STANDEX INTERNATIONAL CORP/DE/ 10-K

Item 1. Business   Standex International Corporation was incorporated in 1975 and is the successor of a corporation organized in 1955. As used in this report, the terms “we,” “us,” “our,” the “Company” and “Standex” mean Standex International Corporation and its subsidiaries. We have paid dividends each quarter since Standex became a public corporation in November 1964. Overall management, strategic development and financial control are led by the executive staff at our corporate headquarters in Salem, New Hampshire.   Unless otherwise noted, references to years are to fiscal years. Currently our fiscal year end is June 30.  For further clarity, our fiscal year 2021 includes the twelve-month period from July 1, 2020 to June 30, 2021.   We are a diversified industrial manufacturer with leading positions in a variety of products and services that are used in diverse commercial and industrial markets. We have seven operating segments aggregated into five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. Three operating segments are aggregated into Specialty Solutions. Our segments differentiate themselves by collaborating with our customers in order to develop and deliver custom solutions or engineered components that solve problems for our customers or otherwise meet their needs (a business model we refer to as “Customer Intimacy”).    2       Our long-term strategy is to enhance shareholder value by building larger, more profitable focused industrial platforms through our Standex Value Creation System that assists management in meeting specific corporate and business unit financial and strategic performance goals in order to create, improve, and enhance shareholder value. In so doing, we expect to focus our financial assets and managerial resources on our higher growth and operating margin businesses while considering divestiture of those businesses that we feel are not strategic or do not meet our growth and return expectations.    The Standex Value Creation System is a methodology which provides standard work and consistent tools used throughout the Company in order to achieve our organization’s goals. The Standex Value Creation System employs four components: Balanced Performance Plan, Growth Disciplines, Operational Excellence, and Talent Management. The Balanced Performance Plan process aligns annual goals throughout the Company and provides a standard reporting, management and review process.  It is focused on setting, tracking and reviewing annual and quarterly targets that support our short and long-term goals.  The Growth Disciplines use a standard playbook of tools and processes including market maps, market tests and growth laneways to identify, explore and execute on opportunities that expand the business organically and through acquisitions.  Operational Excellence also employs a standard playbook of tools and processes, based on LEAN, to improve operating execution (effectiveness), eliminate waste (efficiency) and thereby improve profitability, cash flow and customer satisfaction.  Finally, Talent Management is an organizational development process that provides recruitment, training, development, and succession planning for employees throughout our worldwide organization.  Through the use of our Standex Value Creation System, we have developed a balanced approach to value creation.  We intend to continue investing acquisition capital in high margin and growth businesses, and we will continue to support all of our businesses as they enhance value through deployment of the Standex Valuation Creation System.   It is our objective to grow larger and more profitable business units through both organic initiatives and acquisitions.  We seek to identify and implement organic growth initiatives such as new product development, geographic expansion, and the introduction of products and technologies into new markets, key accounts and strategic sales channel partners.  Also, we have a long-term objective to create sizable business platforms by adding strategically aligned or “bolt on” acquisitions to strengthen the individual businesses, create both sales and cost synergies with our core business platforms, and accelerate their growth and margin improvement. We have a particular focus on identifying and investing in opportunities that complement our products and will increase the global presence and capabilities of our businesses.  From time to time, we have divested, and likely will continue to divest, businesses that we feel are not strategic or do not meet our growth and return expectations.   Our objective to grow larger and more profitable business platforms also relies upon Operational Excellence, which drives continuous improvement and thereby margin expansion of our businesses. We recognize that our businesses are competing in a global economy that requires us to improve our competitive position, and we continue to deploy these capabilities to drive improvements in the cost structure of our businesses. These efforts include but are not limited to the application of LEAN, the use of low cost manufacturing facilities in countries such as Mexico, China, and India, the consolidation of manufacturing facilities to achieve economies of scale and leveraging of fixed infrastructure costs, the use of alternate sourcing to achieve procurement cost reductions, and the investment of capital to increase productivity in both the shop floor and back-office.   The Company’s strong historical cash flow has been a cornerstone for funding our capital allocation strategy.  We use cash flow generated from operations to fund investments in capital assets to upgrade our facilities, improve productivity and lower costs, invest in the strategic growth programs described above, including organic growth and acquisitions, and to return cash to our shareholders through payment of dividends and stock buybacks.    