Standex International Corp: Form 10-Q for the period ended Sep 30, 2026

Forward-Looking Statements

Statements contained in this periodic report that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the Company’s business and the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated. These factors include, but are not limited to: the impact of international hostilities, pandemics and other global crises or catastrophic events on employees, our supply chain, and the demand for our products and services around the world; materially adverse or unanticipated legal judgments, fines, penalties or settlements; conditions in the financial and banking markets, including fluctuations in exchange rates and the inability to repatriate foreign cash; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the automotive, construction, aerospace, defense, transportation, electrification, consumer appliance, energy, oil and gas and general industrial markets; lower-cost competition; the relative mix of products which impact margins and operating efficiencies in certain of our businesses; the impact of higher raw material and component costs, particularly steel, certain materials used in electronics parts, petroleum based products, and refrigeration components; the impact of higher transportation and logistics costs, especially with respect to transportation of goods from Asia; an inability to realize the expected cost savings from restructuring activities including effective completion of plant consolidations, cost reduction efforts including procurement savings and productivity enhancements, capital management improvements, strategic capital expenditures, and the implementation of lean enterprise manufacturing techniques; the potential for losses associated with the exit from or divestiture of businesses that are no longer strategic or no longer meet our growth and return expectations; the inability to achieve the savings expected from global sourcing of raw materials and diversification efforts in emerging markets; the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs; the inability to attain expected benefits from acquisitions and the inability to effectively consummate and integrate such acquisitions and achieve synergies envisioned by the Company; market acceptance of our products; our ability to design, introduce and sell new products and related product components; the ability to redesign certain of our products to continue meeting evolving regulatory requirements; the impact of delays initiated by our customers; our ability to increase manufacturing production to meet demand; the impact on our operations of any successful cybersecurity attacks; and potential changes to future pension funding requirements. For a more comprehensive discussion of these and other factors, see the “Risk Factors” section of the Company’s most recent annual report on Form 10-K filed with the SEC and available on the Company’s website. In addition, any forward-looking statements represent management's estimates only as of the day made and should not be relied upon as representing management's estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management's estimates change.

Overview

We are a diversified industrial manufacturer with leading positions in a variety of products and services that are used in diverse commercial and industrial markets. We are headquartered in Salem, New Hampshire. Our businesses work in close partnership with our customers to deliver custom solutions or engineered components that solve their unique and specific needs, an approach we call "Customer Intimacy".

On July 2, 2026, we acquired the remaining 9.9% interest in India-based Narayan Powertech (Narayan), a leading manufacturer of low voltage and medium voltage instrument transformers.

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

It is our objective to grow larger and more profitable business units through a commitment to both organic and inorganic initiatives. We have a particular focus on identifying and investing in businesses, new products and new applications that complement our existing products and will increase our overall scale, global presence and capabilities. We continue to pursue acquisitions that are strategically aligned with our businesses and where the opportunity meets our investment metrics. We have divested, and likely will continue to divest, businesses that are not strategic or do not meet our growth and return expectations.

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

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

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

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

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

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

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

Results from Continuing Operations

(In thousands, except percentages)

(In thousands)

Net Sales

Net sales increased in the first quarter of fiscal year 2027 by $15.1 million or 7.0%, as compared to the prior year quarter. Organic sales increased by $26.9 million, or 12.4%, primarily due to increased sales into fast growth markets and contributions from new products. Divestitures reduced sales by $9.5 million, or 4.4%. Foreign currency negatively impacted sales by $2.3 million, or 1.0%.

Gross Profit

Gross profit in the first quarter of fiscal year 2027 increased to $103.2 million, or a gross margin of 44.4%, as compared to $90.4 million, or a gross margin of 41.6%, in the first quarter of fiscal year 2026. The margin increase was a result of the continued focus on pricing disciplines and productivity actions.

Selling, General, and Administrative Expenses

Selling, General, and Administrative (“SG&A”) expenses for the first quarter of fiscal year 2027 increased to $60.5 million, or 26.0% of sales as compared to $54.4 million, or 25.0% of sales during the prior year quarter. SG&A expenses during the first quarter of fiscal year 2027 were primarily impacted by increased expenses due to variable compensation, employee medical costs and professional fees as compared to the prior year quarter.

Restructuring Costs

We incurred restructuring expenses of $1.0 million in the first quarter of fiscal year 2027, primarily related to continuation of facility rationalization. We expect to continue seeing realization of these restructuring actions during the fiscal year 2027.

During the first quarter of fiscal year 2026, we incurred restructuring expenses of $6.0 million, primarily related to facility rationalization activities, and announced closure of four sites in our Engraving & Hydraulics segment.

