of $3.2 million as compared to the prior fiscal year. Pricing declines, totaling $12.1 million, and lower volume were the most significant reasons for the change in earnings.  Metal costs were $5.5 million less than fiscal 2009, $3.5 million of which was the result of a lower of cost or market charge recorded in the third quarter of 2009.  Decreases in hourly and salaried workforces implemented in the third and fourth quarters of fiscal 2009, lower workers’ compensation costs and lower distribution costs comprised the majority of the remaining offset to price and volume declines.


Net sales for 2009 declined $21.8 million, or 24.7%, from 2008.  A volume decline of 34.3% was driven by a similar decline in housing starts of 36.8 % during the year.






Income from operations for 2009 was $0.7 million, an increase of $1.1 million from 2008.  Price increases implemented in early 2009 partially offset raw steel price increases and declining sales volume.  These raw material price increases were also offset by significant year over year cost savings achieved from the shutdown of the Bartonville, Illinois, facility in July 2008 and salaried and hourly workforce reductions which took place primarily in the third quarter of the year.  Additionally, the Group recorded expenses of $3.5 million during the third quarter of 2009 to write down inventory of higher-cost metal purchased in the first half the year to its fair market value.


Engraving


 

2010 compared to 2009

 

2009 compared to 2008

 

 

 

%

 

 

 

%

 

2010

 

2009

 

Change

 

2009

 

2008

 

Change

Sales

 $ 77,372

 

 $ 77,311

 

0.1%

 

 $ 77,311

 

 $ 92,167

 

-16.1%

Income from operations

      9,395

 

      7,028

 

33.7%

 

     7,028

 

      9,611

 

-26.9%

Operating income margin

12.1%

 

9.1%

 

 

 

9.1%

 

10.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales in the Engraving Group were flat from fiscal 2009 levels at $77.4 million compared to $77.3 million in the prior year.  Foreign exchange had a favorable impact on sales of $1.4 million in fiscal year 2010.  Without the favorable foreign exchange, sales declined 1.8% year over year.  While our roll plate and machinery equipment sales continue to experience a soft market due to tight capital spending budgets at our customers, our Innovent division’s sales increased, showing the benefit of our expansion and broadening of our focus from tools to technology-driven system solutions.  Our mold texturizing businesses continue to strengthen based on the release of new automotive programs, which also creates an improved product mix due to their generally higher margins.  We expect this trend to continue into 2011, and will continue to seek out this business through further expansion into emerging markets, including a strategic acquisition in India which will enable us to capitalize on the fast growing Indian automotive market and the opening of a third facility in China.  We believe that global presence, as well as our technology and responsiveness to automotive OEM customers’ needs, will allow us to remain the number one choice for their texturing services.

Income from operations increased by $2.4 million, or 33.7%, when compared to fiscal 2009. Restructuring the business and significant cost reduction efforts implemented in 2009, as well as headcount reductions in our European operations, were significant in the improvement of operating income year over year.  With our new lower cost structure and focus on growth, we have demonstrated our ability to improve income from operations on flat sales, and we anticipate that we will be able to favorably leverage future sales growth and further improve our operating performance.  In addition, the Group continues to expand the use of lean enterprise techniques and develop cutting edge technology throughout its operations in order to further improve profitability and responsiveness to our customers.

In 2009, net sales in the Engraving Group decreased by $14.9 million, or 16.1% from fiscal 2008 levels.    The Group experienced a widespread decrease in sales of mold texturizing for automotive OEM platform work in most geographic regions, especially Europe, in 2009 due to OEM’s launching fewer new auto platforms and delaying existing programs.  Lower mold texturing sales were partially offset by stronger sales in core forming tools and filtration screens related to our Innovent business.  North American operations sales declined 12.8% and international operations sales declined 22.5%.


Income from operations decreased by $2.6 million, or 26.9%, to $7.0 million when compared to fiscal 2008.  Restructuring measures taken during the year consist of the completion of the closure of our Ohio mold texturizing and New Jersey roll embossing facilities begun in 2008, and an additional consolidation during the year of our Michigan mold texturizing facility.  In addition, the Group continued to expand the use of lean enterprise techniques throughout its operations in order to further improve profitability and responsiveness to our customers.


Engineering Technologies


 

2010 compared to 2009

 

2009 compared to 2008

 

 

 

%

 

 

 

%

 

2010

 

2009

 

Change

 

2009

 

2008

 

Change

Sales

 $ 58,732

 

 $ 51,693

 

13.6%

 

 $ 51,693

 

 $ 51,615

 

0.2%

Income from operations

    13,843

 

      8,667

 

59.7%

 

      8,667

 

      9,770

 

-11.3%

Operating income margin

23.6%

 

16.8%

 

 

 

16.8%

 

18.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales increased by $7.0 million, or 13.6%, in fiscal 2010 when compared to the prior year. Our metal spinning and fabrication businesses continued to experience strong demand across its energy, aerospace, missile, aviation, and marine end-user markets. We completed contracts related to NASA hardware for the Ares and Orion programs. In addition, we secured





new aerospace and tank hardware contracts during the year.  While the federal government has reduced its funding for heavy-lift launch vehicles, we expect that the continued diversification of our end markets will offset this trend.

Income from operations increased by $5.2 million or 59.7% in fiscal 2010 when compared to the same period one year earlier.  The increase was primarily due to growth with several aerospace launch vehicle customers. A favorable product mix, cost cutting initiatives, and improved manufacturing efficiencies also contributed to the performance.

Net sales increased $0.1 million in fiscal 2009 when compared to the prior year.  Our metal spinning and fabrication businesses experienced steady performance and we secured new contracts for tank systems for the growing unmanned aerial vehicles market and contracts for tooling and hardware related to NASA’s Orion and Ares rocket programs.  In addition this group saw an increase in demand for land based turbine components.

Income from operations decreased $1.1 million or 11.3% in fiscal 2009 when compared to the same period one year earlier.  The reduced profitability was the result of a shift in mix to lower margin products for the energy markets and away from aerospace sales.  The introduction of lean manufacturing techniques as a regular element of daily production is helping to improve margins in this segment.


Electronics and Hydraulics


 

2010 compared to 2009

 

2009 compared to 2008

 

 

 

%

 

 

 

%

 

2010

 

2009

 

Change

 

2009

 

2008

 

Change

Sales

 $ 53,798

 

 $ 61,190

 

-12.1%

 

 $ 61,190

 

 $ 84,171

 

-27.3%

Income from operations

      4,888

 

      3,459

 

41.3%

 

 $   3,459

 

      8,106

 

-57.3%

Operating income margin

9.1%

 

5.7%

 

 

 

5.7%

 

9.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales for the Electronics and Hydraulics Segment decreased $7.4 million, or 12.1%, when compared to 2009.  Although sales were down year over year, sales in the second half of the year were up 19.5% driven by improvements in the automotive, appliance, computer, toy and security markets for our Electronics unit.  Sales were also buoyed by the reed switch product line, where sales increased 26% year over year, and by significant new business in the medical, HVAC, and toy switch markets.  Sales at our Hydraulics unit continued to be plagued by depressed market conditions in the domestic and international dump truck/trailer sectors due to a lack of available credit to customers, as well as a high inventories in the used equipment market.  While sales have stabilized in some of our traditional OEM customers, we also continue to seek new applications and geographic markets for our products.


Income from operations for 2010 increased $1.4 million, or 41.3%, as compared to the prior year.  During 2009, we took aggressive measures to reduce our cost structure, including plant closures and workforce reductions.  As a result, the Electronics unit showed a 340 basis point increase in operating margin year over year.  The Hydraulics unit, where we reduced our workforce by over 50%, also showed an increase in operating income compared to 2009 despite significantly lower sales.  Both these improvements reflect the full-year impact of our restructuring efforts.


Net sales declined by $23.0 million, or 27.3% in 2009 when compared to the same period one year earlier.  For the Electronics unit, the decline is attributable to the global recession in the automotive, white goods and HVAC market segments, which experienced steep declines during the second half of fiscal 2009.  Within the Hydraulics unit, the global decline in new orders for dump trucks and dump trailers was dramatic, as the recession resulted in a general lack of credit availability for buyers, as well as an excess of used and repossessed equipment flooding the market.


Income from operations decreased $4.6 million in fiscal 2009, or 57.3% when compared to the same period one year earlier, due primarily to the year over year sales decline of over 25%.  Sales demand for this segment was negatively impacted by recessionary market conditions that existed in the automotive, housing white goods and off road, construction vehicles, end user segments.  In the Electronics unit, aggressive cost reduction measures and plant closures resulted in a moderate increase in earnings as a percent of net sales.  In the Hydraulics unit, we have successfully introduced new capital equipment to improve productivity and closed one facility.


Corporate, Restructuring and Other


 

 

2010 compared to 2009

 

2009 compared to 2008

 

 

 

 

%

 

 

 

%

 

 

2010

 

2009

 

Change

 

2009

 

2008

 

Change

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 $(19,989)

 

 $(15,907)

 

25.7%

 

 $(15,907)

 

 $(19,088)

 

-16.7%

 

Gain on sale of real estate

      1,405

 

              -

 

N/A

 

              -

 

              -

 

N/A








 

Restructuring

 $ (3,772)

 

 $ (7,839)

 

-51.9%

 

 $ (7,839)

 

 $    (590)

 

1228.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses increased $4.0 million, or 25.7% compared to 2009.  This increase was primarily due to expenses for bonuses and stock compensation expenses that were not accrued in 2009 due to austerity measures taken in the face of the recession.


The Company recorded a gain of $1.4 million during the year related to the sale of its corporate headquarters facility in Salem, New Hampshire.  During the year we relocated our headquarters to a leased facility in Salem that is 50% smaller and more suited to our current operational needs.


Corporate expenses decreased $3.2 million, or 16.7% during 2009.  The reduction in corporate expenses was attributed to a salaried headcount reduction of over 25%, as well as the suspension of bonuses during the year in response to the recessionary macroeconomic environment.  Also, in 2009, there was no expense for current-year awards under the Company’s performance-based long term stock compensation program, as we determined that the achievement of the performance criteria for outstanding awards was not probable, whereas in 2008 these awards resulted in expense of $1.3 million.


Discontinued Operations


In 2007, the Company sold substantially all the assets of the Berean Christian Stores (“Berean”) business in an all cash deal resulting in the recognition of a pre-tax gain of $0.2 million.  As the former owner of Berean, the Company is party under a number of operating leases which were assigned to the purchaser of the business for the remaining initial terms of the leases at the stated lease costs.  The Company remained an obligor of these leases until the expiration of the initial terms.  In the second quarter of 2009, noting Berean’s deteriorating operating performance and precarious financial position, the Company recorded liabilities of $2.9 million, net of estimated subleases, in anticipation of the impairment of leases remaining under the obligation.  


In June 2009, Berean filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code and, in July 2009, its assets were sold to a third party under Section 363 of the Code.   The new owner of the Berean assets has infused capital into the business, and we believe the Berean bookstores can now be operated successfully as a going concern.  As part of this transaction, the Company agreed to provide lease supplement payments to the new owner of the Berean assets.  These payments included an upfront payment of $0.5 million and additional payments totaling $1.2 million which will be made in equal monthly installments through December 2011.  The Company will remain an obligor of the leases assumed by the new owner, however, our obligation has been reduced for locations where the new owner was able to obtain rent concessions.  In addition, the Company remains responsible for three sites formerly operated by Berean.  Liabilities associated with these three leases, net of expected subleases at current market rates, total $1.3 million at June 30, 2010.  Subsequent to these transactions, the aggregate amount of our obligations in the event of default is $4.4 million at June 30, 2010.


During 2008, the Company entered into an Administrative Order of Consent with the U.S. Environmental Protection Agency (“EPA”) related to the removal of various PCB-contaminated materials and soils at a site where the Company leased a building and conducted operations from 1967-1979.  The Company established an accrual of $2.0 million related to the matter in 2008 and an additional $2.0 million accrual in 2009.  Remediation efforts were substantially completed during the third quarter of 2009, and the Company received a closure letter from the EPA in the first half of 2010.


The Company actively sought the recovery of costs incurred in carrying out the terms of the AOC through negotiations with its legacy insurers.  Based on the status of these negotiations at September 30, 2009, the Company determined that a settlement was probable and recorded $2.3 million ($1.4 million net of tax) in discontinued operations during the first quarter.  As expected, the settlement came to fruition during the second quarter, with a final recovery of $2.5 million ($1.6 million net of tax), net of costs incurred to negotiate the settlement.


The following table summarizes the Company’s discontinued operations activity, by operation, for the years ended June 30, 2010, 2009 and 2008 (in thousands):


Division Disposed Of

Year Disposed

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

Berean Christian Bookstores

2007

 

(659)

 

(3,057)

 

--

Club Products and Monarch Aluminum

1982

 

2,291

 

(2,065)

 

(2,000)

Standard Publishing

2007

 

--

 

--

 

1,034

Other loss from discontinued operations

 

 

(452)

 

(493)

 

(285)

Income (loss) before taxes from discontinued operations

 

 

 $  1,180

 

 $(5,615)

 

 $ (1,251)

(Provision) benefit for tax

 

 

(441)

 

2,100

 

477








Net income (loss) from discontinued operations

 

 

 $     739

 

 $(3,515)

 

 $    (774)

 

 

 

 

 

 

 

 

Liquidity and Capital Resources


Cash Flow


Cash flows from continuing operations for the year ended June 30, 2010, were $22.2 million compared to $43.3 million for the same period in 2009.  Impacting cash flows during the year were $16.7 million in voluntary pension contributions and an additional settlement of $2.75 million to the Bartonville multi-employer plan.  Additionally, excluding the impact of foreign exchange, working capital increased $4.8 million due to robust sales growth of 8.7%, or $12.2 million in the fourth quarter of 2010.


Investing activities provided $5.7 million of cash during 2010, including $8.7 million from sales of excess real estate during the year.  We used $4.0 million for capital expenditures, which reflects our current strategy of reduced capital spending during the recession.  Cash inflows were also augmented by life insurance proceeds of $1.7 million resulting from the death of a former executive and the penalty-free withdrawal of excess funding from our policies.


Subsequent to the end of fiscal 2010, the Company completed the sale of an excess facility located in Lyon, France.  The Company anticipates recording pretax gain of approximately $3.9 million and will realize cash proceeds of $3.6 million, net of associated costs.


During the year ended June 30, 2010, we used $4.2 million of cash for financing activities.  While we generated sufficient cash flow during the year to further pay down debt, we elected not to do so in order to make voluntary pension contributions and to add an additional $30 million of interest rate swaps.  While these actions have resulted in the net pay down of only $1.0 million in debt, the pension contribution will be accretive to earnings in 2011 and we have fixed a significant portion of our revolving debt for the next five years at historically low interest rates.


Capital Structure

We have in place a five year, $150 million unsecured revolving credit facility (the “facility”) with seven participating banks which originated in September 2007.  Funds available under the facility may be used for general corporate purposes or to provide financing for acquisitions.  Borrowings under the agreement bear interest at a rate equal to LIBOR plus an applicable percentage based on our consolidated leverage ratio, as defined by the agreement.  As of June 30, 2010, the effective rate of interest for outstanding borrowings under the facility was 3.94%.  We are required to pay an annual fee of 0.125% on the maximum credit line.

In the past two years, the Company has undertaken a series of initiatives to generate cash and reduce debt, including cost reductions, improved working capital management, and plant consolidations.  These initiatives have enabled us to pay down substantially all of our private placement debt. As of June 30, 2010, we had borrowings of $90.0 million under the facility.  We believe that the remaining $60.0 million available provides us with sufficient capacity to meet both our short- and long-term liquidity needs.  Our facility also allows for up to $15 million of private placement debt in addition to our revolving borrowings.


Our funded debt agreements contain certain customary affirmative and negative 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 (“EBIT”) to interest expense for the trailing twelve months of at least 3:1. EBIT is defined in the revolving credit facility to specifically exclude extraordinary and certain defined items such as non-cash restructuring charges and goodwill impairment. At June 30, 2010, the Company’s Interest Coverage Ratio was 10.90:1.


Leverage Ratio - The Company’s ratio of funded debt to trailing twelve month EBITDA, defined as EBIT plus Depreciation and Amortization, may not exceed 3.5:1. At June 30, 2010, the Company’s Leverage Ratio was 1.73:1.


Consolidated Net Worth – The Company is required to maintain a Consolidated Net Worth of at least $163.7 million plus 50% of cumulative net income since the inception of the agreement. Consolidated Net Worth is defined as the Company’s net worth as adjusted for unamortized pension losses (not to exceed $40 million) and certain foreign exchange gains and losses.  At June 30, 2010, the Company’s Consolidated Net Worth was $225.5 million, $12.3 million greater than the required amount of $213.2 million.


We also utilize two uncommitted money market credit facilities to help manage daily working capital needs.  These unsecured facilities, which are renewed annually, provide for a maximum aggregate credit line of $15 million.  No amounts





were outstanding under these facilities at June 30, 2010 and 2009.  At June 30, 2010, and 2009, we had standby letters of credit outstanding, primarily for insurance purposes, of $15.6 million and $14.3 million, respectively.