Please visit our website at www.standex.com to learn more about us or to review our most recent SEC filings. The information on our website is for informational purposes only and is not incorporated into this Annual Report on Form 10-K.    Description of Segments   Electronics     Our Electronics group is a global component and value-added solutions provider of both sensing and switching technologies along with magnetic power conversion components and assemblies. We are focused on designing, engineering, and manufacturing innovative solutions, components and assemblies to solve our customers’ application needs with a commitment to a customer first attitude through our Partner/Solve/Deliver® approach.  Our approach allows us to expand the business through pursuing organic growth with our current customers, developing new products and technologies for both new and existing customers, driving geographic expansion, and pursuing inorganic growth through strategic acquisitions.   Components are manufactured in plants located in the U.S., Mexico, the U.K., Germany, Japan, China and India.   3     Markets and Applications   Our diverse and highly engineered products and solutions and vertically integrated manufacturing capabilities are vital to an array of markets and provide safe and efficient power transformation, current monitoring, and isolation, as well as sensors and relays to monitor systems for function and safety. The end-user of our engineered solution is typically an original equipment manufacturer (“OEM”) or industrial equipment manufacturer. End-user markets include, but are not limited to, smart-grid, alternative energy, appliances, HVAC, security, military, medical, aerospace, test and measurement, power distribution, transportation and general industrial applications.   Brands   Business unit names are Standex Electronics, Standex-Meder Electronics, Renco Electronics, Northlake Engineering, Agile Magnetics, Standex Electronics Japan, and the MEDER, KENT, and KOFU reed switch brands.   Products   Our sensing products employ technologies such as reed switch, Hall effect, inductive, conductive and other technologies. Sensing based solutions include reed relays, fluid level, proximity, motion, flow, HVAC condensate as well as custom electronic sensors containing our core technologies. The magnetics or power conversion products include custom wound transformers and inductors for low and high frequency applications, current sense technology, advanced planar transformer technology, value added assemblies, and mechanical packaging.   Customers   The business sells to a wide variety of industrial, medical, power, automotive and consumer goods customers globally through a direct sales force, regional sales managers, and field applications engineers, commissioned agents, representative groups, and distribution channels.   Engraving   Engraving creates custom textures and surface finishes on tooling to enhance the beauty and function of a wide range of consumer goods and automotive products. We focus on continuing to meet the needs of a changing marketplace by offering experienced craftsmanship while investing in new technologies such as laser engraving and soft surface skin texturized tooling. Our growth strategy is to continue to develop new technologies to enhance surface textures, both organically and with bolt-on acquisitions. We are one company operating in 23 countries using a consistent approach to guarantee harmony on global programs in service of our customers.   Markets and Applications   Standex Engraving Mold Tech has become the global leader in its industry by offering a full range of services to OEM’s, Tier 1 suppliers, mold makers and product designers. From start to finish, these services include the design of bespoke textures, the verification of the texture on a prototype, engraving a mold, enhancing and polishing it, and then offering on-site try-out support with ongoing tool maintenance and texture repair capabilities. In addition to these services, we also produce soft trim tooling such as in mold graining (IMG) and nickel shells.   In addition to the Mold Tech brand, Engraving companies and brands also include:     ● Piazza Rosa and World Client Services which both offer laser engraving and tool finishing in Europe and Mexico.   ● Tenibac-Graphion which provides additional texturizing and prototyping capabilities in North America and China.   ● GS Engineering which employs advanced processes and technology to rapidly produce molds for the creation of soft-touch surfaces.   ● Innovent, located in North America and Europe, which is a specialized supplier of tools and machines used to produce diapers and products that contain absorbent materials between layers of non-woven fabric.   4     Products and Services Texturing is achieved with either a laser or a chemical etching technique.     ● Laser Engraving offers superior features, such as multiple gloss levels, the elimination of paint and optimized scratch performance, and sharp definition for precise geometric patterns.   ● Chemical Engraving produces carefully designed textures and finishes without seams or distortion. Our Digital Transfer Technology offers an exclusive service which guarantees consistency, pattern integrity and texture harmony around the world.     Architexture Design Studio  uses proprietary technology called Model-Tech® which utilizes proven expertise to create and test custom textures. During the Model-Tech process, an original texture is first designed to offer beauty and function which ultimately is used to create a large-format skin that can be wrapped on a model for testing.   Tooling Performance services include the enhancement, finishing and repair of a tool to improve its use during manufacturing.       ● Tool Enhancement services increase the wear resistance of the mold. Processes include advanced tool finishing services, anti-scratch, laser hardening in localized areas, Tribocoat® and Release Coat.   ● Tool Finishing and Repair allows customers to achieve outstanding quality while saving valuable time. These services include laser micro-welding, polishing and lapping, laser cladding to accommodate engineering changes, mold assembly, tool management, maintenance, texture repair and on-site support.   Soft Trim Tooling and nickel shell molds are used to produce soft surfaces that emulate the feel of natural materials.    Customers   The Engraving business has become the global leader providing these products and services by offering a full range of services to automotive OEM’s, product designers, Tier 1 suppliers and toolmakers all around the world.   Scientific   The Scientific business is a provider of specialty temperature-controlled equipment for the medical, scientific, pharmaceutical, biotech and industrial markets. The group designs and produces its products in Summerville, SC.   Our product portfolio is used to control the temperatures of critical healthcare products, medications, vaccines and laboratory samples.  We focus on solving customer problems for these critical applications and deliver innovative products and solutions meeting the unique needs of our customers.   Markets and Applications   The scientific and healthcare equipment that we design and manufacture is used in hospitals, pharmacies, clinical laboratories, reference laboratories, physicians’ offices, life science laboratories, government facilities, and industrial testing laboratories.  Our product offerings include:     ● Laboratory and medical grade refrigerators, freezers and accessories,   ● Cryogenic storage tanks and accessories,   ● Environmental stability chambers and incubators.   Brands   Our products are sold under a number of different brands including American BioTech Supply (ABS), Lab Research Products (LRP), Cryosafe, and CryoGuard.   Customers   Scientific products are sold to medical and laboratory distributors, healthcare facilities, research universities, pharmaceutical companies, and pharmacies.   5     Engineering Technologies   The Engineering Technologies Group is a provider of innovative, metal-formed solutions for OEM and Tier 1 manufacturers for their advanced engineering designs.   Our solutions seek to reduce input weight, material cost, part count, and complexity for unique customer design challenges involving all formable materials with particular focus on large dimensions, large thickness or thin-wall construction, complex shapes and contours, and/or single-piece construction requirements. Engineering Technologies devises and manufactures these cost-effective components and assemblies by combining a portfolio of best-in-class forming technologies and technical experience, vertically integrated manufacturing processes, and group wide technical and design expertise.   We intend to grow sales and product offerings by investing in advancements in our current and new technologies and identifying new cutting-edge solutions for these capabilities in existing and adjacent markets via customer and research collaboration.    Our segment is comprised of our Spincraft businesses with locations in Billerica, MA, New Berlin, WI, and Newcastle upon Tyne in the U.K.   Brands   This business unit’s brand name is Spincraft.   Markets and Applications   Spincraft products serve applications within the space, aviation, defense, energy, medical, and general industrial markets.     ● The space market we serve is comprised of components for space launch systems including fuel tanks, tank domes, combustion liners, nozzles, and crew vehicle structures.   ● The aviation market offerings include a large portfolio of components and assemblies including inlet ducts and lipskins.   ● The defense market we serve covers a wide spectrum of metal applications including missile nose cones and fabrications, large dimension exhaust systems, navy-nuclear propulsion, and engine components for military aircraft   ● Applications within the energy market include components and assemblies for new and MRO gas turbines, as well as solutions for oil & gas exploration operations     Customers   Engineering Technologies components are sold directly to large space, aviation, defense, energy and medical companies, or suppliers to those companies.   Specialty Solutions   Specialty Solutions is a collection of our three remaining businesses: Federal Industries, Procon, and Custom Hoists. These businesses differentiate themselves in their respective markets by collaborating with our customers in order to develop and deliver custom solutions.    Federal Industries provides merchandising solutions to retail and food service customers whose revenue stream is enhanced through food presentation. Federal focuses on the challenges of enabling retail and food service establishments to provide food and beverages that are fresh and appealing while at the same time providing for food safety, and energy efficiency. Our key differentiator is the ability to customize products to match customers’ décor within industry lead-time. This differentiator is used to target the convenience store, school cafeterias and quick-service restaurant segments.   Procon is a global supplier of pump solutions to the beverage, medical, welding and ink markets. Through collaboration between our customers and our product development teams, we provide custom fluid pumping solutions to OEM manufacturers, and aftermarket distributors. We manufacture globally, utilizing the latest techniques and processes to ensure the highest quality and acute attention to detail in order for our products to meet the demands of the applications and environmental conditions required by our customers.   6   Custom Hoists is a supplier of engineered hydraulic cylinders that meet customer specific requirements for demanding applications. Our engineering expertise coupled with broad manufacturing capabilities and responsiveness to customer needs drives our top line growth opportunities.  