Deal Related Costs

We incurred deal related expenses of $0.4 million in each of the first quarter of fiscal year 2027 and 2026. Deal related expenses primarily consist of costs related to due diligence, advisory, legal, integration, and valuation activities associated with recent or pending acquisitions or divestitures transactions.

Loss on Sale of Business

During the first quarter of fiscal year 2027, we recorded a loss on the sale of $0.9 million, as a result of finalizing the post-closing purchase price adjustment of the Federal Industries business.

Income from Operations

Income from operations for the first quarter of fiscal year 2027 was $40.4 million, compared to $29.6 million during the prior year quarter. The increase of $10.8 million, or 36.4%, is primarily due to increased revenue, productivity improvement initiatives, partially offset by increases in administrative, selling and marketing and research and development expenses.

Interest Expense

Interest expense for the first quarter of fiscal year 2027 was $7.2 million, as compared to $8.9 million in the prior year quarter. The decline is due primarily to a lower average debt balance, more favorable interest rates and interest rate swap. Our effective interest rate for the three months ended September 30, 2026 was 5.49% as compared to 6.10% for the prior year quarter.

Income Taxes

The Company's effective tax rate from continuing operations for the first quarter of fiscal year 2027 and 2026 was 24.7% and 24.6%, respectively.

The tax rate was impacted in the three months ended September 30, 2026 and 2025 by the following items: (i) the recognition of a discrete tax benefit related to equity compensation; (ii) variations in the geographic mix of earnings; (iii) foreign withholding taxes and (iv) federal tax credits related to research and development activities.

Backlog

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

Total backlog realizable under one year increased by $91.7 million, or 37.3%, to $338.0 million at September 30, 2026, from $246.3 million at September 30, 2025. The year over year increase is primarily driven by fast growth end markets.

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

(In thousands)

Segment Analysis

Overall

Looking forward to the remainder of fiscal year 2027, we anticipate continued improvement in key financial metrics, supported by productivity initiatives.

In general, for the remainder of fiscal year 2027, we expect:

• growth of new product sales as recently launched products ramp up and additional launches are introduced;
• continued growth in the high margin electrical grid market;
• continued strength in defense end markets as new platforms continue to ramp;
• space markets to remain attractive, with modest volume increases expected from ongoing customer development;
• scientific cold storage demand to improve with partial recovery in NIH funding;
• continued stability in hybrid and electric vehicle programs despite softness in general automotive end markets, supported by planned new platform launches;
• improved general industrial end market conditions.

Electronics Segment

(In thousands, except percentages)

Net sales in the first quarter of fiscal year 2027 increased by $29.9 million, or 27.1%, when compared to the prior year quarter. Organic sales increased by $32.6 million, or 29.5%, due to sales into fast growth markets, strong general industrial markets and increased new product sales. Foreign currency impact decreased the net sales by $2.6 million or 2.4% as compared to the prior year quarter.

Income from operations in the first quarter of fiscal year 2027 increased by $9.6 million, or 33.9%, when compared to the prior year quarter. The operating income increase was the result of higher volume and pricing initiatives, partially offset by growth investments and higher variable compensation expenses.

In the second quarter of fiscal year 2027, on a sequential basis, we expect slightly higher revenue and similar operating margin, reflecting higher sales into fast growth end markets and increased new product sales.

Aerospace & Defense Segment

(In thousands, except percentages)

Net sales in the first quarter of fiscal year 2027 increased by $1.5 million, or 5.1%, when compared to the prior year quarter. Sales increase was attributable to an organic sales increase of $1.5 million or 5.1% primarily driven by project activity in the space and defense end markets, partially offset by project timing.

Income from operations in the first quarter of fiscal year 2027 increased by $2.2 million, or 61.6%, when compared to the prior year quarter. The increase in operating income was a result of higher volume and project mix.

In the second quarter of fiscal year 2027, on a sequential basis, we expect significantly higher revenue and slightly higher operating margin.

Scientific Segment

(In thousands, except percentages)

Net sales in the first quarter of fiscal year 2027 increased by $0.3 million, or 1.8%, when compared to the prior year quarter due primarily to organic growth from pricing initiatives and a slight market recovery.

Income from operations in the first quarter of fiscal year 2027 increased by $0.9 million, or 19.9%, when compared to the prior year quarter due to higher sales and productivity initiatives.

In the second quarter of fiscal year 2027, on a sequential basis, we expect similar to slightly higher revenue and similar operating margin.

Engraving & Hydraulics Segment

(In thousands, except percentages)

Net sales in the first quarter of fiscal year 2027 decreased by $7.2 million, or 14.9%, when compared to the prior year quarter. Organic sales decreased by $7.5 million or 15.7%, due to softness in the North American automotive market, partially offset by a foreign currency benefit of $0.4 million or 0.7% as compared to the prior year quarter.