Through our shelf registration statement on file with the SEC, depending on conditions prevailing in the public capital markets, we may issue unsecured debt securities from time to time in one or more series, which may consist of notes, debentures or other evidences of indebtedness in one or more offerings.

Our primary cash requirements in addition to day-to-day operating needs include interest and mandatory principal payments, capital expenditures, and dividends.  Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility.  We expect to spend between $11-13 million on capital expenditures during 2011, and expect that depreciation and amortization expense for the year will be approximately $10-13 million and $1.5-2.5 million, respectively.  

In July 2008, we entered into a series of swap agreements with one and two year terms effectively converting interest payments on our long-term debt from variable to fixed rates.  We converted interest payments on $88.5 million of debt due under the facility from variable rates based on LIBOR to a weighted average effective rate of 3.89% based on our current leverage ratio.  The one year swaps totaling $22.5 million expired in July 2009.  The two years swaps totaling $60 million expired in July 2010.  In June 2010, we entered into an additional $30.0 million of five-year floating to fixed rate swaps.  On a go-forward basis, these swaps will convert our interest payments to a weighted average effective rate of 2.94% based on our current leverage ratio.  Additionally, due to the expiration of the 2008 swaps in July 2010, our rate on the remaining $60.0 million of outstanding revolving debt balances will return to the historically low LIBOR rates the market is currently experiencing.


The following table sets forth our capitalization at June 30:


Year Ended June 30 (in thousands):

2010

 

2009

Short-term debt

$          --

 

$          --

Long-term debt

93,300

 

94,300

   Total debt

93,300

 

94,300

Less cash

33,630

 

8,984

   Total net-debt

59,670

 

85,316

Stockholders’ equity

192,063

 

176,286

Total capitalization

$251,733

 

$261,602

 

 

 

 

Stockholders’ equity increased year over year primarily as a result of net income of $28.7 million. Also affecting equity were dividends of $2.5 million, unfavorable foreign currency movements of $2.4 million and unrealized pension losses of $12.0 million.  The remaining changes are attributable to the treasury stock activity offset by the additional paid in capital increases associated with stock option exercises and stock-based compensation in the current year.  The Company's net debt to capital percentage improved from 32.6% to 23.7% in 2010 due the year over year change in cash and the contribution of the current year net income to retained earnings.  


We sponsor a number of defined benefit and defined contribution retirement plans.  The Company’s pension plan for U.S. salaried employees was frozen as of January 2008.  All participants in the U.S. salaried pension plan and the supplemental defined benefit plan no longer accrue future benefits.  The fair value of the Company's U.S. pension plan assets was $174.3 million at June 30, 2010 and the accumulated benefit obligation in the U.S. was $212.9 million at that time.   We made $16.7 million of voluntary cash contributions to our defined benefit plans in the U.S., U.K., and Ireland in 2010.  Additionally, the Company paid $2.75 million during the year to settle its liability to a multi-employer plan incurred due to the closure of our Bartonville, IL, ADP Group facility in 2009.  As a result of the voluntary contributions, the Company estimates, based on current Pension Protection Act and other funding rules, that we will not incur a mandatory funding requirement until 2013.  We do not expect contributions to our other defined benefit plans to be material in 2011.


During the third quarter of 2009, the Company announced that it would suspend employer matching contributions to its 401(k) plans, with the exception of obligations under collective bargaining agreements.  This suspension was lifted at the end of calendar year 2009 and contributions resumed as normal beginning in January 2010.  


We have evaluated the current and long-term cash requirements of our defined benefit and defined contribution plans as of June 30, 2010.  Our operating cash flows from continuing operations and available liquidity are expected to be sufficient to cover required contributions under ERISA and other governing regulations.  


We have an insurance program for certain retired key executives.  The underlying policies have a cash surrender value of $17.1 million and are reported net of loans of $10.5 million for which we have the legal right of offset.  These policies have been purchased to fund supplemental retirement income benefits.  The aggregate present value of future obligations was $1.0





million and $1.4 million at June 30, 2010 and 2009, respectively.  During 2010, the Company withdrew $0.2 million of excess funding from these policies with no related tax consequences and received $1.4 million of cash proceeds upon the death of a former executive covered by this program.   


Contractual obligations of the Company as of June 30, 2010 are as follows (in thousands):


 

Payments Due by Period

 

 

 

Less

 

 

 

 

 

More

 

 

 

than 1

 

1-3

 

3-5

 

than 5

Contractual Obligations

Total

 

year

 

years

 

years

 

years

Long-term debt obligations

$93,300

 

--

 

$90,000

 

--

 

$3,300

Operating lease obligations

16,909

 

4,426

 

5,843

 

3,206

 

3,434

Estimated interest payments 1

3,289

 

1,427

 

1,798

 

27

 

37

Post-retirement benefit payments 2

1,341

 

153

 

291

 

273

 

624

Other 3

732

 

540

 

192

 

--

 

--

     Total

$115,571

 

$6,546

 

$98,124

 

$3,506

 

$7,395

 

 

 

 

 

 

 

 

 

 

1  Estimated interest payments are based upon effective interest rates as of June 30, 2010, and includes the impact of interest rate swaps.  See Item 7A for further discussions surrounding interest rate exposure on our variable rate borrowings.  


2  Post-retirement benefit payments are based upon current benefit payment levels.


3  Lease supplement payments to Berean Christian Stores Endeavor, LLC.


At June 30, 2010, we had $1.9 million of non-current liabilities for uncertain tax positions.  We are not able to provide a reasonable estimate of the timing of future payments related to these obligations.


Off Balance Sheet Items


In connection with the sale of the Berean Christian Bookstores completed in August 2006, we assigned all but one lease to the buyers.  During June 2009, the Berean business filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.  The Berean assets were subsequently resold under section 363 of the Code.  The new owners of the Berean business have negotiated lower lease rates and extended lease terms at certain of the leased locations.  We remain an obligor on these leases, but at the renegotiated rates and to the original term of the leases.  The aggregate amount of our obligations in the event of default is $4.4 million at June 30, 2010.  We had no other material off balance sheet items at June 30, 2010, other than the operating leases and purchase obligations summarized above.   


Other Matters


Inflation – Certain of our expenses, such as wages and benefits, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures.  Inflation for medical costs can impact both our reserves for self-insured medical plans 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 manage medical costs inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit the maximum exposure for us.  


Foreign Currency Translation – Our primary functional currencies used by our non-U.S. subsidiaries are the Euro, British Pound Sterling (Pound), Mexican Peso, and Chinese Yuan.  During the current year, the Pound Sterling and Euro have experienced decreases in value relative to the U.S. Dollar, our reporting currency.  Since June 30, 2009 the Euro has depreciated by 12.8% and the Pound has depreciated by 9.2% (all relative to the U.S. Dollar).  These lower exchange values were used in translating the appropriate non-U.S. subsidiaries’ balance sheets into U.S. Dollars at the end of the current year.  


Environmental Matters During 2008, the Company entered into an Administrative Order of Consent with the U.S. Environmental Protection Agency related to the removal of various PCB-contaminated materials and soils at a site where the Company leased a building and conducted operations from 1967-1979.  See the notes to our consolidated financials statements for further information regarding this event.


We are party to various other claims and legal proceedings, generally incidental to our business.  We do not expect the ultimate disposition of these other matters will have a material adverse effect on our financial statements.


Seasonality – We are a diversified business with generally low levels of seasonality, however our fiscal third quarter is typically the period with the lowest level of activity.






Employee Relations – The Company has labor agreements with a number of union locals in the United States and a number of European employees belong to European trade unions.  We renegotiated two union contracts during 2010, and in each case reached an agreement.  A total of two union contracts covering approximately 160 employees will expire in 2011.  The company maintains good working relations with all of its unions, however, there can be no guarantee that agreements can be reached in future negotiations.


Critical Accounting Policies


The Consolidated Financial Statements include accounts of the Company and all of our 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 Consolidated Financial Statements.  Although we believe that materially different amounts would not be reported due to the accounting policies described below, the application of these 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.  We have listed a number of accounting policies which we believe to be the most critical.  


Collectability of Accounts Receivable – Accounts Receivable are reduced by an allowance for amounts that may become uncollectible in the future.  Our estimate for the allowance for doubtful accounts related to trade receivables includes evaluation of specific accounts where we have information that the customer may have an inability to meet its financial obligation together with a general provision for unknown but existing doubtful accounts.  


Realizability of Inventories – Inventories are valued at the lower of cost or market and are reduced by a reserve for excess and potentially obsolete inventories.  The Company regularly reviews inventory values on hand using specific aging categories, and records a provision for obsolete and excess inventory based on historical usage and estimated future usage.  As actual future demand or market conditions may vary from those projected by management, adjustments to inventory valuations may be required.


Realization of Goodwill - Goodwill and certain indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount of the asset. The Company’s annual test for impairment is performed using a May 31st measurement date.


We have identified our reporting units for impairment testing as our twelve operating segments, which are aggregated into our five reporting segments as disclosed in Note 18 – Industry Segment Information.  


The test for impairment is a two step process. The first step compares the carrying amount of the reporting unit to its estimated fair value (Step 1). To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value is compared to the implied fair value (Step 2). To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.

 

As quoted market prices are not available for the Company’s reporting units, the fair value of the reporting units is determined using a discounted cash flow model (income approach).  This method uses various assumptions that are specific to each individual reporting unit in order to determine the fair value. In addition, the Company compares the estimated aggregate fair value of its reporting units to its overall market capitalization.


Our annual impairment testing at each reporting unit relied on assumptions surrounding general market conditions, short-term growth rates, and terminal growth rates ranging from 0% to 2.5%, and detailed management forecasts of future cash flows prepared by the relevant reporting unit.  Fair values were determined primarily by discounting estimated future cash flows at a weighted average cost of capital of 11.42%.   An increase in the weighted average cost of capital of approximately 100 basis points in the analysis would not result in the identification of any impairments.


While we believe that our estimates of future cash flows are reasonable, changes in assumptions could significantly affect our valuations and result in impairments in the future.  The most significant assumption involved in the Company’s determination of fair value is the cash flow projections of each reporting unit.  Certain of our reporting units have been significantly impacted by the current global economic downturn, specifically the Air Distribution Products Group, which has been significantly impacted by the declines in new housing starts and other factors impacting residential housing.  If the effects of the current global economic environment are protracted or the recovery is slower than we have projected estimates of future cash flows for each reporting unit may be insufficient to support the carrying value of the reporting units, requiring the Company to re-assess its conclusions related to fair value and the recoverability of goodwill.


Cost of Employee Benefit Plans – We provide a range of benefits to our employees, including pensions and some postretirement benefits.  We record expenses relating to these plans based upon various actuarial assumptions such as discount rates, assumed rates of return, compensation increases, turnover rates, and health care cost trends.  The expected





return on plan assets assumption of 8.1% in the U.S. is based on our expectation of the long-term average rate of return on assets in the pension funds and is reflective of the current and projected asset mix of the funds and considers the historical returns earned on the funds.  We have analyzed the rates of return on assets used and determined that these rates are reasonable based on the plans’ historical performance relative to the overall markets as well as our current expectations for long-term rates of returns for our pension assets.  The U.S. discount rate of 5.9% reflects the current rate at which pension liabilities could be effectively settled at the end of the year.  The discount rate is determined by matching our expected benefit payments from a stream of AA- or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions.  We review our actuarial assumptions, including discount rate and expected long-term rate of return on plan assets, on at least an annual basis and make modifications to the assumptions based on current rates and trends when appropriate.  Based on information provided by our actuaries and other relevant sources, we believe that our assumptions are reasonable.  


The cost of employee benefit plans includes the selection of assumptions noted above.  A twenty-five basis point change in the expected return on plan assets assumptions, holding our discount rate and other assumptions constant, would increase or decrease pension expense by approximately $0.4 million per year.  A twenty-five basis point basis point change in our discount rate, holding all other assumptions constant, would increase or decrease pension expense by approximately $0.3 million annually.  See the Notes to the Consolidated Financial Statements for further information regarding pension plans.


Recently Issued Accounting Pronouncements


In January 2010, the FASB issued Accounting Standard Update (“ASU”)  2010-06, Fair Value Measurements and Disclosures (ASC Topic 820)—Improving Disclosures About Fair Value Measurements.  The ASU requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements.  It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  The new disclosures and clarifications of existing disclosures are effective for the Company's third quarter of fiscal year 2010.  Other than requiring additional disclosures, the adoption of this new guidance did not and will not have a material impact on the Company's consolidated financial statements.


 In October 2009, the FASB issued ASU 2009-13 — Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13 amends ASC 605-25 — Revenue RecognitionMultiple-Element Arrangements.  The update replaces the concept of allocating revenue consideration amongst deliverables in a multiple-element revenue arrangement according to fair value with an allocation based on selling price.  ASU 2009-13 also establishes a hierarchy for determining the selling price of revenue deliverables sold in multiple element revenue arrangements.  The selling price used for each deliverable will be based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or management’s estimate of an element’s stand-alone selling price if neither VSOE nor third-party evidence is available.  The amendments in this update also require an allocation of selling price amongst deliverables be performed based upon each deliverable’s relative selling price to total revenue consideration, rather than on the residual method previously permitted.  ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  Early adoption is permitted, but then requires retrospective application of its provisions from the beginning of the fiscal year.  We will adopt the amendment provisions of ASU 2009-13 on July 1, 2010; the adoption of this standard is not expected to have a material impact on our financial condition, results of operations or cash flows.


In April 2010, the FASB issued ASU 2010-17 — Revenue Recognition — Milestone Method (“ASU 2010-17”). ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions.  ASU 2010-17 is effective for fiscal years beginning on or after June 15, 2010, and is effective on a prospective basis for milestones achieved after the adoption date.  Early adoption is permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption.  We will adopt this provision on July 1, 2010; the adoption of this standard is not expected to have a material impact on our financial condition, results of operations or cash flows.



Item 7A.  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 KEYSOP plan and 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 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 risk 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 dividend payments, loan payments, and materials purchases, and are not used for trading or speculative purposes.  The fair value of the forward foreign currency exchange contracts is sensitive to changes in foreign currency exchange rates, as an adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts.  However, any such losses or gains would generally be offset by corresponding gains and losses, respectively, on the related hedged asset or liability.  At June 30, 2010 and 2009, the fair value of the Company’s open foreign exchange contracts were not material.  


Our primary translation risk is with the Euro, British Pound Sterling, and Chinese Yuan.  A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at June 30, 2010, would not result in a material change in our operations, financial position, or cash flows.  We do not hedge our translation risk. As a result, fluctuations in currency exchange rates can affect our stockholders’ equity.


Interest Rate


The Company’s effective rate on variable-rate borrowings under the revolving credit agreement decreased from 4.11% at June 30, 2009 to 3.94% at June 30, 2010.  Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings. From time to time, we will use interest rate swap agreements to modify our exposure to interest rate movements.  In July 2008 and June 2010, we entered into a series of swap agreements with two and five year terms effectively converting interest payments on $90.0 million of debt due under our revolving credit agreement from variable rates based on LIBOR to a fixed rate of 3.55% based on the Company’s effective leverage ratio at June 30, 2010.  Due to the impact of the swaps, an increase in interest rates would not materially impact our annual interest expense at June 30, 2010.  


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 June 30, 2010, 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 ADP, Engineering Technologies, Food Service Equipment and Electronics and Hydraulics Groups are all sensitive to price increases for steel products, other metal commodities and petroleum based products.  In the past year, we have experienced price fluctuations for a number of materials including steel, copper wire, other metal commodities, refrigeration components and foam insulation.  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.