We leverage our full line of products for the construction markets in dump truck and trailer applications and deep expertise in the refuse market to expand into new adjacent markets, targeting the most challenging custom applications.  Flexible design capability, a global supply chain and speed to market enable us to be successful in growing our business.  Our team is dedicated to superior customer service through our technical engineering support and on-time delivery.     Specialty Solutions Locations   Specialty Solutions products are designed and/or manufactured in Hayesville, OH; Smyrna TN; Nogales, MX; Belleville, WI; Tianjin, China; and Mountmellick, Ireland.   Markets and Applications   Federal custom designs and manufactures refrigerated, heated and dry merchandising display cases for bakery, deli, confectionary and packaged food products utilized in restaurants, convenience stores, quick-service restaurants, supermarkets, drug stores and institutions such as hotels, hospitals, and school cafeterias.   Procon custom fluid pump solutions are sold into the global carbonation, coffee, and beer chilling beverage markets as well as reverse osmosis water treatment, medical, welding, and industrial ink-jet printer markets.   Industries that utilize Custom Hoists' single and double acting telescopic and piston rod hydraulic cylinders include construction equipment, refuse, airline support, mining, oil and gas, and other material handling applications.  We also sell specialty pneumatic cylinders and promote complete wet line kits, which are complete hydraulic systems that include a pump, valves, hoses and fittings.  Our products are utilized by OEMs on vehicles such as dump trucks, dump trailers, bottom dumps, garbage trucks (both recycling and rear loader), container roll off vehicles, hook lift trucks, liquid waste handlers, vacuum trucks, compactors, balers, airport catering vehicles, container handling equipment for airlines, lift trucks, yard tractors, and underground mining vehicles.    Customers   Specialty Solutions products are sold to OEMs, distributors, service organizations, aftermarket repair outlets, end-users, dealers, buying groups, consultants, government agencies and manufacturers.   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.   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 product performance and technology, price, delivery schedule, quality of services, and other terms and conditions.   International Operations   International operations are conducted at 41 locations, in Europe, Canada, China, Japan, India, Southeast Asia, Korea, Mexico, Brazil, and South Africa. See the Notes to Consolidated Financial Statements for international operations financial data. Our net sales from continuing international operations increased from 40% in 2020 to 41% in 2021. 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, restrictions of repatriation of earnings, and changes in currency exchange rates.   Research and Development   We develop and design new products to meet customer needs in order to offer enhanced products or to provide customized solutions for customers. Developing new and improved products, broadening the application of established products, and continuing efforts to improve our methods, processes, and equipment continues to drive 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.    7     Environmental Matters   Based on our knowledge and current known facts, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate (i) any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position or (ii) any material capital expenditures for environmental control facilities.   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, “Revenue from Contracts with Customers.”   Number of Employees   As of June 30, 2021, we employ approximately 3,900 employees of which approximately 1,200 are in the United States. About 200 of our U.S. employees are represented by unions. Approximately 43% of our production workforce is situated in low-cost manufacturing regions such as Mexico and portions of Asia.   Executive Officers of Standex   The executive officers of the Company as of June 30,  2021 are a s follows:   Name Age Principal Occupation During the Past Five Years       David Dunbar 59 President and Chief Executive Officer of the Company since January 2014.       Ademir Sarcevic 46 Vice President and Chief Financial Officer of the Company since September 2019. Various positions over the years at Pentair plc from 2012 to September 2019 with increasing responsibility ending as Senior Vice President and Chief Accounting Officer.       Alan J. Glass 57 Vice President, Chief Legal Officer and Secretary of the Company since April 2016.        Sean Valashinas 50 Vice President, Chief Accounting Officer and Assistant Treasurer of the Company since October 2007.       Paul Burns 48 Vice President of Strategy and Business Development since July 2015.       Annemarie Bell 57 Vice President, Chief Human Resources Officer since July 2021, Vice President of Human Resources since June 2019, Interim Vice President of Human Resources from October 2018 through June 2019; Vice President of Human Resources for four of Standex business units from October 2015 through October 2018       James Hooven 50 Vice President of Operations and Supply Chain since February 2020, Integration Leader and Senior Vice President of Operations for Hillenbrand Inc. from June 2017 to February 2020, several management roles with Steel Partners Holdings from September 2011 to June 2017 including GM Industrial/Commercial Products from July 2015 to June 2017.    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.”     8     Available Information   Standex’s corporate headquarters are at 23 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 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. 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, 23 Keewaydin Drive, Salem, New Hampshire, 03079.”