Income from operations in the first quarter of fiscal year 2027 decreased by $0.9 million, or 12.5%, when compared to the prior year quarter. The operating income decrease was primarily due to lower volume, partially offset by the realization of previously announced productivity initiatives and restructuring actions.

In the second quarter of fiscal year 2027, on a sequential basis, we expect slightly lower revenue and operating margin.

Other

(In thousands, except percentages)

Due to the divestiture of the Federal Industries business in the third quarter of fiscal year 2026, there were no sales and income from operations in the first quarter of fiscal 2027.

Corporate

(In thousands, except percentages)

21

Corporate expenses in the first quarter of fiscal year 2027 increased as compared to the prior year period primarily due to increase in variable compensation, employee medical costs and professional fees.

The loss on sale of business, restructuring costs and deal related costs have been discussed above in the Company Overview.

Discontinued Operations

In pursuing our business strategy, we may divest certain businesses. Future divestitures may be classified as discontinued operations based on their strategic significance to the Company. Net loss from discontinued operations was approximately $0.1 million for the three months ended September 30, 2026 and 2025. Activity related to discontinued operations is as follows (in thousands):

Liquidity and Capital Resources

At September 30, 2026, our total cash balance was $116.8 million, of which $94.3 million was held by foreign subsidiaries. The amount and timing of cash repatriation is dependent upon foreign exchange rates and each business unit’s operational needs including requirements to fund working capital, capital expenditures, and jurisdictional tax payments. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to capital controls; however, those balances are generally available without legal restrictions to fund ordinary business operations.

Cash flow

Net cash provided by continuing operating activities for the three months ended September 30, 2026, was $15.7 million compared to net cash provided by continuing operating activities of $16.8 million in the prior year period. We generated $38.2 million from income statement activities and used $22.4 million of cash to fund working capital and other balance sheet increases. Cash flow used in investing activities for the three months ended September 30, 2026 totaled $6.6 million and consisted primarily of cash used for capital expenditures. Cash used for financing activities for the three months ended September 30, 2026 totaled $71.5 million and consisted primarily of the purchase of non-controlling interests of $64.0 million, cash paid for dividends of $4.0 million, and treasury stock related taxes of $4.3 million.

Net cash provided by continuing operating activities for the three months ended September 30, 2025, was $16.8 million. We generated $26.3 million from income statement activities and used $9.5 million of cash to fund working capital and other balance sheet increases. Cash flow used in investing activities for the three months ended September 30, 2025 totaled $6.4 million and consisted primarily of cash used for capital expenditures. Cash used for financing activities for the three months ended September 30, 2025 totaled $15.5 million and consisted primarily of repayments of borrowings of $8.0 million, cash paid for dividends of $3.8 million, treasury stock related taxes of $3.7 million and activity under share-based payment plans of $1.1 million.

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

Funds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio, are maintained), and other general corporate purposes.

As of September 30, 2026, we used $3.1 million against the letter of credit sub-facility and had the ability to borrow $168.5 million under the facility based on our current trailing twelve-month EBITDA. The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants. Current financial covenants under the facility are as follows:

Interest Coverage Ratio We are required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Facility”), to interest expense for the trailing twelve months of at least 2.75:1. Adjusted EBIT per the Credit Facility specifically excludes extraordinary and certain other defined items such as cash restructuring and deal related charges up to the lower of $20.0 million or 10% of EBITDA. The facility also allows for unlimited non-cash charges including purchase accounting and goodwill adjustments. At September 30, 2026, the Interest Coverage Ratio was 5.47:1.

Leverage Ratio The ratio of funded debt to trailing twelve month Adjusted EBITDA per the Credit Facility, calculated as Adjusted EBIT per the Credit Facility plus depreciation and amortization, may not exceed 3.5:1. Under certain circumstances in connection with a Material Acquisition (as defined in the Facility), the Facility allows for the leverage ratio to go as high as 4.0:1 for a four-fiscal quarter period. At September 30, 2026, the leverage ratio was 2.34:1.

As of September 30, 2026, we had borrowings under our facility of $518.1 million. In order to manage our interest rate exposure on these borrowings, we are party to $225 million of active floating to fixed rate swaps. These swaps convert our interest payments from SOFR to a weighted average fixed rate of 3.48%. The effective rate of interest for our outstanding borrowings, including the impact of the interest rate swaps, was 5.49%.

Our primary cash requirements in addition to day-to-day operating needs include interest payments, capital expenditures, acquisitions, and dividends. Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility. We expect fiscal year 2027 capital spending to be between $45.0 million and $55.0 million. We expect that fiscal year 2027 depreciation and amortization expense will be between $18.0 million and $20.5 million and $10.5 million and $12.5 million, respectively.