Item 8.  Financial Statements and Supplementary Data

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

As of June 30 (in thousands, except share data)

 

2010

 

2009

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

  Cash and cash equivalents

 

$33,630

 

$8,984

  Accounts receivable, net

 

92,520

 

81,893

  Inventories, net

 

69,554

 

75,634

  Income tax receivables

 

3,634

 

2,186

  Prepaid expenses and other current assets

 

5,346

 

2,730

  Deferred tax asset

 

12,351

 

13,278

    Total current assets

 

217,035

 

184,705








 

 

 

 

 

Property, plant, equipment, net

 

93,227

 

108,612

Intangible assets, net

 

17,791

 

20,450

Goodwill

 

102,804

 

101,722

Other non-current assets

 

15,422

 

18,220

    Total non-current assets

 

229,244

 

249,004

 

 

 

 

 

Total assets

 

$446,279

 

$433,709

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

  Accounts payable

 

58,514

 

58,802

  Accrued liabilities

 

40,683

 

36,902

  Current liabilities – discontinued operations

 

2,319

 

3,543

    Total current liabilities

 

101,516

 

99,247

 

 

 

 

 

Long-term debt

 

93,300

 

94,300

Deferred income taxes

 

2,261

 

4,859

Pension obligations

 

44,945

 

43,281

Other non-current liabilities

 

12,194

 

15,736

    Total non-current liabilities

 

152,700

 

158,176

 

 

 

 

 

Commitments and Contingencies (Notes 11 and 12)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

  Common stock, par value $1.50 per share -

 

 

 

 

    60,000,000 shares authorized, 27,984,278

 

 

 

 

    issued, 12,447,891 and 12,386,821 shares

 

 

 

 

    outstanding in 2010 and 2009

 

41,976

 

41,976

  Additional paid-in capital

 

31,460

 

28,690

  Retained earnings

 

445,313

 

419,157

  Accumulated other comprehensive loss

 

(66,456)

 

(52,591)

  Treasury shares (15,536,387 shares in 2010

 

 

 

 

   and 15,597,457 shares in 2009)

 

(260,230)

 

(260,946)

     Total stockholders' equity

 

192,063

 

176,286

 

 

 

 

 

Total liabilities and stockholders' equity

 

$446,279

 

$433,709

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 



Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

For the Years Ended June 30 (in thousands, except per share data)

 

2010

 

2009

 

2008

Net sales

 

$578,454

 

$607,086

 

$697,541

Cost of sales

 

395,051

 

431,111

 

495,694

Gross profit

 

183,403

 

175,975

 

201,847

 

 

 

 

 

 

 

Selling, general and administrative

 

138,770

 

140,776

 

162,328

Impairment of goodwill and intangible assets

 

--

 

21,339

 

--

Gain on sale of real estate

 

(1,405)

 

--

 

--

Restructuring costs

 

3,772

 

7,839

 

590

 

 

 

 

 

 

 

Income from operations

 

42,266

 

6,021

 

38,929

 

 

 

 

 

 

 








Interest expense

 

3,624

 

6,532

 

9,510

Other, net

 

(754)

 

(215)

 

(324)

Total

 

2,870

 

6,317

 

9,186

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

39,396

 

(296)

 

29,743

Provision for income taxes

 

11,436

 

1,594

 

10,459

Income (loss) from continuing operations

 

27,960

 

(1,890)

 

19,284

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

 

739

 

(3,515)

 

(774)

 

 

 

 

 

 

 

Net income (loss)

 

$28,699

 

($5,405)

 

$18,510

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

Income (loss) from continuing operations

 

$2.25

 

($0.15)

 

$1.57

Income (loss) from discontinued operations

 

0.06

 

(0.29)

 

(0.06)

Total

 

$2.31

 

($0.44)

 

$1.51

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

Income (loss) from continuing operations

 

$2.20

 

($0.15)

 

$1.55

Income (loss) from discontinued operations

 

0.06

 

(0.29)

 

(0.06)

Total

 

$2.26

 

($0.44)

 

$1.49

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 



Standex International Corporation and Subsidiaries

 

 

 

 

 

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Additional

 

Other

 

 

Total

 

Common

Paid-in

Retained

Comprehensive

Treasury Stock

Stockholders’

Year End (in thousands)

Stock

Capital

Earnings

Income (Loss)

Shares

Amount

Equity

Balance, July 1, 2007

$41,976

$25,268

$426,171

($26,533)

15,737

($262,451)

$204,431

Stock issued for employee stock option and

 

 

 

 

 

 

 

purchase plans, including related income tax benefit

 

(547)

 

 

(89)

1,497

950

Stock-based compensation

 

2,437

 

 

 

 

2,437

Treasury stock acquired

 

 

 

 

40

(926)

(926)

Comprehensive income

 

 

 

 

 

 

 

  Net Income

 

 

18,510

 

 

 

18,510

  Foreign currency translation adjustment

 

 

 

4,644

 

 

4,644

  Change in unrealized pension losses, net of tax

 

 

 

(6,698)

 

 

(6,698)

Total comprehensive income

 

 

 

 

 

 

16,456

Adjustment to adopt change in measurement

 

 

 

 

 

 

 

provisions of ASC 715 as of July 1, 2007

 

 

(928)

11,056

 

 

10,128

Dividends paid ($.84 per share)

 

 

(10,318)

 

 

 

(10,318)

Balance, June 30, 2008

$41,976

$27,158

$433,435

($17,531)

15,688

($261,880)

$223,158

Stock issued for employee stock option and

 

 

 

 

 

 

 

purchase plans, including related income tax benefit

 

(1,049)

 

 

(113)

1,870

821

Stock-based compensation

 

2,398

 

 

 

 

2,398

Treasury stock acquired

 

 

 

 

65

(1,652)

(1,652)

Stock issued for acquisition

 

183

 

 

(43)

716

899

Comprehensive income

 

 

 

 

 

 

 

  Net loss

 

 

(5,405)

 

 

 

(5,405)

  Foreign currency translation adjustment

 

 

 

(10,426)

 

 

(10,426)

  Change in unrealized pension losses, net of tax

 

 

 

(23,484)

 

 

(23,484)

  Change in fair value of derivatives, net of tax

 

 

 

(1,150)

 

 

(1,150)

Total comprehensive loss

 

 

 

 

 

 

(40,465)

Dividends paid ($.68 per share)

 

 

(8,873)

 

 

 

(8,873)

Balance, June 30, 2009

$41,976

$28,690

$419,157

($52,591)

15,597

($260,946)

$176,286

Stock issued for employee stock option and

 

 

 

 

 

 

 

purchase plans, including related income tax benefit

 

(1,075)

 

 

(107)

1,790

715

Stock-based compensation

 

3,845

 

 

 

 

3,845










Treasury stock acquired

 

 

 

 

46

(1,074)

(1,074)

Comprehensive income

 

 

 

 

 

 

 

  Net Income

 

 

28,699

 

 

 

28,699

  Foreign currency translation adjustment

 

 

 

(2,360)

 

 

(2,360)

  Change in unrealized pension losses, net of tax

 

 

 

(12,032)

 

 

(12,032)

  Change in fair value of derivatives, net of tax

 

 

 

527

 

 

527

Total comprehensive income

 

 

 

 

 

 

14,834

Dividends paid ($.20 per share)

 

 

(2,543)

 

 

 

(2,543)

Balance, June 30, 2010

41,976

31,460

445,313

(66,456)

15,536

(260,230)

192,063

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.



Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

For the Years Ended June 30 (in thousands)

 

2010

 

2009

 

2008

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$28,699

 

($5,405)

 

$18,510

Income (loss) from discontinued operations

 

739

 

(3,515)

 

(774)

Income (loss) from continuing operations

 

27,960

 

(1,890)

 

19,284

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

    Depreciation and amortization

 

14,407

 

15,541

 

17,113

    Stock-based compensation

 

3,845

 

2,398

 

2,437

    Deferred income taxes

 

5,320

 

(3,563)

 

(467)

    Impairment Charges

 

--

 

21,339

 

 

    Non-cash portion of restructuring charge

 

873

 

3,730

 

94

    (Gain)/loss on sale of investments, real estate, equipment and debt extinguishment

 

(1,405)

 

375

 

(344)

    Increase/(decrease) in cash from changes in assets and liabilities,

 

 

 

 

 

 

      net of effects from discontinued operations and business acquisitions:

 

 

 

 

 

 

    Accounts receivables, net

 

(12,022)

 

18,360

 

4,738

    Inventories

 

5,393

 

11,605

 

4,299

    Contributions to defined benefit plans

 

(17,414)

 

--

 

(620)

    Prepaid expenses and other

 

(5,746)

 

1,001

 

471

    Accounts payable

 

(1,081)

 

(6,034)

 

(912)

    Accrued payroll, employee benefits and other liabilities

 

3,838

 

(18,039)

 

836

    Income taxes payable

 

(1,722)

 

(1,550)

 

(1,746)

Net cash provided by operating activities - continuing operations

 

22,246

 

43,273

 

45,183

Net cash used for operating activities - discontinued operations

 

(845)

 

(3,829)

 

(477)

Net cash provided by operating activities

 

21,401

 

39,444

 

44,706

Cash Flows from Investing Activities

 

 

 

 

 

 

    Expenditures for capital assets

 

(4,030)

 

(5,238)

 

(9,907)

    Expenditures for acquisitions, net of cash acquired

 

--

 

(5,617)

 

--

    Expenditures for executive life insurance policies

 

(640)

 

(695)

 

(626)

    Proceeds withdrawn from life insurance policies

 

1,649

 

3,753

 

3,129

    Proceeds from sale of real estate and equipment

 

8,693

 

639

 

8,129

Net cash provided by (used for) investing activities from continuing operations

 

5,672

 

(7,158)

 

725

Net cash provided by investing activities from discontinued operations

 

--

 

--

 

1,661

Net cash provided by (used for) investing activities

 

5,672

 

(7,158)

 

2,386

Cash Flows from Financing Activities

 

 

 

 

 

 

    Proceeds from borrowings

 

78,000

 

66,650

 

150,000

    Payments of debt

 

(79,000)

 

(107,311)

 

(183,624)

    Stock issued under employee stock option and purchase plans

 

376

 

821

 

950

    Debt issuance costs

 

--

 

--

 

(231)

    Cash dividends paid

 

(2,490)

 

(8,384)

 

(10,318)

    Purchase of treasury stock

 

(1,074)

 

(1,652)

 

(926)

Net cash used for financing activities from continuing operations

 

(4,188)

 

(49,876)

 

(44,149)








Net cash used for financing activities from discontinued operations

 

--

 

--

 

--

Net cash used for financing activities

 

(4,188)

 

(49,876)

 

(44,149)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

1,761

 

(2,083)

 

1,657

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

24,646

 

(19,673)

 

4,600

Cash and cash equivalents at beginning of year

 

8,984

 

28,657

 

24,057

Cash and cash equivalents at end of year

 

$33,630

 

$8,984

 

$28,657

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

    Cash paid during the year for:

 

 

 

 

 

 

        Interest

 

$3,071

 

$6,378

 

$9,921

        Income taxes, net of refunds

 

$9,068

 

$5,002

 

$10,314

    Capital expenditures included in accounts payable at year end

 

$495

 

$0

 

$1,082

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 



STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  SUMMARY OF ACCOUNTING POLICIES


Basis of Presentation and Consolidation


Standex International Corporation (“Standex” or the “Company”) is a diversified manufacturing company with operations in the United States, Europe, Asia, and Latin America.  The accompanying consolidated financial statements include the accounts of Standex International Corporation and its subsidiaries and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  All intercompany accounts and transactions have been eliminated in consolidation.


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.  We evaluated subsequent events through the date and time our consolidated financial statements were issued.  


Accounting Estimates


The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended.  Estimates are based on historical experience, actuarial estimates, current conditions and various other assumptions that are believed to be reasonable under the circumstances.  These estimates form the basis for making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources.  These estimates assist in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies.  Actual results may differ from these estimates under different assumptions or conditions.


Cash and Cash Equivalents


Cash and cash equivalents include highly liquid investments purchased with a maturity of three months or less.  These investments are carried at cost, which approximates fair value.  At June 30, 2010 and 2009, the Company’s cash was comprised solely of cash on deposit.


Trading Securities


The Company purchases investments in connection with the KEYSOP Plan for certain retired executives and for its non-qualified defined contribution plan for employees who exceed certain thresholds under our traditional 401(k) plan.  These investments are classified as trading and reported at fair value.  The investments generally consist of mutual funds, are included in other non-current assets and amounted to $5.7 million and $4.9 million at June 30, 2010 and 2009, respectively.


Accounts Receivable Allowances






The Company has provided an allowance for doubtful accounts reserve which represents the best estimate of probable loss inherent in the Company’s account receivables portfolio.  This estimate is derived from the Company’s knowledge of its end markets, customer base, products, and historical experience.


The changes in the allowances for uncollectible accounts during 2010, 2009 and 2008 were as follows (in thousands):


 

2010

 

2009

 

2008

Balance at beginning of year

$2,636

 

$3,299

 

$3,339

Provision charged to expense

564

 

155

 

732

Write-offs, net of recoveries

(622)

 

(818)

 

(772)

Balance at end of year

$2,578

 

$2,636

 

$3,299

 

 

 

 

 

 

Inventories


Inventories are stated at the lower of first-in, first-out cost or market.  


Long-Lived Assets


Long-lived assets that are used in operations, excluding goodwill and identifiable intangible assets, are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Recognition and measurement of a potential impairment loss is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities.  An impairment loss is the amount by which the carrying amount of a long-lived asset (asset group) exceeds its estimated fair value.  Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets.


Property, Plant and Equipment


Property, plant and equipment are reported at cost less accumulated depreciation.  Depreciation is recorded on assets over their estimated useful lives, generally using the straight-line method.  Lives for property, plant and equipment are as follows:


Buildings

40 to 50 years

Leasehold improvements

Lesser of term or useful life

Machinery and equipment

8 to 15 years

Furniture and Fixtures

3 to 10 years

Computer hardware and software

3 to   7 years


Routine maintenance costs are expensed as incurred.  Major improvements are capitalized.  Major improvements to leased buildings are capitalized as leasehold improvements and depreciated over the lesser of the lease term or the life of the improvement.


Goodwill and Identifiable Intangible Assets


All business combinations are accounted for using the purchase method, and goodwill and identifiable intangible assets with indefinite lives are not amortized, but are reviewed annually for impairment or more frequently if impairment indicators arise. Identifiable intangible assets that are not deemed to have indefinite lives are amortized on an accelerated basis over the following useful lives:  


Customer relationships

15 to 16 years

Patents

8.5 to 12 years

Non-compete agreements

4 years

Other

6.2 to 10 years


See discussion of the Company’s assessment of impairment in Note 5 – Goodwill, and Note 6 – Intangible Assets.


Assets Held for Sale


Assets held for sale are reported at the lower of the assets’ carrying amount or fair value, less costs to sell.  At June 30, 2010, assets held for sale of $2.3 million consisted of excess real estate and was included in other current assets in the consolidated balance sheet.  At June 30, 2009, assets held for sale of $2.9 million were classified as other non-current assets and were also comprised of excess real estate.


Fair Value of Financial Instruments






Our 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 our 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 in active markets for identical assets and liabilities.  The Company’s KEYSOP and deferred compensation plan assets consist of shares in various mutual funds (for the deferred compensation plan, 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.  For pension assets, securities are valued based on quoted market prices for securities held directly by the trust.


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.  For pension assets held in commingled funds, the Company values investments based on the net asset value of the funds, which are derived from the quoted market prices of the underlying fund holdings.


Level 3– Unobservable inputs based upon the Company’s best estimate of what market participants would use in pricing the asset or liability.  The Company does not hold any Level 3 instruments as of the balance sheet dates.


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


The fair values of our financial instruments at June 30, 2010 and 2009 were (in thousands):


 

 

2010

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Financial Assets

 

 

 

 

 

 

 

 

Marketable securities - KEYSOP assets

 $    5,018

 

 $    5,018

 

 $            -   

 

 $          -   

 

Marketable securities - deferred compensation plan

          670

 

          670

 

               -   

 

             -   

 

Foreign Exchange contracts

          106

 

               -   

 

          106

 

             -   

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

Foreign Exchange contracts

 $         31

 

               -   

 

 $         31

 

             -   

 

Interest rate swaps

          920

 

               -   

 

          920

 

             -   

 

 

 

 

 

 

 

 

 

 

 

2009

 

 

Total

 

Level 1

 

Level 2

 

Level 3

Financial Assets

 

 

 

 

 

 

 

 

Marketable securities - KEYSOP assets

 $    4,387

 

 $    4,387

 

 $            -   

 

 $          -   

 

Marketable securities - deferred compensation plan

          477

 

          477

 

               -   

 

             -   

 

Foreign Exchange contracts

            25

 

               -   

 

            25

 

             -   

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

Foreign Exchange contracts

 $       296

 

               -   

 

 $       296

 

             -   

 

Interest rate swaps

       1,799

 

               -   

 

       1,799

 

             -   

 

 

 

 

 

 

 

 

 

Concentration of Credit Risk


The Company is subject to credit risk through trade receivables and short-term cash investments.  Concentration of risk with respect to trade receivables is minimized because of the diversification of our operations, as well as our large customer base and our geographical dispersion.  No individual customer accounts for more than 10% of revenues or accounts receivable in the periods presented.






Short-term cash investments are placed with high credit-quality financial institutions.  The Company monitors the amount of credit exposure in any one institution or type of investment instrument.  


Revenue Recognition


The Company’s product sales are recorded when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectability is reasonably assured. For products that include installation, and if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and installation revenue is recognized when the installation is complete.  Revenues under certain fixed price contracts are generally recorded when deliveries are made.


Cost of Goods Sold and Selling, General and Administrative Expenses


The Company includes expenses in either cost of goods sold or selling, general and administrative categories based upon the natural classification of the expenses.  Cost of goods sold includes expenses associated with the acquisition, inspection, manufacturing and receiving of materials for use in the manufacturing process.  These costs include inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs as well as depreciation, amortization, wages, benefits and other costs that are incurred directly or indirectly to support the manufacturing process.  Selling, general and administrative includes expenses associated with the distribution of our products, sales effort, administration costs and other costs that are not incurred to support the manufacturing process.  The Company records distribution costs associated with the sale of inventory as a component of selling, general and administrative expenses in the Consolidated Statements of Operations.  These expenses include warehousing costs, outbound freight charges and costs associated with distribution personnel.  Our gross profit margins may not be comparable to those of other entities due to different classifications of costs and expenses.


Research and Development


Research and development expenditures are expensed as incurred.  Total research and development costs charged to expense were $3.6 million, $3.9 million, and $4.1 million for the years ended June 30, 2010, 2009, and 2008, respectively.


Warranties


The expected cost associated with warranty obligations on our products is recorded when the revenue is recognized.  The estimate of warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Because warranty estimates are forecasts that are 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 changes in warranty reserve during 2010, 2009, and 2008 were as follows (in thousands):


 

2010

 

2009

 

2008

Balance at beginning of year

$4,821

 

$4,987

 

$4,387

Warranty expense

2,827

 

1,497

 

5,238

Warranty claims

(2,887)

 

(1,663)

 

(4,638)

Balance at end of year

$4,761

 

$4,821

 

$4,987

 

 

 

 

 

 

Stock-Based Compensation Plans


Restricted stock awards generally vest over a three-year period and generally have a maturity of three years.  Compensation expense associated with these awards is recorded based on their grant-date fair values and is generally recognized on a straight-line basis over the vesting period.  Compensation cost for an award with a performance condition is based on the probable outcome of that performance condition.  The stated vesting period is considered non-substantive for retirement eligible participants.  Accordingly, the Company recognizes any remaining unrecognized compensation expense when a participant achieves retirement eligibility.


Foreign Currency Translation


The functional currency of our non-U.S. operations is generally the local currency.  Assets and liabilities of non-U.S. operations are translated into U.S. Dollars on a monthly basis using period-end exchange rates. Revenues and expenses of these operations are translated using average exchange rates.  The resulting translation adjustment is reported as a component of comprehensive income, in the statements of consolidated stockholders’ equity and comprehensive income.  Gains and losses from foreign currency transactions are included in results of operations and were not material for any period presented.






Derivative Instruments and Hedging Activities


The Company recognizes all derivatives on its balance sheet at fair value.


Forward foreign currency exchange contracts are periodically used to limit the impact of currency fluctuations on certain anticipated foreign cash flows, such as foreign purchases of materials, dividends and loan payments from subsidiaries.  The Company enters into such contracts for hedging purposes only.  For hedges of intercompany loan payments, the Company records derivative gains and losses directly to the statement of operations due to the general short-term nature and predictability of the transactions.


Company also uses interest rate swaps to manage exposure to interest rates on the Company’s variable rate indebtedness.  The Company values the swaps based on contract prices in the derivatives market for similar instruments.  The Company has designated the swaps 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 does not hold or issue derivative instruments for trading purposes.


Income Taxes


Deferred assets and liabilities are recorded for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Deferred tax assets and liabilities are determined based on the differences between the financial statements and the tax bases of assets and liabilities using enacted tax rates.  Valuation allowances are provided when the Company does not believe it more likely than not the benefit of identified tax assets will be realized.


The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues.  The Company accounts for uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit, assuming that the matter in question will be raised by the tax authorities.  Interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense.


Earnings Per Share


(share amounts in thousands)

2010

 

2009

 

2008

Basic – Average Shares Outstanding

12,440

 

12,326

 

12,291

Effect of Dilutive Securities – Stock Options and Restricted Stock Awards

245

 

--

 

104

Diluted – Average Shares Outstanding

12,685

 

12,326

 

12,395


Both basic and dilutive income are the same for computing earnings per share.  There were no outstanding instruments that had an anti-dilutive effect at June 30, 2010.  Options to purchase 106,497 shares and 234,602 restricted shares were not included in the computation of diluted earnings per share for the year ended June 30, 2009, due to the Company’s net loss for the period.  Instruments which were not included in the computation of diluted earnings per share because to do so would have had an anti-dilutive effect, totaled 5,240 shares for the year ended June 30, 2008.


Recently Issued Accounting Pronouncements


In January 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures (ASC Topic 820)—Improving Disclosures About Fair Value Measurements.  The ASU requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements.  It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  The new disclosures and clarifications of existing disclosures are effective for the Company's third quarter of fiscal year 2010.  Other than requiring additional disclosures, the adoption of this new guidance did not and will not have a material impact on the Company's consolidated financial statements.


In October 2009, the FASB issued ASU 2009-13 — Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”). ASU 2009-13 amends ASC 605-25 — Revenue Recognition — Multiple-Element Arrangements.  The update replaces the concept of allocating revenue consideration amongst deliverables in a multiple-element revenue arrangement according to fair value with an allocation based on selling price.  ASU 2009-13 also establishes a hierarchy for determining the selling price of revenue deliverables sold in multiple element revenue arrangements.  The selling price used for each deliverable will be based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or management’s estimate of an element’s stand-alone selling price if neither VSOE nor third-party evidence is available.  The amendments in this update also require an allocation of selling price amongst deliverables be performed based upon each deliverable’s





relative selling price to total revenue consideration, rather than on the residual method previously permitted.  ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted, but then requires retrospective application of its provisions from the beginning of the fiscal year.  We will adopt the amendment provisions of ASU 2009-13 on July 1, 2010; the adoption of this standard is not expected to have a material impact on our financial condition, results of operations or cash flows.


In April 2010, the FASB issued ASU 2010-17 — Revenue Recognition — Milestone Method (“ASU 2010-17”). ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions.  ASU 2010-17 is effective for fiscal years beginning on or after June 15, 2010, and is effective on a prospective basis for milestones achieved after the adoption date.  Early adoption is permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption.  We will adopt this provision on July 1, 2010; the adoption of this standard is not expected to have a material impact on our financial condition, results of operations or cash flows.


2.  ACQUISITIONS


In connection with an acquisition in 2003, the Company entered into a lease agreement for its Richmond, Virginia, Engraving Group facility pending the completion of a number of environmental requirements by the former owner.  Upon satisfaction of those requirements, as evidenced by the issuance of a certificate by the Virginia Department of Environmental Quality, the Company was required to purchase the land and building for $4.5 million.  In May 2009, the certificate was issued, and the Company paid $3.6 million in cash and issued 42,783 shares of common stock from its treasury shares in order to consummate the purchase.  The Company recognized an additional $1.4 million of goodwill related to the completion of the transaction, with the remaining purchase price allocated to the land and building.



3.  INVENTORIES


Inventories are comprised of (in thousands):


June 30

2010

 

2009

Raw materials

 $ 34,329

 

 $ 36,391

Work in process

20,640

 

22,616

Finished goods

14,585

 

16,627

     Total

 $ 69,554

 

 $ 75,634

 

 

 

 

Distribution costs associated with the sale of inventory are recorded as a component of selling, general and administrative expenses and were $20.3 million, $23.4 million, and $29.4 million in 2010, 2009, and 2008, respectively.


4.  PROPERTY, PLANT AND EQUIPMENT


Property, plant and equipment consists of the following (in thousands):


June 30

 

2010

 

2009

     Land, buildings and

 

 

 

 

       leasehold improvements

 

$80,765

 

$92,817

     Machinery, equipment and  other

 

148,493

 

150,604

     Total

 

229,258

 

243,421

     Less accumulated depreciation

 

136,031

 

134,809

Property, plant and equipment - net

 

$93,227

 

$108,612

 

 

 

 

 

Depreciation expense for the years ended June 30, 2010, 2009, and 2008 totaled $11.1 million, $12.2 million, and $13.2 million, respectively.


5.  GOODWILL


Goodwill and certain indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount of the asset.  The Company’s annual test for impairment is performed using a May 31st measurement date.






The Company has identified our reporting units for impairment testing as its twelve operating segments, which are aggregated into five reporting segments as disclosed in Note 18 – Industry Segment Information.  


As quoted market prices are not available for the Company’s reporting units, the fair value of the reporting units is determined using one or both of (1) a discounted cash flow model (income approach); and (2) a market adjusted multiple of earnings and revenues (market approach) where comparable data exists for those reporting units.  Both methods use various assumptions that are specific to each individual reporting unit in order to determine the fair value.  In addition, the Company compares the estimated aggregate fair value of its reporting units to its overall market capitalization.


2010 Impairment Analysis


In the fourth quarter of 2010, the Company performed its annual impairment test on goodwill and other indefinite-lived intangible assets.  As a result, the Company determined that the fair value of the reporting units and indefinite-lived intangible assets exceeded their respective carrying values.  Therefore, no impairment charges were recorded during 2010.


2009 Impairment Analysis


Due to deterioration in the U.S. equity and credit markets and industry-wide declines in profitability, the Company’s market capitalization decreased below its book value during the third quarter of 2009.  After taking into consideration this triggering event, the Company concluded that an interim assessment was required and measured goodwill for impairment as of March 31, 2009.


The Company completed Step 1 of the impairment test and determined that the carrying value of the Associated American Industries (“AAI”) reporting unit within the Food Service Equipment Group exceeded its fair value.  Based on the allocation of the unit’s fair value in accordance with Step 2, it was determined that goodwill and trademarks at AAI were impaired.  As a result, the Company determined that the fair value of the goodwill at AAI was approximately $29 million compared to a carrying value of $47 million resulting in an impairment of $17.9 million.  In addition, intangible assets were assessed for impairment.  Based upon those assessments, it was determined the fair value of a non-amortizing intangible asset included in the AAI reporting unit was impaired, and recognized an impairment of $3.4 million related to the carrying value of AAI’s trademarks.


The Company updated its assessment of goodwill impairment as of its annual measurement date of May 31, 2009.  No additional impairments were recorded as a result of this update.


While the Company believes that estimates of future cash flows are reasonable, changes in assumptions could significantly affect valuations and result in impairments in the future.  The most significant assumption involved in the Company’s determination of fair value is the cash flow projections of each reporting unit.  Certain reporting units have been significantly impacted by the current global economic downturn, specifically the Air Distribution Products Group, which has been significantly impacted by the declines in new housing starts and other factors impacting residential housing.  If the effects of the current global economic environment are protracted or the recovery is slower than projected, estimates of future cash flows for each reporting unit may be insufficient to support the carrying value of the reporting units, requiring the Company to re-assess its conclusions related to fair value and the recoverability of goodwill.


Changes to goodwill during the years ended June 30, 2010 and 2009 are as follows (in thousands):


 

2010

 

2009

Balance at beginning of year

$101,722

 

$120,650

Additions

--

 

1,557

Impairment charge

--

 

(17,939)

Foreign currency translation

1,082

 

(2,546)

Balance at end of year

$102,804

 

$101,722

 

 

 

 

6.  INTANGIBLE ASSETS


Intangible assets consist of the following (in thousands):


 

Customer

 

 

 

 

 

 

 

Relationships

 

Trademarks

 

Other

 

Total

 

 

 

 

 

 

 

 

June 30, 2010

 

 

 

 

 

 

 

Cost

$21,055

 

$8,808

 

$4,165

 

$34,028








Accumulated amortization

(12,162)

 

--

 

(4,075)

 

(16,237)

Balance, June 30, 2010

$8,893

 

$8,808

 

$90

 

$17,791

 

 

 

 

 

 

 

 

June 30, 2009

 

 

 

 

 

 

 

Cost

$21,402

 

$8,808

 

$4,409

 

$34,619

Accumulated amortization

(9,977)

 

--

 

(4,192)

 

(14,169)

Balance, June 30, 2009

$11,425

 

$8,808

 

$217

 

$20,450

 

 

 

 

 

 

 

 

Amortization expense (excluding impairment) for the years ended June 30, 2010, 2009, and 2008 totaled $2.5 million, $3.3 million, and $3.9 million, respectively.  At June 30, 2010, aggregate amortization expense is estimated to be $2.0 million in fiscal 2011, $1.6 million in fiscal 2012, $1.2 million in fiscal 2013, $1.0 million in fiscal 2014, and $0.8 million in fiscal 2015.


As discussed in Note 5 - Goodwill, the Company identified trademarks within the AAI operating segment that were impaired and therefore recorded an asset impairment charge of $3.4 million in the Food Service Equipment Group during 2009.


7.  DEBT


Debt is comprised of the following (in thousands):


 

2010

 

2009

Bank credit agreements

$90,000

 

$91,000

Other, due 2018 (0.45%

 

 

 

  effective rate at June 30, 2010)

3,300

 

3,300

    Total

93,300

 

94,300

Less current portion

             -   

 

             -   

      Total long-term debt

$93,300

 

$94,300

 

 

 

 

Bank Credit Agreements

The Company has in place a five year, $150 million unsecured revolving credit facility (the “facility”) with seven participating banks which originated in September 2007.  Funds available under the facility may be used for general corporate purposes or to provide financing for acquisitions.  Borrowings under the agreement bear interest at a rate equal to LIBOR plus an applicable percentage based on our consolidated leverage ratio, as defined by the agreement.  As of June 30, 2010, the effective rate of interest for outstanding borrowings under the facility was 1.26%.  Including the impact of interest rate swaps, the effective rate of interest at June 30, 2010, was 3.94%.  The Company is required to pay an annual fee of 0.125% on the maximum credit line. The Company had the ability to borrow an additional $60.0 million under the facility at June 30, 2010.

The Company also utilizes two uncommitted money market credit facilities to help manage daily working capital needs.  These unsecured facilities, which are renewed annually, provide for a maximum aggregate credit line of $15 million.  No amounts were outstanding under these facilities at June 30, 2010 and 2009.  At June 30, 2010, and 2009, the Company had standby letters of credit outstanding, primarily for insurance purposes, of $15.6 million and $14.3 million, respectively


Loan Covenants and Repayment Schedule


Our funded debt agreements contain certain customary affirmative and negative 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 (“EBIT”) to interest expense for the trailing twelve months of at least 3:1.  EBIT is defined in the revolving credit facility to specifically exclude extraordinary and certain defined items such as non-cash restructuring charges and goodwill impairment.  At June 30, 2010, the Company’s Interest Coverage Ratio was 10.90:1.


Leverage Ratio - The Company’s ratio of funded debt to trailing twelve month EBITDA, defined as EBIT plus Depreciation and Amortization, may not exceed 3.5:1. At June 30, 2010, the Company’s Leverage Ratio was 1.73:1.


Consolidated Net Worth – The Company is required to maintain a Consolidated Net Worth of at least $163.7 million plus 50% of cumulative net income since the inception of the agreement. Consolidated Net Worth is defined as the Company’s net worth as adjusted for unamortized pension losses (not to exceed $40 million) and certain foreign exchange gains and losses.  





At June 30, 2010, the Company’s Consolidated Net Worth was $225.5 million, $12.3 million greater than the required amount of $213.2 million.


Debt is due as follows (in thousands):  


2011

              -   

2012

              -   

2013

    90,000

2014

              -   

2015

              -   

Thereafter

      3,300

 

 

The carrying value of borrowings under the facility exceeded its estimated fair value by $3.9 million and $6.2 million at June 30, 2010 and 2009, respectively.


8.  ACCRUED EXPENSES


Accrued expenses consist of the following (in thousands):


 

2010

 

2009

Payroll and employee benefits

$21,284

 

$15,505

Workers' compensation

4,019

 

5,408

Other

15,380

 

15,989

  Total

$40,683

 

$36,902

 

 

 

 

9.  DERIVATIVE FINANCIAL INSTRUMENTS


Interest Rate Swaps


In July 2008 and June 2010, the Company entered into a series of interest rate swap agreements designed to manage exposure to interest rates on the Company’s variable rate indebtedness.  The swap agreements convert interest payments on borrowings under our revolving credit agreement from variable rates based on LIBOR to a weighted average fixed rate of 3.55% based on the Company’s effective credit spread at June 30, 2010.  The fair value of the swaps recognized in accrued expenses and in other comprehensive income at June 30, 2010 and 2009 is as follows (in thousands):


 

 

 

 

Fair Value at June 30,

Effective Date

Notional Amount

Fixed Interest Rate

Maturity

2010

2009

July 14, 2008

            10,000,000

2.92%

July 14, 2009

                       -   

                   (22)

July 10, 2008

            18,500,000

2.95%

July 10, 2009

                        -   

                   (42)

July 14, 2008

            30,000,000

3.35%

July 19, 2010

                   (77)

                 (864)

July 10, 2008

            30,000,000

3.38%

July 28, 2010

                   (76)

                 (871)

June 1, 2010

              5,000,000

2.495%

May 26, 2015

                 (148)

                        -   

June 1, 2010

              5,000,000

2.495%

May 26, 2015

                 (148)

                        -   

June 4, 2010

            10,000,000

2.395%

May 26, 2015

                 (243)

                        -   

June 9, 2010

              5,000,000

2.34%

May 26, 2015

                 (108)

                        -   

June 18, 2010

              5,000,000

2.38%

May 26, 2015

                 (120)

                        -   

 

 

 

 

                 (920)

              (1,799)

 

 

 

 

 

 

The Company reported no losses for the years ended June 30, 2010, 2009, and 2008, 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 into earnings as an adjustment to interest expense.  Because the 2008 swaps mature in July 2010, $0.2 million of accumulated other comprehensive income at June 30, 2010 is expected to be recognized in the first quarter of fiscal 2011.  Accumulated other comprehensive income related to the 2010 swaps is not expected to be recognized until their maturity in 2015.


Foreign Exchange Contracts


At June 30, 2010 and 2009, the Company’s outstanding forward foreign exchange contracts were not material.