The following table sets forth our capitalization:

(In thousands)

During the first quarter of fiscal 2027, we entered into a lease agreement for a new manufacturing facility in Missouri City, Texas. The initial lease term is approximately 10 years and is expected to commence upon substantial completion of the facility, which is currently under construction. The lease provides for aggregate base rental payments of approximately $24.1 million over the initial lease term and includes two five-year renewal options.

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

The fair value of our U.S. defined benefit pension plan assets was $140.2 million at September 30, 2026, as compared to $149.7 million at the most recent measurement date, which occurred as of June 30, 2026. The next measurement date to determine plan assets and benefit obligations will be on June 30, 2027.

Contributions of $0.2 million and $1.3 million were made during the three months ended September 30, 2026 and 2025, respectively. We expect to pay $4.8 million in contributions to our defined benefit plans during the remainder of fiscal year 2027 comprising of $4.6 million and $0.2 million to our unfunded defined benefit plans in the U.S. and Germany, respectively. There are no required contributions to the plans in Japan or the U.K. Any subsequent plan contributions will depend on the results of future actuarial valuations.

We have an insurance program in place to fund supplemental retirement income benefits for two retired executives. Current executives and new hires are not eligible for this program. At September 30, 2026, the underlying policies had a cash surrender value of $7.1 million and are reported net of loans of $2.7 million for which we have the legal right of offset, these amounts are reported net on our balance sheet.

Other Matters

Middle East – The ongoing conflict and broader geopolitical instability in the Middle East, especially as it relates to the availability of the Strait of Hormuz, could have an adverse impact on certain portions of our supply chain which could negatively impact sales and operating income.

Tariff – Several of our segments may be impacted by ongoing tariff announcements. While we cannot predict the impact of potential new tariffs on global trade and economic growth, our regional presence, strong customer relationships, and our disciplined approach to pricing and productivity actions position us well to manage through these challenges. We monitor the regulatory environment and continue to make adjustments whenever it is deemed necessary. Most of our supply chain is strategically located to service regional demand. We plan to continue to invest in our key strategic growth priorities while closely managing our cost structure and driving productivity and pricing actions and seeking alternate sources of supply to further reduce the impact of tariffs as appropriate.

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

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

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

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

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

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

Critical Accounting Policies

The condensed consolidated financial statements include the accounts of Standex International Corporation and all of its subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying condensed consolidated financial statements. Although we believe that materially different amounts would not be reported due to the accounting policies adopted, the application of certain accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our Annual Report on Form 10-K for the year ended June 30, 2026 lists a number of accounting policies which we believe to be the most critical.

Risk Management

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

Exchange Rate Risk

We are exposed to both transactional risk and translation risk associated with exchange rates. The transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts and the fact that most of our foreign currency sales are transacted in their functional currency. We also mitigate certain of our foreign currency exchange rate risks by entering into forward foreign currency contracts from time to time. The contracts are used as a hedge against anticipated foreign cash flows, such as loan payments, customer remittances, and materials purchases, and are not used for trading or speculative purposes. The fair values of the forward foreign currency exchange contracts are sensitive to changes in foreign currency exchange rates, as an adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts. However, any such losses or gains would generally be offset by corresponding gains and losses, respectively, on the related hedged asset or liability. At September 30, 2026 the fair value, in the aggregate, of our open foreign exchange contracts was an asset of $0.2 million.

Our primary translation risk is with the Euro, British Pound Sterling, Peso, Japanese Yen, Indian Rupee and Chinese Yuan. A hypothetical 10% appreciation or depreciation of the value of any of these foreign currencies to the U.S. Dollar at September 30, 2026, would not result in a material change in our operations, financial position, or cash flows. We hedge our most significant foreign currency translation risks primarily through cross currency swaps and other instruments, as appropriate.

Interest Rate Risk

Our effective interest rate on borrowings was 5.49% at September 30, 2026. Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings (currently based on a rolling 1-month SOFR) and is partially mitigated by our use of an interest rate swap agreement to modify our exposure to interest rate movements. At September 30, 2026, we have $225 million of active floating to fixed rate swaps with terms through August 2028. These swaps convert our interest payments from a SOFR-based rate to a fixed rate of 3.48% on $225 million of debt. At September 30, 2026, the fair value, in the aggregate, of the interest rate swaps was an asset of $5.0 million. A 25-basis point increase in interest rates would increase our annual interest expense by approximately $0.1 million.

Concentration of Credit Risk

We have a diversified customer base. As such, the risk associated with concentration of credit risk is inherently minimized. As of September 30, 2026, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.

Commodity Prices

We are exposed to fluctuating market prices for all commodities used in our 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 we consider our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.

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

At the end of the period covered by this Report, the management of the Company, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2026 in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in the Company's internal control over financial reporting during the quarterly period ended September 30, 2026 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.