10.  INCOME TAXES


The components of income (loss) from continuing operations before income taxes are as follows (in thousands):

 

2010

 

2009

 

2008

U.S. Operations

$27,359

 

($8,781)

 

$14,627

Non-U.S. Operations

12,037

 

8,485

 

15,116

     Total

$39,396

 

($296)

 

$29,743

 

 

 

 

 

 

The Company utilizes the asset and liability method of accounting for income taxes.  Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the provisions of the enacted tax laws.  The components of the provision for income taxes on continuing operations (in thousands) were as shown below:

 

2010

 

2009

 

2008

Current:

 

 

 

 

 

Federal

$3,264

 

$2,358

 

$5,805

State

250

 

778

 

1,150

Non-U.S.

2,602

 

2,021

 

3,971

     Total Current

6,116

 

5,157

 

10,926

 

 

 

 

 

 

Deferred:

 

 

 

 

 

Federal

$5,150

 

($2,777)

 

($125)

State

928

 

(714)

 

(637)

Non-U.S.

(758)

 

(72)

 

295

     Total Deferred

5,320

 

(3,563)

 

(467)

     Total

$11,436

 

$1,594

 

$10,459

 

 

 

 

 

 

A reconciliation from the U.S. Federal income tax rate on continuing operations to the total tax provision is as follows (in thousands):


 

2010

 

2009

 

2008

Provision at statutory tax rate

13,395

 

   (102)

 

10,409

State taxes

     778

 

     259

 

     334

Foreign rate differential

(2,245)

 

   (887)

 

  (782)

Impact of foreign repatriation

          -

 

          -

 

     407

Change in US tax classification

          -

 

(1,812)

 

         -

Impairment of goodwill

          -

 

  6,099

 

         -

Federal tax credits

     (33)

 

   (992)

 

  (247)

Other

   (459)

 

   (971)

 

     338

 

 

 

 

 

 

Effective income tax provision

11,436

 

  1,594

 

10,459

 

 

 

 

 

 

Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, size of the Company’s income or loss and any one-time activities occurring during the period.


The Company’s income tax provision from continuing operations for the fiscal year ended June 30, 2010 was impacted by a benefit of $1.1 million from the reversal of a deferred tax asset valuation allowance primarily related to foreign loss carryforwards whose recovery was assessed as more likely than not based on events occurring during the year ended June 30, 2010.


The Company’s income tax provision from continuing operations for the fiscal year ended June 30, 2009 was impacted by the following items (i) a benefit of $0.8 million from the reversal of income tax contingency reserves that were determined to be no longer needed due to the expiration of applicable limitation statutes, (ii) the $21.3 million impairment for which only $1.3 million of tax benefit could be realized as the goodwill had no tax basis, (iii) a benefit totaling $1.7 million from the reversal of the deferred tax liability that was no longer required due to a change in the U.S. tax classification of one of our foreign entities, (iv) a benefit of $0.6 million related primarily to the retroactive extension of the R&D credit recorded





during the second quarter and (v) a benefit related to the receipt of $1.1 million of nontaxable life insurance proceeds during the first quarter and other minor adjustments.

Significant components of the Company’s deferred income taxes are as follows (in thousands):


 

2010

 

2009

Deferred tax liabilities:

 

 

 

     Depreciation and amortization

 $  (25,055)

 

 $  (27,163)

 

 

 

 

Deferred tax assets:

 

 

 

     Accrued compensation

4,523

 

3,270

     Accrued expenses and reserves

7,549

 

10,273

     Pension

16,345

 

15,054

     Inventory

1,916

 

1,879

     Other

1,012

 

1,356

     Net operating loss and

 

 

 

       credit carry forwards

4,167

 

4,601

Total deferred tax asset

35,512

 

36,433

 

 

 

 

Less:  Valuation allowance

(367)

 

(851)

     Net deferred tax asset

 $    10,090

 

 $      8,419

 

 

 

 

The Company estimates the degree to which deferred tax assets, including net operating loss and credit carry forwards will result in a benefit based on expected profitability by tax jurisdiction and provides a valuation allowance for tax assets and loss carry forwards that it believes will more likely than not go unrealized.  The valuation allowances at June 30, 2010 apply to the tax benefit of foreign and state loss carry forwards, which management has concluded that it is more likely than not that these tax benefits will not be realized.  The increase (decrease) in the valuation allowance totaled ($0.5 million), ($1.2 million) and $0.4 million in 2010, 2009, and 2008, respectively.

As of June 30, 2010, the Company had state net operating loss ("NOL") and credit carry forwards of approximately $27.8 million and $1.3 million, respectively, which may be available to offset future state income tax liabilities and expire at various dates from 2011 through 2030.  In addition, the Company had foreign NOL carry forwards of approximately $6.2 million, $6.1 million of which carry forward indefinitely and $0.1 million that carry forward for 5 years.

The Company’s income taxes currently payable for federal and state purposes have been reduced by the benefit of the tax deduction in excess of recognized compensation cost from employee stock compensation transactions.  The provision for income taxes that is currently payable has not been adjusted by approximately ($0.2) million and $0.1 million of such benefits of the Company that have been allocated to capital in excess  (deficit) of par value in 2010 and 2009, respectively.


A provision has not been made for U.S. or additional non-U.S. taxes on $37.4 million of undistributed earnings of international subsidiaries that could be subject to taxation if remitted to the U.S. It is not practicable to estimate the amount of tax that might be payable. Our intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. Accordingly, we believe that U.S. tax on any earnings that might be repatriated would be substantially offset by U.S. foreign tax credits.


The total provision for income taxes included in the consolidated financial statements was as follows (in thousands):


 

2010

 

2009

 

2008

Continuing operations

$11,436

 

$1,594

 

$10,459

Discontinued operations

441

 

(2,100)

 

(477)

 

$11,877

 

($506)

 

$9,982

 

 

 

 

 

 

The changes in the amount of gross unrecognized tax benefits during 2010 were as follows (in thousands):


 

2010

 

2009

 

2008

Beginning Balance

$2,346

 

$3,196

 

$2,830

   Additions based on tax positions related to the current year

      110

 

     745

 

     439

   Additions for tax positions of prior years

           -   

 

          -   

 

         -   

   Reductions for tax positions of prior years

    (674)

 

   (690)

 

    (73)

   Settlements

           -   

 

   (905)

 

         -   








Ending Balance

$1,782

 

$2,346

 

$3,196

 

 

 

 

 

 

If these tax benefits were recognized in a future period, the entire amount of unrecognized tax benefit would impact the Company’s effective tax rate.


Within the next twelve months, the statute of limitations will close in various U.S., state and non-U.S. jurisdictions.  As a result, it is reasonably expected that net unrecognized tax benefits from these various jurisdictions would be recognized within the next twelve months.  The recognition of these tax benefits is not expected to have a material impact to the Company's financial statements.  The Company does not reasonably expect any other significant changes in the next twelve months.  The following tax years, in the major tax jurisdictions noted, are open for assessment or refund:


Country  

  

    Years Ending June 30,

United States

2007 to 2010

Canada

  

2007 to 2010

Ireland

  

2007 to 2010

Portugal

  

2007 to 2010

United Kingdom

2009 to 2010


The Company’s policy is to include interest expense and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations.  At June 30, 2010 and June 30, 2009, the Company had approximately $0.1 million and $0.2 million, respectively, accrued for interest expense on unrecognized tax benefits.   



11.  COMMITMENTS


The Company leases certain property and equipment under agreements with initial terms ranging from one to twenty years. Rental expense related to continuing operations for the years ended June 30, 2010, 2009, and 2008 were approximately $4.7 million, $4.8 million and $5.4 million, respectively.  At June 30, 2010, the gross minimum annual rental commitments under noncancelable operating leases, principally real estate, were approximately $4.4 million in 2011, $3.3 million in 2012, $2.5 million in 2013, $1.8 million in 2014, $1.4 million in 2015, and $3.4 million thereafter.  These amounts are offset by sublease income of $0.2 million in 2011, $0.4 million in 2012, $0.6 million in 2013, $0.5 million in 2014, $0.3 million in 2015 and less than $0.1 million thereafter.


In September 2007, Standex Air Distribution Products, Inc. (“ADP”), a subsidiary of the Company, sold its manufacturing facility located in Philadelphia and leased back approximately two-thirds of the floor space of the facility.  The lease has an initial term of ten years with two consecutive additional five-year options to renew.  The net proceeds from the sale, after transaction and other related costs, were $7.2 million resulting in a gain of approximately $2.3 million which was deferred and is being recognized in proportion to the lease payments expensed over the initial 10-year lease term.  The deferred gain is classified as other non-current liabilities on the balance sheet.


The Company is an obligor for certain assigned leases to Berean Christian Bookstores (“Berean”), an operation disposed of by the Company in 2006.  As the former owner of Berean, the Company is party under a number of operating leases which were assigned to the purchaser of the business for the remaining initial terms of the leases at the stated lease costs.  The Company remained responsible for these leases until the expiration of the initial terms.  In the second quarter of 2009, noting Berean’s deteriorating operating performance and precarious financial position, the Company recorded liabilities of $2.9 million, net of estimated subleases, in anticipation of the impairment of leases remaining under the obligation.  


In June 2009, Berean filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code and, in July 2009, its assets were sold to a third party under Section 363 of the Code.   The new owner of the Berean assets is infusing capital into the business, and we believe the Berean bookstores can now be operated successfully as a going concern.  As part of this transaction, the Company agreed to provide lease supplement payments to the new owner of the Berean assets.  These payments included an upfront payment of $0.5 million and additional payments totaling $1.2 million which will be made in equal monthly installments through December 2011.  The Company remains an obligor of the leases assumed by the new owner, however, the Company’s obligation has been reduced for locations where the new owner was able to obtain rent concessions.  In addition, the Company remains responsible for three sites formerly operated by Berean.  Liabilities associated with these three leases, net of expected subleases at current market rates, total $1.3 million at June 30, 2010.  Subsequent to these transactions, the aggregate amount of our obligations in the event of default is $4.4 million at June 30, 2010.


12.  CONTINGENCIES


The Company is a party to a number of actions filed or has been given notice of potential claims and legal proceedings related to environmental, commercial disputes, employment matters and other matters generally incidental to our business.  Liabilities are recorded when the amount can be reasonably estimated and the loss is deemed probable.  Management has





evaluated each matter based, in part, upon the advice of our independent environmental consultants and in-house personnel.  Management believes the ultimate resolution will not be material to our financial position, results of operations or cash flows.


During 2008, the Company entered into an Administrative Order on Consent (“AOC”) with the U.S. Environmental Protection Agency (“EPA”) related to the removal of various PCB-contaminated materials and soils at a site where the Company leased a building and conducted operations from 1967-1979.  The Company established an accrual of $2.0 million related to the matter in 2008 and an additional $2.0 million in 2009.  As the site is the former location of the Club Products and Monarch Aluminum divisions, the charge was included in results from discontinued operations for the period.  Remediation efforts were substantially completed during the 3rd quarter of 2009, and the Company received a closing letter from the EPA in October 2009.


The Company actively sought the recovery of costs incurred in carrying out the terms of the AOC through negotiations with its legacy insurers.  Based on the status of these negotiations at September 30, 2009, the Company determined that a settlement was probable and recorded $2.3 million ($1.4 million net of tax) in discontinued operations during the first quarter.  The settlement came to fruition as expected during the second quarter, with a final recovery of $2.5 million ($1.6 million net of tax), which is net of costs incurred to negotiate the settlement.


13.  STOCK-BASED COMPENSATION AND PURCHASE PLANS


Stock-Based Compensation Plans


Under incentive compensation plans, the Company is authorized to make grants of stock options, restricted stock and performance share units to provide equity incentive compensation to key employees and directors. In fiscal 2004, the Company began granting stock awards instead of stock options.  The stock award program offers employees and directors the opportunity to earn shares of our stock over time, rather than options that give the employees and directors the right to purchase stock at a set price.  The Company has stock plans for directors, officers and certain key employees.  


Total compensation cost recognized in income for equity based compensation awards was $3.8 million, $2.4 million, and $2.4 million for the years ended June 30, 2010, 2009 and 2008, respectively.  The total income tax benefit recognized in the consolidated income statement for equity-based compensation plans was $1.3 million, $0.8 million, and $0.9 million for the years ended June 30, 2010, 2009 and 2008, respectively.


At June 30, 2010, 438,892 shares of common stock were reserved for issuance under various compensation plans.  


Restricted Stock Awards


The Company may award shares of restricted stock to eligible employees and non-employee directors of the Company at no cost, giving them in most instances all of the rights of stockholders, except that they may not sell, assign, pledge or otherwise encumber such shares and rights during the restriction period.  Such shares and rights are subject to forfeiture if certain employment conditions are not met.  During the restriction period, recipients of the shares are entitled to dividend equivalents on such shares, providing that such shares are not forfeited.  Dividends are accumulated and paid out at the end of the restriction period.  During 2010, 2009 and 2008 the Company granted 110,278, 64,091, and 70,351 shares, respectively, of restricted stock to eligible participants.  Restrictions on the stock awards lapse between fiscal 2011 and fiscal 2013, with the exception of one award which vests upon the employee’s retirement.  For the years ended June 30, 2010, 2009 and 2008, $1.7 million, $1.4 million, and $1.1 million, respectively, was recognized as compensation expense related to restricted stock awards.  Substantially all awards are expected to vest.


A summary of stock options and restricted stock awards activity during the year ended June 30, 2010 is as follows:


 

Stock Options

 

Restricted Stock Awards

 

 

 

Weighted

 

 

 

 

 

 

 

Number

 

Average

 

Aggregate

 

Number

 

Aggregate

 

of

 

Exercise

 

Intrinsic

 

of

 

Intrinsic

 

Shares

 

Price

 

Value

 

Shares

 

Value

 

 

 

 

 

 

 

 

 

 

Outstanding, July 1, 2009

7,060

 

$19.90

 

 --

 

174,602

 

$1,561,383

Granted

 --

 

 --

 

 

 

110,278

 

 

Exercised / vested

 --

 

 --

 

 --

 

(40,910)

 

788,002

Canceled

       (7,060)

 

        19.90

 

 

 

(3,800)

 

 

Outstanding, June 30, 2010

 --

 

 --

 

 --

 

240,170

 

$6,088,310








 

 

 

 

 

 

 

 

 

 


Restricted stock awards granted during 2010, 2009 and 2008 had a weighted average grant date fair value of $18.33, $24.19, and $22.63, respectively.  The grant date fair value of restricted stock awards is determined based on the closing price of the Company’s common stock on the date of grant.  The total intrinsic value of awards exercised during the years ended June 30, 2010, 2009, and 2008 was $0.8 million, $0.9 million, and $0.9 million, respectively.  


As of June 30, 2010, there was $2.0 million of unrecognized compensation costs related to awards expected to be recognized over a weighted-average period of 1.34 years.


Executive Compensation Program


The Company operates a compensation program for key employees.  The plan contains both an annual component as well as long-term component.  Under the annual component, participants are required to defer 20% (and may elect to defer up to 50%) of their annual incentive compensation in restricted stock which is purchased at a discount to the market.  Additionally, non-employee directors of the Company may defer a portion of their director’s fees in restricted stock units which is purchased at a discount to the market.  During the restriction period, recipients of the shares are entitled to dividend equivalents on such units, providing that such shares are not forfeited.  Dividend equivalents are accumulated and paid out at the end of the restriction period.  The restrictions on the units expire after three years.  At June 30, 2010 and 2009, respectively, 92,599 and 99,437 shares of restricted stock units are outstanding and subject to restrictions that lapse between fiscal 2011 and fiscal 2013.  The compensation expense associated with this incentive program is charged to income over the restriction period.  The Company recorded compensation expense related to this program of $0.3 million, $0.4 million, and $0.2 million for the years ended June 30, 2010, 2009 and 2008, respectively.


The fair value of the awards under the annual component of this incentive program is measured using the Black-Scholes option-pricing model.  Key assumptions used to apply this pricing model are as follows:


 

2010

 

2009

 

2008

Range of risk-free interest rates

1.37%

 

2.45%

 

4.11%

Range of expected life of option grants (in years)

3

 

3

 

3

Expected volatility of underlying stock

44.5%

 

44.5%

 

34.9%

Expected quarterly dividends (per share)

$0.05

 

$0.21

 

$0.21

 

 

 

 

 

 

Under the long-term component, grants of performance share units (“PSUs”) are made annually to key employees and the share units are earned based on the achievement of certain overall corporate financial performance targets over the performance period.  At the end of the performance period, the number of shares of common stock issued will be determined by adjusting upward or downward from the target in a range between 10% and 200%.  No shares will be issued if the minimum performance threshold is not achieved. The final performance percentage, on which the payout will be based, considering the performance metrics established for the performance period, will be determined by the Compensation Committee of the Board of Directors.  


The awards granted by the Committee on September 2, 2009 provided that the PSUs will be converted to shares of common stock if the Company’s EBITDA (earnings before interest, taxes, depreciation and amortization) and return on assets meet specified levels approved by the Committee.  A participant’s right to any shares that are earned will vest in three equal installments.  An executive whose employment terminates prior to the vesting of any installment for a reason other than death, disability, retirement, or following a change in control, will forfeit the shares represented by that installment. In certain circumstances, such as death, disability, or retirement, PSUs are paid on a pro-rata basis.  In the event of a change in control, vesting of the awards granted is accelerated.  The awards granted by the Committee during fiscal 2009 expired without vesting due to failure to meet the performance criteria.


A summary of the awards activity under the executive compensation program during the year ended June 30, 2010 is as follows:

 

Annual Component

 

Performance Stock Units

 

 

 

Weighted

 

 

 

 

 

 

 

Number

 

Average

 

Aggregate

 

Number

 

Aggregate

 

of

 

Exercise

 

Intrinsic

 

of

 

Intrinsic

 

Shares

 

Price

 

Value

 

Shares

 

Value

 

 

 

 

 

 

 

 

 

 

Non-vested, July 1, 2009

99,437

 

$17.31

 

--

 

30,000

 

$348,000

Granted

18,602

 

8.70

 

 

 

159,800

 

 








Vested

(25,440)

 

21.37

 

        (54,867)

 

(81,901)

 

      2,073,590

Expired

--

 

--

 

 

 

(4,833)

 

 

Non-vested, June 30, 2010

92,599

 

$14.46

 

    1,008,279

 

103,066

 

$2,612,723

 

 

 

 

 

 

 

 

 

 


Restricted stock awards granted under the annual component of this program in fiscal 2010, 2009 and 2008 had a grant date fair value of $13.12, $28.98, and $23.54, respectively.  The PSU’s granted in fiscal 2010, 2009 and 2008 had a grant date fair value of $17.45, $23.43, and $24.20, respectively.  The total intrinsic value of awards vested under the executive compensation program during the years ended June 30, 2010, 2009 and 2008 was $2.0 million, $1.5 million, and $0.7 million, respectively.


The Company recognized compensation expense related to the PSU’s of $1.8 million, $0.7 million, and $1.2 million for the years ended June 30, 2010, 2009 and 2008, respectively.  The total unrecognized compensation costs related to non-vested performance share units was $1.1 million at June 30, 2010 which is expected to be recognized over a weighted average period of 2.0 years.   


Employee Stock Purchase Plan


The Company has an Employee Stock Purchase Plan that allows employees to purchase shares of common stock of the Company at a discount from the market each quarter.  Shares of our stock may be purchased by employees quarterly at 95% of the fair market value on the last day of each quarter.  Shares of stock reserved for the plan were 129,406 at June 30, 2010.  Shares purchased under this plan aggregated 17,790, 30,634, and 27,808, in 2010, 2009 and 2008, respectively at an average price of $21.15, $14.12, and $19.06, respectively.  


14.  ACCUMULATED OTHER COMPREHENSIVE LOSS


The components of accumulated other comprehensive loss are as follows (in thousands):


June 30

2010

 

2009

Foreign currency translation adjustment

 $       6,542

 

 $       8,902

Unrealized pension losses (net of tax benefit of $43.3 million and $36.1 million, respectively)

          (72,375)

 

          (60,343)

Unrealized loss on derivative instruments (net of tax benefit of $0.3 million and $0.6 million, respectively)

               (623)

 

            (1,150)

Accumulated other comprehensive loss

 $  (66,456)

 

 $  (52,591)

 

 

 

 


15.  DISCONTINUED OPERATIONS AND DISPOSITIONS


In 2007, the Company sold substantially all the assets of the Berean Christian Stores (“Berean”) business in an all cash deal resulting in the recognition of a pre-tax gain of $0.2 million.  As the former owner of Berean, the Company is party under a number of operating leases which were assigned to the purchaser of the business for the remaining initial terms of the leases at the stated lease costs.  The Company remained an obligor of these leases until the expiration of the initial terms.  In the second quarter of 2009, noting Berean’s deteriorating operating performance and precarious financial position, the Company recorded liabilities of $2.9 million, net of estimated subleases, in anticipation of the impairment of leases remaining under the obligation.  


In June 2009, Berean filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code and, in July 2009, its assets were sold to a third party under Section 363 of the Code.   The new owner of the Berean assets is infusing capital into the business, and we believe the Berean bookstores can now be operated successfully as a going concern.  As part of this transaction, the Company agreed to provide lease supplement payments to the new owner of the Berean assets.  These payments included an upfront payment of $0.5 million and additional payments totaling $1.2 million which will be made in equal monthly installments through December 2011.  The Company remains an obligor of the leases assumed by the new owner, however, the Company’s obligation has been reduced for locations where the new owner was able to obtain rent concessions.  In addition, the Company remains responsible for three sites formerly operated by Berean.  Liabilities associated with these three leases, net of expected subleases at current market rates, total $1.3 million at June 30, 2010.  Subsequent to these transactions, the aggregate amount of our obligations in the event of default is $4.4 million at June 30, 2010..


During 2008, the Company entered into an Administrative Order of Consent with the U.S. Environmental Protection Agency (“EPA”) related to the removal of various PCB-contaminated materials and soils at a site where the Company leased a building and conducted operations from 1967-1979.  The Company established an accrual of $2.0 million related to the matter





in 2008 and an additional $2.0 million accrual in 2009.  Remediation efforts were substantially completed during the third quarter of 2009, and the Company received a closure letter from the EPA in the first half of 2010.


The Company actively sought the recovery of costs incurred in carrying out the terms of the AOC through negotiations with its legacy insurers.  Based on the status of these negotiations at September 30, 2009, the Company determined that a settlement was probable and recorded $2.3 million ($1.4 million net of tax) in discontinued operations during the first quarter.  As expected, the settlement came to fruition during the second quarter, with a final recovery of $2.5 million ($1.6 million net of tax), net of costs incurred to negotiate the settlement.


Earnings (losses) from discontinued operations include the following results for the years ended June 30 (in thousands):


 

2010

 

2009

 

2008

 

 

 

 

 

 

Net sales

 $      --

 

 $      --

 

 $      --

Berean lease impairment (net of tax benefit of $0.2 million, $1.1 million, and $0, respectively)

(413)

 

(1,834)

 

--

EPA remediation recovery (expense) (net of tax (provision) benefit of ($0.9 million), $0.8 million, and $0.8 million, respectively)

1,434

 

(1,293)

 

(1,238)

Other loss from discontinued operations (net of tax benefit of $0.2 million, $0.2 million, and $0.1 million, respectively)

(282)

 

(388)

 

(176)

Gains from disposal (net of taxes of $0, $0, and $0.4 million, respectively)

--

 

--

 

640

Total net earnings (loss) from discontinued operations

$739

 

($3,515)

 

($774)

 

 

 

 

 

 


The Company has $2.3 million of accrued liabilities related to discontinued operations in its balance sheet at June 30, 2010, primarily related to accrued lease liabilities for Berean.


16.  RESTRUCTURING


The Company has undertaken cost reduction and facility consolidation initiatives that have resulted in severance, restructuring, and related charges.  A summary of charges by initiative is as follows (in thousands):


 

Year Ended June 30,

 

2010

 

 

 

 

 

 

 

Involuntary

 

 

 

 

 

Employee

 

 

 

 

 

Severance

 

 

 

 

 

and Benefit

 

 

 

 

 

Costs

 

Other

 

Total

  Workforce Reduction

 $           991

 

 $             64

 

 $        1,055

  Consolidation of Global Manufacturing Footprint

              877

 

            1,840

 

             2,717

    Total expense

 $        1,868

 

 $         1,904

 

 $          3,772

 

 

 

 

 

 

 

2009

 

 

 

 

 

 

  Workforce Reduction

 $    1,288

 

 $                -

 

 $           1,288

  Consolidation of Global Manufacturing Footprint

       1,819

 

           4,732

 

              6,551

    Total expense

 $    3,107

 

 $        4,732

 

 $           7,839

 

 

 

 

 

 

 

2008

 

 

 

 

 

 

  Consolidation of Global Manufacturing Footprint

 $       459

 

 $           131

 

 $              590

 

 

 

 

 

 

 Workforce Reduction






In response to the recession taking place in the current macroeconomic environment and its impact on the Company, management reduced the number of salaried and indirect labor employees via workforce reductions. During 2009, the Company reduced its U.S.-based workforce by approximately 25%.  During 2010, the Company made additional reductions which primarily affected our international headcount.


Activity in the reserves for the Workforce Reduction is as follows (in thousands):


 

Involuntary

 

 

 

 

 

Employee

 

 

 

 

 

Severance

 

 

 

 

 

and Benefit

 

 

 

 

 

Costs

 

Other

 

Total

Restructuring Liabilities at June 30, 2008

 $                -

 

 $               -

 

 $               -

     Additions

           1,288

 

                  -

 

           1,288

     Payments

         (1,234)

 

                  -

 

         (1,234)

Restructuring Liabilities at June 30, 2009

 $             54

 

 $               -

 

 $             54

     Additions

              991

 

               64

 

           1,055

     Payments

            (867)

 

             (64)

 

            (931)

Restructuring Liabilities at June 30, 2010

 $           178

 

 $               -

 

 $           178

 

 

 

 

 

 


Consolidation of Global Manufacturing Footprint


As part of the Company’s ongoing effort to generate operational efficiencies and in response to downturn in certain markets served by the Company’s operating segments, the Company has closed several of its manufacturing facilities and consolidating production.  These costs are composed primarily of severance, other termination benefits, and expenses associated with the relocation of the plants’ production capacities to other facilities.  Activities related to the most recent of these closures were largely completed during the first half of 2010.  The liabilities associated with this initiative are expected to be paid though 2011.


Additionally, during 2010, the Company recorded a net realizable value reduction of $0.8 million ($0.5 million net of tax) related to the sale of the former Bakers Pride facility in New Rochelle, New York, which was completed in the second quarter of 2010, and a $0.5 million ($0.3 million net of tax) net realizable value reduction related to the Air Distribution Products facility in Bartonville, Illinois, which is currently classified as an asset held for sale by the Company.  These reductions were offset by a gain of $0.5 million from the sale of a consolidated Engraving Group facility in Europe and a gain of $0.6 million due to the settlement of the Bartonville multi-employer pension liability at an amount lower than previously expected.


Activity in the reserves related to optimization of the Company’s manufacturing locations is as follows (in thousands):


 

Involuntary

 

 

 

 

 

Employee

 

 

 

 

 

Severance

 

 

 

 

 

and Benefit

 

 

 

 

 

Costs

 

Other

 

Total

Restructuring Liabilities at June 30, 2007

 $           105

 

 $               -

 

 $           105

     Additions

              459

 

             131

 

              590

     Payments

            (486)

 

           (131)

 

            (617)

Restructuring Liabilities at June 30, 2008

 $             78

 

 $               -

 

 $             78

     Additions

           1,819

 

          4,732

 

           6,551

     Payments

         (1,604)

 

        (1,271)

 

         (2,875)

Restructuring Liabilities at June 30, 2009

 $           293

 

 $       3,461

 

 $        3,754

     Additions

              752

 

             825

 

           1,577

     Payments

            (898)

 

        (4,103)

 

         (5,001)

Restructuring Liabilities at June 30, 2010

 $           147

 

 $          183

 

 $           330

 

 

 

 

 

 

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


 

Year Ended June 30,

 

2010








 

 

 

 

 

 

 

Involuntary

 

 

 

 

 

Employee

 

 

 

 

 

Severance

 

 

 

 

 

and Benefit

 

 

 

 

 

Costs

 

Other

 

Total

Food Service Equipment Group

 $           520

 

 $        2,055

 

 $        2,575

Air Distribution Products Group

              166

 

              112

 

              278

Engraving Group

           1,045

 

            (270)

 

              775

Electronics and Hydraulics Group

                49

 

                  7

 

                56

Corporate

                88

 

 --

 

                88

    Total expense

 $        1,868

 

 $        1,904

 

 $        3,772

 

 

 

 

 

 

 

2009

Food Service Equipment Group

 $        1,009

 

 $           402

 

 $        1,411

Air Distribution Products Group

           1,054

 

           3,913

 

           4,967

Engraving Group

              413

 

              281

 

              694

Electronics and Hydraulics Group

              475

 

              136

 

              611

Corporate

              156

 

 --

 

              156

    Total expense

 $        3,107

 

 $        4,732

 

 $        7,839

 

 

 

 

 

 

 

2008

Engraving Group

 $           205

 

 $             55

 

 $           260

Electronics and Hydraulics Group

              254

 

                76

 

              330

    Total expense

 $           459

 

 $           131

 

 $           590

 

 

 

 

 

 


17.  EMPLOYEE BENEFIT PLANS


Retirement Plans


The Company has defined benefit pension plans covering certain employees both inside and outside of the U.S. All pension benefits accruing under the U.S. salaried defined benefit plan and the supplemental defined benefit plan have been frozen as of December 31, 2007.  


Plan assets are generally invested in equity securities (exclusive of common stock of the Company) debt, and global balanced securities.  Contributions for U.S. plans are generally equal to the minimum amounts required by federal laws and regulations.  Foreign plans are funded in accordance with the requirements of regulatory bodies governing each plan.


Net periodic benefit cost for U.S. and non-U.S. plans included the following components (in thousands):


 

U.S. Plans

 

Foreign Plans

 

Year Ended June 30,

 

Year Ended June 30,

 

2010

 

2009

 

2008

 

2010

 

2009

 

2008

Service Cost

$314

 

$565

 

$3,153

 

$127

 

$150

 

$180

Interest Cost

12,887

 

12,966

 

12,306

 

1,735

 

1,766

 

2,062

Expected return on plan assets

(15,601)

 

(16,859)

 

(16,770)

 

(1,506)

 

(1,578)

 

(2,046)

Recognized net actuarial loss

1,777

 

1,404

 

2,194

 

253

 

330

 

653

Amortization of prior service cost (benefit)

172

 

169

 

195

 

(61)

 

(60)

 

(65)

Amortization of transition obligation (asset)

2

 

2

 

1

 

--

 

--

 

--

Curtailment

--

 

--

 

--

 

(180)

 

--

 

--

Net periodic benefit cost (benefit)

($449)

 

($1,753)

 

$1,079

 

$368

 

$608

 

$784

 

 

 

 

 

 

 

 

 

 

 

 

The following table sets forth the funded status and amounts recognized as of June 30, 2010 and 2009 for our U.S. and foreign defined benefit pension plans (in thousands):

 

U.S. Plans

 

Foreign Plans








 

Year Ended June 30,

 

Year Ended June 30,

 

2010

 

2009

 

2010

 

2009

Change in benefit obligation

 

 

 

 

 

 

 

Benefit obligation at beginning of year

$186,153

 

$191,708

 

$29,575

 

$35,261

Service cost

314

 

565

 

127

 

150

Interest cost

12,887

 

12,966

 

1,735

 

1,766

Plan participants' contributions

--

 

--

 

47

 

49

Actuarial loss (gain)

27,385

 

(5,574)

 

5,041

 

(827)

Benefits paid

(13,809)

 

(13,747)

 

(1,360)

 

(1,230)

Plan Amendments

--

 

235

 

--

 

--

Curtailment

--

 

--

 

(682)

 

--

Foreign currency exchange rate

--

 

--

 

(3,341)

 

(5,595)

Projected benefit obligation at end of year

$212,930

 

$186,153

 

$31,142

 

$29,574

 

 

 

 

 

 

 

 

Change in plan assets

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year

$149,656

 

$191,803

 

$22,432

 

$28,965

Actual return on plan assets

$23,304

 

($28,592)

 

3,417

 

(790)

Employer contribution

15,198

 

192

 

1,830

 

71

Plan participants' contribution

--

 

--

 

370

 

356

Benefits paid

(13,809)

 

(13,747)

 

(1,360)

 

(1,230)

Foreign currency exchange rate

--

 

--

 

(2,392)

 

(4,940)

Fair value of plan assets at end of year

$174,349

 

$149,656

 

$24,297

 

$22,432

 

 

 

 

 

 

 

 

Funded Status

($38,581)

 

($36,497)

 

($6,845)

 

($7,142)

 

 

 

 

 

 

 

 


Amounts recognized in the consolidated balance sheets consist of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

($189)

 

($184)

 

($292)

 

($330)

Non-current liabilities

(38,392)

 

(36,313)

 

(6,553)

 

(6,813)

Net amount recognized

($38,581)

 

($36,497)

 

($6,845)

 

($7,143)

 

 

 

 

 

 

 

 

Unrecognized net actuarial loss

$105,703

 

$87,799

 

$9,889

 

$8,493

Unrecognized prior service cost

775

 

948

 

(412)

 

(535)

Accumulated other comprehensive income, pre-tax

$106,478

 

$88,747

 

$9,477

 

$7,958

 

 

 

 

 

 

 

 


The accumulated benefit obligation for all defined benefit pension plans was $241.5 million and $213.1 million at June 30, 2010 and 2009, respectively.


The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $4.9 million and $0.1 million, respectively.


Plan Assets and Assumptions

The fair values of the Company’s pension plan assets at June 30, 2010 by asset category, as classified in the three levels of inputs described in Note 1 under the caption Fair Value of Financial Instruments, are as follows (in thousands):


 

 June 30, 2010

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

Cash and cash equivalents

 $  16,084

 

 $    1,726

 

 $  14,358

 

 $          -   

Common and preferred stocks

     76,239

 

     13,837

 

     62,402

 

             -   

U.S. Government securities

     31,218

 

               -   

 

     31,218

 

             -   

Corporate bonds and other fixed income securities

     59,676

 

          258

 

     59,417

 

             -   








Other

     15,429

 

               -   

 

     15,429

 

             -   

 

 $198,646

 

 $  15,822

 

 $182,824

 

 $          -   

 

 

 

 

 

 

 

 

Asset allocation at June 30, 2010, and target asset allocations for 2010 are as follows:


Plan Assets

 

 

 

 

 

 

U.S. Plans

 

Foreign Plans

 

Year Ended June 30,

 

Year Ended June 30,

 

2010

 

2009

 

2010

 

2009

Asset Category

 

 

 

 

 

 

 

Equity securities

33%

 

37%

 

35%

 

39%

Debt securities

27%

 

37%

 

58%

 

59%

Global balanced securities

24%

 

26%

 

--

 

--

Other

16%

 

--

 

7%

 

2%

Total

100%

 

100%

 

100%

 

100%

 

 

 

 

 

 

 

 


 

2010

Asset Category – Target

U.S.

 

U.K.

 

Ireland

Equity securities

35%

 

33%

 

70%

Debt and market neutral securities

30%

 

67%

 

20%

Global balanced securities

25%

 

--

 

--

Other

10%

 

--

 

10%

Total

100%

 

100%

 

100%

 

 

 

 

 

 

Our investment policy for the U.S. pension plans targets a range of exposure to the various asset classes.  Standex rebalances the portfolio periodically when the allocation is not within the desired range of exposure.  The plan seeks to provide returns in excess of the various benchmarks.  The benchmarks include the following indices:  S&P 500; Citigroup PMI EPAC; Citigroup World Government Bond and Barclays Aggregate Bond.  A third party investment consultant tracks the plan’s portfolio relative to the benchmarks and provides quarterly investment reviews which consist of a performance and risk assessment on all investment managers and on the portfolio.  


Certain managers within the plan use, or have authorization to use, derivative financial instruments for hedging purposes, the creation of market exposures and management of country and asset allocation exposure.  Currency speculation derivatives are strictly prohibited.


Year Ended June 30

2010

 

2009

 

2008

Plan assumptions - obligation

 

 

 

 

 

Discount rate

4.40 - 5.90%

 

5.75 - 7.20%

 

 

Rate of compensation increase

3.50 - 3.80%

 

3.50 - 3.70%

 

 

 

 

 

 

 

 

Plan assumptions - cost

 

 

 

 

 

Discount rate

5.90 - 7.20%

 

6.15 - 7.00%

 

5.25 - 6.50%

Expected return on assets

6.30 - 8.35%

 

6.50 - 8.65%

 

6.75 - 8.80%

Rate of compensation increase

3.50 - 3.70%

 

3.50 - 4.25%

 

3.70 - 4.00%

 

 

 

 

 

 

Included in the above are the following assumptions relating to the obligations for defined benefit pension plans in the United States at June 30, 2010: a discount rate of 5.9% and a rate of compensation increase of 3.5%.  At June 30, 2009, the assumptions were a discount rate of 7.2% and rate of compensation increase of 3.5%.  The U.S. defined benefit pension plans represent the majority of our pension obligations.  The expected return on plan assets assumption is based on our expectation of the long-term average rate of return on assets in the pension funds and is reflective of the current and projected asset mix of the funds.  The discount rate reflects the current rate at which pension liabilities could be effectively settled at the end of the year.  The discount rate is determined by matching our expected benefit payments from a stream of AA- or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions.


Expected benefit payments for the next five years are as follows: 2011, $15.3 million; 2012, $15.4 million; 2013, $15.6 million; 2014, $15.6 million; 2015, $15.6 million and thereafter, $81.0 million.  The Company expects to make $0.5 million of contributions to its pension plans in 2011.  






The Company operates a defined benefit plan in Germany which is unfunded. Certain U.S. employees are covered by union-sponsored, multi-employer pension plans.  Contributions and costs are determined in accordance with the provisions of negotiated labor contracts or terms of the plans.  Pension expense for these plans was $1.4 million, $1.4 million, and $1.7 million in 2010, 2009, and 2008, respectively.


Retirement Savings Plans


The Company has two primary employee savings plans, one for salaried employees and one for hourly employees.  Substantially all of our full-time domestic employees are covered by these savings plans.  Under the provisions of the plans, employees may contribute a portion of their compensation within certain limitations.  The Company, at the discretion of the Board of Directors, may make contributions on behalf of our employees under the plans.  During the third quarter of 2009, the Company announced that it would suspend employer matching contributions to its savings plans, with the exception of obligations under collective bargaining agreements.  The suspension of contributions began in April 2009, and contributions were reinstated at the beginning of calendar year 2010.  Company contributions were $1.7 million, $4.6 million, and $3.2 million for the years ended June 30, 2010, 2009, and 2008, respectively.  At June 30, 2010, the salaried plan holds approximately 250,000 shares of Company common stock, representing approximately 9% of the holdings of the plan.


Other Plans


Certain retired executives are covered by an Executive Life Insurance Program.  During 2003, two executives retired and the Board of Directors approved benefits under this plan of approximately $5.6 million. The aggregate present value of current vested and outstanding benefits to all participants was approximately $1.0 million, and $1.4 million at June 30, 2010 and 2009, respectively, and will be paid over the next four years.


Key Employee Share Option Plan (KEYSOP)


In fiscal 2002, we created a Key Employee Share Option Plan (the “KEYSOP”).  The purpose of the KEYSOP is to provide alternate forms of compensation to certain key employees of the Company commensurate with their contributions to the success of our activities.  Under the KEYSOP, certain employees are granted options by the Compensation Committee and designated property is purchased by the Company and placed in a Rabbi trust.  The option price set at the date of the grant is 25% of the fair value of the underlying assets.  During fiscal 2003, the Company granted options to two key employees prior to their retirement.  Assets associated with the plan were $5.0 million and $4.4 million at June 30, 2010 and 2009, respectively.  As of June 30, 2010 and 2009, the Company has recorded a liability in other long term liabilities of approximately $3.8 million and $3.2 million respectively associated with the grants made.


Postretirement Benefits Other Than Pensions


The Company sponsors unfunded postretirement medical and life plans covering certain full-time employees who retire and have attained the requisite age and years of service.  Retired employees are required to contribute toward the cost of coverage according to various established rules.


The Company records postretirement benefits (such as health care and life insurance) during the years an employee provides services.


The following table sets forth the funded status of the postretirement benefit plans and accrued postretirement benefit cost reflected in the consolidated balance sheet at year end (in thousands):


 

Year Ended June 30,

 

2010

 

2009

Change in benefit obligation

 

 

 

Benefit obligation at beginning of year

$1,806

 

$1,870

Service cost

8

 

9

Interest cost

124

 

125

Plan participants' contributions

40

 

38

Actuarial loss (gain)

94

 

(30)

Benefits paid

(208)

 

(206)

Accumulated benefit obligation at  end of year

$1,864

 

$1,806

 

 

 

 

Change in plan assets

 

 

 

Fair value of plan assets at beginning of year

$--

 

$--

Employer contribution

168

 

168

Plan participants' contribution

40

 

38








Benefits paid

(208)

 

(206)

Foreign currency exchange rate

 

 

--

Fair value of plan assets at end of year

$0

 

$0

 

 

 

 

Funded Status

($1,864)

 

($1,806)

 

 

 

 

Amounts recognized in the consolidated balance sheets consist of:

 

 

 

 

Current liabilities

($148)

 

($163)

Non-current liabilities

(1,716)

 

(1,643)

Net amount recognized

($1,864)

 

($1,806)

 

 

 

 

Accumulated other comprehensive income, pre-tax

 

 

 

Unrecognized net actuarial loss

($990)

 

($1,167)

Unrecognized transition obligation

687

 

911

Net amount recognized

($303)

 

($256)

 

 

 

 

Components of Net Periodic Benefit Cost (in thousands)


 

Year Ended June 30,

 

2010

 

2009

 

2008

Service Cost

$8

 

$9

 

$11

Interest Cost

124

 

125

 

125

Recognized net actuarial gain

(83)

 

(84)

 

(93)

Amortization of transition obligation

224

 

224

 

225

Net periodic benefit cost

$273

 

$274

 

$268

 

 

 

 

 

 

The estimated net actual loss (gain) and transition obligation for the postretirement benefits that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $(0.1) million and $0.2 million, respectively.  


The assumed weighted average discount rate was 5.90% and 7.20% as of June 30, 2010 and 2009, respectively.  A 1% increase in the assumed health care cost trend rate does not impact either the accumulated benefit obligation or the net postretirement cost, as the employer contribution for each participant is a fixed amount.






18.  INDUSTRY SEGMENT INFORMATION


The Company has determined that it has five reportable segments organized around the types of product sold:

Food Service Equipment Group– an aggregation of seven operating segments that manufacture and sell commercial food service equipment.  

Air Distribution Products Group – manufactures and sells metal duct and fittings for residential HVAC systems.

Engraving Group – provides mold texturizing, roll engraving and process machinery for a number of industries.

Engineering Technologies Group – provides customized solutions in the fabrication and machining of engineered components for the aerospace, energy, and aviation markets.

Electronics and Hydraulics Group – a combination of two operating segments that manufacture and sell electrical components  and that manufacture and sell single- and double-acting telescopic and piston rod hydraulic cylinders.


Net sales include only transactions with unaffiliated customers and include no significant intersegment or export sales.  Operating income by segment and geographic area excludes general corporate and interest expenses.  Assets of the Corporate segment consist primarily of cash, administrative buildings, equipment, and other non-current assets.


Industry Segments (in thousands)

Net Sales

 

Depreciation and Amortization

 

2010

 

2009

 

2008

 

2010

 

2009

 

2008

Food Service Equipment

$337,578

 

$350,358

 

$381,254

 

$6,257

 

$7,021

 

$7,642

Air Distribution Products

50,974

 

66,534

 

88,334

 

999

 

967

 

1,311

Engraving

77,372

 

77,311

 

92,167

 

3,569

 

3,646

 

4,339

Engineering Technologies

58,732

 

51,693

 

51,615

 

1,406

 

1,405

 

1,125

Electronics and Hydraulics

53,798

 

61,190

 

84,171

 

1,881

 

2,088

 

2,185

Corporate and Other

            --

 

            --

 

            --

 

295

 

414

 

511

Total

$578,454

 

$607,086

 

$697,541

 

$14,407

 

$15,541

 

$17,113

 

 

 

 

 

 

 

 

 

 

 

 

 

Income From Operations

 

Capital Expenditures

 

2010

 

2009

 

2008

 

2010

 

2009

 

2008

Food Service Equipment

$39,682

 

$9,900

 

$31,460

 

$2,233

 

$1,277

 

$3,663

Air Distribution Products

(3,186)

 

713

 

(340)

 

66

 

182

 

482

Engraving

9,395

 

7,028

 

9,611

 

1,115

 

1,878

 

2,140

Engineering Technologies

13,843

 

8,667

 

9,770

 

359

 

297

 

2,980

Electronics and Hydraulics

4,888

 

3,459

 

8,106

 

566

 

2,055

 

1,322

Restructuring charge

(3,772)

 

(7,839)

 

(590)

 

--

 

--

 

--

Gain on sale of real estate

1,405

 

--

 

--

 

--

 

--

 

--

Corporate

(19,989)

 

(15,907)

 

(19,088)

 

264

 

--

 

402

Total

$42,266

 

$6,021

 

$38,929

 

$4,603

 

$5,689

 

$10,989

Interest expense

(3,624)

 

(6,532)

 

(9,510)

 

 

 

 

 

 

Other, net

754

 

215

 

324

 

 

 

 

 

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

  before income taxes

$39,396

 

($296)

 

$29,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

Property, Plant & Equipment

 

 

 

2010

 

2009

 

 

 

2010

 

2009

 

 

Food Service Equipment

$45,590

 

$45,598

 

 

 

$36,476

 

$45,006

 

 

Air Distribution Products

14,933

 

14,933

 

 

 

8,194

 

8,916

 

 

Engraving

19,839

 

20,048

 

 

 

19,849

 

22,548

 

 

Engineering Technologies

186

 

186

 

 

 

15,250

 

16,269

 

 

Electronics and Hydraulics

22,256

 

20,957

 

 

 

8,578

 

9,842

 

 

Corporate & Other

--

 

--

 

 

 

4,880

 

6,031

 

 

Total

$102,804

 

$101,722

 

 

 

$93,227

 

$108,612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-U.S. Operations

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

Net sales

$86,215

 

$78,277

 

$100,340

 

 

 

 

 

 

Income from operations

11,378

 

8,209

 

14,508

 

 

 

 

 

 

Long-lived assets

14,245

 

16,334

 

19,469

 

 

 

 

 

 








 

 

 

 

 

 

 

 

 

 

 

 



Given the nature of our corporate expenses, management has concluded that it would not be appropriate to allocate the expenses associated with corporate activities to our operating segments.  These corporate expenses include the costs for the corporate headquarters, salaries and wages for the personnel in corporate, professional fees related to corporate matters and compliance efforts, stock-based compensation and post-retirement benefits related to our corporate executives, officers and directors, and other compliance related costs.  The Company has a process to allocate and recharge certain direct costs to the operating segments when such direct costs are administered and paid at corporate.  Such direct expenses that are recharged on an intercompany basis each month include such costs as insurance, workers’ compensation programs, audit fees and pension expense.  The accounting policies applied by the reportable segments are the same as those described in the Summary of Accounting Policies footnote to the consolidated financial statements.  There are no differences in accounting policies which would be necessary for an understanding of the reported segment information.


19.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


The unaudited quarterly results of operations for the years ended June 30, 2010 and 2009 are as follows (in thousands, except for per share data):


 

2010

 

First

 

Second

 

Third

 

Fourth

Net sales

$152,109

 

$138,853

 

$135,411

 

$152,081

Gross profit

49,188

 

44,696

 

41,289

 

48,230

Net income (loss)

9,782

 

5,954

 

4,601

 

8,362

EARNINGS PER SHARE

 

 

 

 

 

 

 

     Basic

0.79

 

0.48

 

          0.37

 

        0.67

     Diluted

0.78

 

0.47

 

          0.36

 

        0.66

 

 

 

 

 

 

 

 

 

2009

 

First

 

Second

 

Third

 

Fourth

Net sales

$180,695

 

$155,510

 

$130,970

 

$139,911

Gross profit

57,118

 

45,580

 

32,000

 

41,277

Net income

4,994

 

2,149

 

(18,225)

 

5,677

EARNINGS PER SHARE

 

 

 

 

 

 

 

     Basic

0.41

 

0.17

 

       (1.48)

 

        0.46

     Diluted

0.40

 

0.17

 

       (1.48)

 

        0.45

 

 

 

 

 

 

 

 

Note:  Basic and diluted earnings per share are computed independently for each reporting period.  Accordingly, the sum of the quarterly earnings per share amounts may not agree to the year-to-date amounts.


20.  SUBSEQUENT EVENT


Subsequent to the end of fiscal 2010, the Company completed the sale of an excess facility located in Lyon, France.  The Company anticipates recording a pretax gain of approximately $3.9 million and will realize cash proceeds of $3.6 million, net of associated costs.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of

Standex International Corporation

Salem, New Hampshire


We have audited the accompanying consolidated balance sheets of Standex International Corporation and subsidiaries (the "Company") as of June 30, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended June 30, 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial





statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Standex International Corporation and subsidiaries as of June 30, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2010, in conformity with accounting principles generally accepted in the United States of America.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June 30, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 27, 2010 expressed an unqualified opinion on the Company's internal control over financial reporting.


/s/ Deloitte & Touche LLP


Boston, Massachusetts

August 27, 2010



Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure


Not Applicable



Item 9A.  Controls and Procedures


The management of the Company including its Chief Executive Officer, and Chief Financial Officer, have conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of June 30, 2010, that the disclosure controls and procedures are effective in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is  (i) recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms and (ii) 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 were no changes in the Company’s internal control over financial reporting identified in connection with management’s evaluation that occurred during the fourth quarter of our fiscal year (ended June 30, 2010) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.


Management's Report on Internal Control over Financial Reporting


The management of Standex is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Section 240.13a-15(f) of the Exchange Act).  The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Management, including the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of the end of the fiscal year covered by this report on Form 10-K.  In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control-Integrated Framework.”  These criteria are in the areas of control environment, risk assessment, control activities, information and communication and monitoring.  Management’s assessment included documenting, evaluating and testing the design and operating effectiveness of our internal control over financial reporting.


Based on the Company’s processes, as described above, management, including the Chief Executive Officer and the Chief Financial Officer, has concluded that our internal control over financial reporting was effective as of June 30, 2010 to provide reasonable assurance of achieving its objectives.  These results were reviewed with the Audit Committee of the Board of Directors.  Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an unqualified attestation report on the Company’s internal control over financial reporting, which is included below.


Inherent Limitation on Effectiveness of Controls






No matter how well designed, internal control over financial reporting has inherent limitations.  Internal control over financial reporting determined to be effective can provide only reasonable, not absolute, assurance with respect to financial statement preparation and may not prevent or detect all misstatements that might be due to error or fraud.  In addition, a design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of

Standex International Corporation

Salem, New Hampshire


We have audited the internal control over financial reporting of Standex International Corporation and subsidiaries (the "Company") as of June 30, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.


Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended June 30, 2010 of the Company and our report dated August 27, 2010 expressed an unqualified opinion on those financial statements.


/s/ Deloitte & Touche LLP


Boston, Massachusetts

August 27, 2010



Item 9B.  Other Information






On August 25, 2010, the Compensation Committee of the Board of Directors authorized the amending of the existing employment agreements between the Company and certain of its executives, including all of the “named executive officers” for proxy reporting purposes, to state that the lump sum payment to be received by such executives upon “termination,” as defined in the agreements, following a change in control, shall be based upon the higher of the most recent annual bonus paid to the executive or his or her target bonus amount under the annual incentive program, as in effect immediately prior to the change in control.  Presently, the lump sum payment is based upon the most recent annual bonus paid to the executive.  As a result, the lump sum payment to which an executive will be entitled in such circumstances will be based upon the executive’s then current base salary plus the higher of the most recent annual bonus paid to the executive or his or her target bonus amount under the Company’s annual incentive program as in effect immediately prior to the change in control.


The amending of the agreement does not apply to any executive whose agreement did not provide for such a lump sum payment.



PART III


Item 10.  Directors, Executive Officers and Corporate Governance


The Company will file with the Securities and Exchange Commission (“SEC”) a definitive Proxy Statement no later than 120 days after the close of the fiscal year ended June 30, 2010 (the “Proxy Statement”).  The information required by this item and not provided in Part 1 of this report under Item 1 “Executive Officers of Standex” is incorporated by reference from the Proxy Statement under the captions “Election of Directors,” “Stock Ownership in the Company,” “Other Information Concerning the Company, Board of Directors and its Committees” and “Section 16(a) Beneficial Ownership Reporting Compliance.”


There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.  Information regarding the process for identifying and evaluating candidates for director are set forth and incorporated in reference to the information in the Proxy Statement under the caption “Corporate Governance/Nominating Committee Report.”


Information regarding the Audit Committee Financial Expert and the identification of the Audit Committee is incorporated by reference to the information in the Proxy Statement under the caption “Other Information Concerning the Company Board of Directors and its Committee, Audit Committee.”  The Audit Committee is established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act.


We maintain a corporate governance section on our website, which includes our code of ethics for senior financial management that applies to our chief executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions.  Our corporate governance section also includes our code of business conduct and ethics for all employees.  In addition, we will promptly post any amendments to or waivers of the code of ethics for senior financial management on our website.  You can find this and other corporate governance information at www.standex.com.  



Item 11.  Executive Compensation


Information regarding executive compensation is incorporated by reference from the Proxy Statement under the captions and sub-captions:  “Executive Compensation,” “Compensation Discussion and Analysis,” “Report of the Compensation Committee,” “2010 Summary Compensation Table,” “Other Information Concerning the Company Board of Directors and Its Committees,” and “Directors Compensation.”  



Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


The stock ownership of each person known to Standex to be the beneficial owner of more than 5% of its Common Stock is incorporated by reference in the Proxy Statement under the caption “Stock Ownership of Certain Beneficial Owners.”  The beneficial ownership of Standex Common Stock of all directors and executive officers of the Company is incorporated by reference in the Proxy Statement under the caption and sub-caption “Stock Ownership in the Company” and “Stock Ownership by Directors, Nominees for Directors and Executive Officers,” respectively.


The Equity Compensation Plan table below presents information regarding the Company’s equity based compensation plan at June 30, 2010.


 

(A)

 

(B)

 

(C)

 

 

 

 

 

Number of Securities

 

 

 

 

 

Remaining Available








 

Number of Securities

 

Weighted-Average

 

For Future Issuance

 

To Be Issued Upon

 

Exercise Price Of

 

Under Equity

 

Exercise Of

 

Outstanding

 

Compensation Plans

 

Outstanding Options,

 

Options, Warrants

 

(Excluding Securities

Plan Category

Warrants And Rights

 

And Rights

 

reflected in Column (A))

 

 

 

 

 

 

Equity compensation plans approved by

 

 

 

 

 

  stockholders

409,502

 

$3.27

 

438,892

 

 

 

 

 

 

Equity compensation plans not approved

 

 

 

 

 

  by stockholders

--

 

--

 

--

 

 

 

 

 

 

Total

409,502

 

$3.27

 

438,892

 

 

 

 

 

 

The Company has one equity compensation plan, approved by stockholders, under which equity securities of the Company have been authorized for issuance to employees and non-employee directors.  This plan is further described in the “Notes to Consolidated Financial Statements” under the heading “Stock-Based Compensation and Purchase Plans.”



Item 13.  Certain Relationships and Related Transactions and Director Independence


Information regarding certain relationships and related transactions is incorporated by reference in the Proxy Statement under the caption and sub-caption “Certain Relationships and Related Transactions” And “Stock Ownership by Directors, Nominees for Director and Executive Officers,” respectively.


Information regarding director independence is incorporated by reference in the Proxy Statement under the caption “Election of Directors - Determination of Independence.”



Item 14.  Principal Accountant Fees and Services


This Information in addition to information regarding aggregate fees billed for each of the last two fiscal years for professional services rendered by the professional accountant for audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-K as well as others are incorporated by reference in the Proxy Statement under the caption “Independent Auditors’ Fees.”



PART IV


Item 15.  Exhibits and Financial Statement Schedules


(a)(1)

Financial Statements


Financial Statements covered by the Report of Independent Registered Public Accounting Firm

(A)

Consolidated Statements of Operations for the fiscal years ended June 30, 2010, 2009 and 2008

(B)

Consolidated Balance Sheets as of June 30, 2010 and 2009

(C)

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the fiscal years ended June 30, 2010, 2009 and 2008

(D)

Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2010, 2009 and 2008

(E)

Notes to Consolidated Financial Statements


    (2)

Financial Statements Schedule

The following financial statement schedule is included as required by Item 8 to this report on Form 10-K

Schedule II – Valuation and Qualifying Accounts is included in the Notes to Consolidated Financial Statements

All other schedules are not required and have been omitted


    (3)

Exhibits


       Incorporated





Exhibit

       by Reference      

   Filed   

Number

                    Exhibit Description                         

Form

     Date

Herewith


(b)

3.

(i)

Restated Certificate of Incorporation of Standex,

10-Q

12/31/1998

dated October 27, 1998 filed as Exhibit 3(i).


(ii)

By-Laws of Standex, as amended, and restated on

8-K

10/30/2008

October 28, 2008 filed as Item 5.03, Exhibit 3.(b)


4.

(a)

Agreement of the company, dated September 15, 1981,

10-K

6/30/1981

to furnish a copy of any instrument with respect to

certain other long-term debt to the Securities and

Exchange Commission upon its request filed as

Exhibit 4.


10.

(a)

Amended and Restated Employment Agreement

X

dated August 25, 2010 between the Company

and Roger L. Fix*


(b)

Amended and Restated Employment Agreement

X

dated August 25, 2010 between the Company

and John Abbott*


(c)

Amended and Restated Employment Agreement

X

dated August 25, 2010 between the Company

and Thomas D. DeByle*


(d)

Amended and Restated Employment Agreement

X

dated August 25, 2010 between the Company

and Deborah A. Rosen*


(e)

Amended and Restated Employment Agreement

X

dated August 25, 2010 between the Company

and James L. Mettling*


(f)

Standex International Corporation 2008 Long

8-K

10/30/2008

Term Incentive Plan, effective October 28, 2008

Filed as Exhibit 10.*


(g)

Standex International Corporation Executive

10-Q

3/31/2001

Security Program, as amended and restated on

January 31, 2001 filed as Exhibit 10(a).*


(h)

Standex International Corporation Executive Life

10-K

6/30/2001

Insurance Plan effective April 27, 1994 and as

Amended and restated on April 25, 2001 filed

as Exhibit 10(k).*


(i)

Standex International Corporation Supplemental

10-K

6/30/1995

Retirement Plan adopted April 26, 1995 and

Amended on July 26, 1995 filed as Exhibit 10(n).*


(j)

Standex International Corporation Key Employee

10-K

6/30/2003

Share Option Plan dated June 27, 2002 filed

as Exhibit 10(p).*


(k)

Form of Indemnification Agreement for directors

8-K

5/5/2008

and executive officers of the Company filed as

Item 1.01, Exhibit 10.*


(l)

Executive Officer long-term performance share

8-K

8/28/2008

Unit awards filed as Item 5.02.*


(m)

Executive Officer long-term and annual incentive

8-K

8/31/2005





awards filed as Item 1.01.*


(n)

Standex Deferred Compensation Plan for highly

8-K

1/31/2008

compensated employees filed as Item 5.02.*


(o)

Annual and long term incentive awards to the

8-K

8/31/2005

Named Executive Officers of the Company under

the 1998 Long-Term Incentive Plan of the Company

granted on August 30, 2005 filed as Item 1.01.*


(p)

Standex International Corporation Amended and

8-K

10/31/2005

Restated 1998 Long-Term Incentive Plan filed

as Exhibit 10.1*


(q)

Restricted stock Unit Award granted to Roger L.

8-K

1/27/3006

Fix dated January 25, 2006 filed as Item 1.01.*



(r)

Credit Agreement dated December 31, 2005

10-Q

12/31/2005

between the Company and co-lead arrangers

KeyBank National Association and banc of

America Securities LLC and other lending

institution for a five-year revolving senior credit

facility filed as Exhibit 10.



(s)

Grant of annual performance awards consisting of

8-K

9/2/2006

target incentives for fiscal year 2007 to Named

Executive Officers of the Company under the 1998

Long-Term Incentive Plan of the Company granted

on August 30, 2006 filed as Item 1.01.*


(t)

Grant of long term performance awards and stock

8-K

9/15/2006

awards to Named Executive Officers of the Company

under the 1998 Long-Term Incentive Plan of the

Company granted on September 11, 2006 filed

as Item 1.01.*


(u)

Amendment to Directors’ Compensation Program

8-K

11/2/2006

for members of the Board of Directors of the

Company filed as Item 1.01.*


(v)

Stock Purchase Agreement dated January 9, 2007

8-K

1/11/2007

among the Company and the shareholders of

Associated American Industries, Inc. for the

acquisition by the Company of all of the outstanding

shares of stock of AAII filed as Items 1.01, 2.01 and 9.01.


(w)

Grant of annual performance share units consisting

8-K

8/28/2007

of target incentives for fiscal year 2008 to Named

Executive Officers of the Company under the 1998

Long-Term Incentive Plan of the Company granted

On August 28, 2007 field as Item 5.02(e).*


(x)

Grant of annual performance share units consisting

8-K

9/19/2007

of target incentives for fiscal year 2008 to Roger L.

Fix and John Abbott under the 1998 Long-Term

Incentive Plan of the Company granted on

September 19, 2007 and filed as Item 5.02(e).*


14.

Code of Ethics for chief Executive Officer and

10-K

6/30/2005

Senior Financial Officers is incorporated by

reference as Exhibit 14.






21.

Subsidiaries of Standex International Corporation

X


23.

Consent of Independent Registered Public

X

Accounting Firm


24.

Powers of Attorney of Charles H. Cannon, Thomas E.

X

Chorman, William R. Fenoglio, Gerald H. Fickenscher,

Daniel B. Hogan, H. Nicholas Muller, III, Ph. D.,

Deborah A. Rosen and Edward J. Trainor


31.1

Rule 13a-14(a) Certification of President and

X

Chief Executive Officer



31.2

Rule 13a-14(a) Certification of Vice President and

X

Chief Financial Officer


32.

Section 1350 Certification

X


*   Management contract or compensatory plan or arrangement.




SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Standex International Corporation has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on August 27, 2010.


STANDEX INTERNATIONAL CORPORATION

(Registrant)




/s/ ROGER L. FIX

Roger L. Fix

President/Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Standex International Corporation and in the capacities indicated on August 27, 2010:

Signature

Title

/s/ ROGER L. FIX

President/Chief Executive Officer

Roger L. Fix

/s/ THOMAS D. DEBYLE

Vice President/Chief Financial Officer

Thomas D. DeByle

/s/ SEAN VALASHINAS

Chief Accounting Officer

Sean Valashinas

Roger L. Fix, pursuant to powers of attorney which are being filed with this Annual Report on Form 10-K, has signed below on August 27, 2010 as attorney-in-fact for the following directors of the Registrant:


Charles H. Cannon

Thomas E. Chorman

William R. Fenoglio

H. Nicholas Muller, III, Ph.D.

Gerald H. Fickenscher

Deborah A. Rosen

Daniel B. Hogan

Edward J. Trainor

/s/ ROGER L. FIX

Roger L. Fix





Supplemental Information to be furnished with reports filed pursuant to Section 15(d) of the Act by Registrants which have not registered securities pursuant to Section 12 of the Act.

The Company will furnish its 2010 Proxy Statement and proxy materials to security holders subsequent to the filing of the annual report on this Form.  Copies of such material shall be furnished to the Commission when they are sent to security holders.



INDEX TO EXHIBITS


PAGE

10(a)

Amended and Restated Employment Agreement between the Company and Roger L. Fix

10(b)

Amended and Restated Employment Agreement between the Company and John Abbott

10(c)

Amended and Restated Employment Agreement between the Company and Thomas D. DeByle

10(d)

Amended and Restated Employment Agreement between the Company and Deborah A. Rosen

10(e)

Amended and Restated Employment Agreement between the Company and James L. Mettling

21.

Subsidiaries of Standex

23.

Consent

of Independent Registered Public Accounting Firm


24.

Powers of Attorney of Charles H. Cannon, Thomas E. Chorman, William R. Fenoglio, Gerald Fickenscher, Daniel B. Hogan, H. Nicholas Muller, III, Ph.D., Deborah A. Rosen and Edward J. Trainor

31.1

Rule 13a-14(a) Certification of President and Chief Executive Officer

31.2

Rule 13a-14(a) Certification of Vice President and Chief Financial Officer

32.

Section 1350 Certification




END OF FORM 10-K

SUPPLEMENTAL INFORMATION FOLLOWS



Board of Directors

Title

Edward J. Trainor4

Chairman


Charles H. Cannon, Jr.,2, 4

Chairman and CEO, JBT Corporation


Thomas E. Chorman1, 3

CEO, Solar LED Innovations,LLC






William R. Fenoglio1, 4

Former President/CEO, Augat, Inc.


Gerald H. Fickenscher1, 3

Retired Vice President Europe, Middle East,

and Africa, Crompton Corporation

Roger L. Fix4

President and Chief Executive Officer

Daniel B. Hogan, Ph. D. 2, 3

Executive Director, Passim Folk Music and Cultural Center

H. Nicholas Muller, III, Ph.D. 2, 3

Former President/CEO, Frank Lloyd Wright Foundation

Deborah A. Rosen

Vice President, Chief Legal Officer and Secretary

________________________

1

Member of Audit Committee

2

Member of Compensation Committee

3

Member of Corporate Governance/Nominating Committee

4

Member of Executive Committee


Corporate Officers

Roger L. Fix

President and Chief Executive Officer

Thomas D. DeByle

Vice President, Chief Financial Officer and Treasurer

Deborah A. Rosen

Vice President, Chief Legal Officer and Secretary

Stacey S. Constas

Corporate Governance Officer and Assistant Secretary

Sean Valashinas

Chief Accounting Officer and Assistant Treasurer

E. James Haggerty

Tax Director


Operating Management

FOOD SERVICE EQUIPMENT GROUP

John Abbott

Group Vice President of Food Service Equipment Group

Cooking Solutions Group

E. J. Morrow

President

Refrigerated Solutions Group

Charles Dullea

President

American Foodservice

Michael Palmer

President

Federal Industries

John W. Minahan

President

Master-Bilt Products

David Parks

President

Nor-Lake, Incorporated

Charles Dullea

President

Procon Products

Paul Roberts

President


AIR DISTRIBUTION PRODUCTS GROUP

Snappy/ACME/ALCO





Thomas H. Smid

President


ENGINEERING TECHNOLOGIES

Spincraft

Leonard Paolillo

President


ENGRAVING GROUP

Standex Engraving

Phillip R. Whisman

President

International Operations

Flavio Maschera

President


ELECTRONICS AND HYDRAULICS

Standex Electronics, Inc.

John Meeks

President

Custom Hoists, Inc.

Gary Carpenter

Executive Vice President


Shareholder Information


Corporate Headquarters

Standex International Corporation

11 Keewaydin Drive

Salem, NH   03079

(603) 893-9701

Facsimile:  (603) 893-7324

www.standex.com


Common Stock

Listed on the New York Stock Exchange

(Ticker symbol:   SXI)


Transfer Agent and Registrar

Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ  07016

(800) 866-1340

www.RTCO.com



Independent Auditors

Deloitte & Touche LLP

200 Berkeley Street

Boston, MA   02116-5022


Shareholder Services

Stockholders should contact Standex’s Transfer Agent (Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016) regarding changes in name, address or ownership of stock; lost certificates of dividends; and consolidation of accounts.


Stockholders’ Meeting

The Annual Meeting of Stockholders will be held at 11:00 a.m. on Wednesday, October 27, 2010 at the Boston/Woburn Hilton Hotel, 2 Forbes Rd., Salon A, Woburn, MA 01801; 781-932-0999.