FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998 Commission File Number 1-7233
STANDEX INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its Charter)
DELAWARE 31-0596149
(State of incorporation) (I.R.S. Employer Identification No.)
6 MANOR PARKWAY, SALEM, NEW HAMPSHIRE 03079
(Address of principal executive offices) (Zip Code)
(603) 893-9701
(Registrant's telephone number, including area code)
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 .
The number of shares of Registrant's Common Stock outstanding on
September 30, 1998 was 12,992,083.
STANDEX INTERNATIONAL CORPORATION
I N D E X
Page No.
PART I. FINANCIAL INFORMATION:
Item 1.
Statements of Consolidated Income for the Three Months
Ended September 30, 1998 and 1997 2
Consolidated Balance Sheets, September 30, 1998 and
June 30, 1998 3
Statements of Consolidated Cash Flows for the Three
Months Ended September 30, 1998 and 1997 4
Notes to Financial Information 5-6
Item 2.
Management's Discussion and Analysis 7-8
Item 3.
Quantitative and Qualitative Disclosures About
Market Risk 9
PART II. OTHER INFORMATION:
Item 6.
Exhibits and Reports on Form 8-K 10
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PART I. FINANCIAL INFORMATION
STANDEX INTERNATIONAL CORPORATION
<CAPTION>
Statements of Consolidated Income
(000 Omitted)
Three Months Ended
September 30
1998 1997
<S> <C> <C>
Net Sales $157,377 $141,061
Cost of Products Sold 107,460 95,196
Gross Profit Margin 49,917 45,865
Selling, General & Administrative Expenses 34,217 31,473
Income from Operations 15,700 14,392
Other Income/(Expense):
Interest Expense (2,857) (2,092)
Interest Income 101 119
Other Income/(Expense) - net (2,756) (1,973)
Income Before Income Taxes 12,944 12,419
Provision for Income Taxes 4,987 4,760
Net Income $ 7,957 $ 7,659
Earnings Per Share:
Basic $ .61 $ .58
Diluted $ .61 $ .58
Cash Dividends Per Share $ .19 $ .19
</TABLE>
<TABLE>
<CAPTION>
STANDEX INTERNATIONAL CORPORATION
Consolidated Balance Sheets
(000 Omitted)
September 30 June 30
1998 1998
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 4,601 $ 9,256
Receivables net of allowances for
doubtful accounts 102,577 98,531
Inventories (approximately 45%
finished goods, 20% work in
process, and 35% raw materials
and supplies) 122,976 122,950
Prepaid expenses 11,534 4,493
Total current assets 241,688 235,230
PROPERTY, PLANT AND EQUIPMENT 251,371 252,349
Less accumulated depreciation 148,052 149,376
Property, plant and equipment, net 103,319 102,973
OTHER ASSETS:
Goodwill, net 32,853 33,149
Prepaid pension cost 30,769 30,255
Other 10,220 9,635
Total other assets 73,842 73,039
TOTAL $ 418,849 $411,242
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion
of long-term debt $ 4,145 $ 2,995
Accounts payable 38,994 37,748
Income taxes 8,738 5,755
Accrued expenses 36,127 39,789
Total current liabilities 88,004 86,287
LONG-TERM DEBT (less current portion
included above) 165,887 163,448
DEFERRED INCOME TAXES AND OTHER LIABILITIES 15,496 15,310
STOCKHOLDERS' EQUITY:
Common stock 41,976 41,976
Additional paid-in capital 8,693 8,517
Retained earnings 329,601 324,130
Cumulative translation adjustment (3,199) (2,729)
Less cost of treasury shares (227,609) (225,697)
Total stockholders' equity 149,462 146,197
TOTAL $ 418,849 $411,242
</TABLE>
<TABLE>
STANDEX INTERNATIONAL CORPORATION
<CAPTION>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(000 OMITTED)
Three Months Ended
September 30
1998 1997
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 7,957 $ 7,659
Depreciation and amortization 3,690 3,262
Net changes in assets and liabilities (12,001) (11,386)
Net Cash Used for Operating Activities (354) (465)
Cash Flows from Investing Activities:
Expenditures for property and equipment (4,103) (2,319)
Other 552 (10)
Net Cash Used for Investing Activities (3,551) (2,329)
Cash Flows from Financing Activities:
Proceeds from additional borrowings 3,626 9,437
Net payments of debt (37) (135)
Cash dividends paid (2,486) (2,492)
Purchase of treasury stock (2,270) (1,417)
Other, net 533 521
Net Cash (Used for)/Provided by Financing
Activities (634) 5,914
Effect of Exchange Rate Changes on Cash (116) (352)
Net Change in Cash and Cash Equivalents (4,655) 2,768
Cash and Cash Equivalents at Beginning of Year 9,256 6,149
Cash and Cash Equivalents at September 30 $ 4,601 $ 8,917
Supplemental Disclosure of Cash Flow Information:
Cash paid during the three months for:
Interest $ 3,541 $ 3,011
Income taxes $ 2,003 $ 752
</TABLE>
NOTES TO FINANCIAL INFORMATION
1. Management Statement
The financial statements as reported in Form 10-Q reflect all
adjustments (including those of a normal recurring nature) which are, in
the opinion of management, necessary to a fair statement of results for
the three months ended September 30, 1998 and 1997.
These financial statements should be read in conjunction with the
audited financial statements as of June 30, 1998. Accordingly, footnote
disclosures that would substantially duplicate the disclosures contained
in the latest audited financial statements have been omitted from this
filing.
2. Per Share Calculation
<TABLE>
The following table sets forth the number of shares (in thousands) used
in the computation of basic and diluted earnings per share:
<CAPTION>
Three Months Ended
September 30
1998 1997
Basic - Average Shares
<S> <C> <C>
Outstanding 13,046 13,117
Effect of Dilutive Securities:
Stock Options 67 161
Diluted - Average Shares
Outstanding 13,113 13,278
Both basic and diluted incomes are the same for computing earnings per
share.
Cash dividends per share have been computed based on the shares
outstanding at the time the dividends were paid. The shares (in
thousands) used in this calculation for the three months ended September
30, 1998 and 1997 are 13,084 and 13,115, respectively.
</TABLE>
3. Contingencies
The Company is a party to various claims and legal proceedings related
to environmental and other matters generally incidental to its business.
Management has evaluated each matter based, in part, upon the advice of
its independent environmental consultants and in-house counsel and has
recorded an appropriate provision for the resolution of such matters in
accordance with Statement of Financial Accounting Standards (SFAS) No.
5, "Accounting for Contingencies." Management believes that such
provision is sufficient to cover any future payments, including legal
costs, under such proceedings.
4. Comprehensive Income
Effective July 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." Currently, in addition to net income, the only
item, which would be included in comprehensive income, is accumulated
translation adjustments. For the three months ended September 30, 1998
and 1997, comprehensive income totaled approximately $7,657,000 and
$6,511,000 respectively.
5. Restructuring Charge
In June 1998, the Company recorded a restructuring charge of $12,758,000
before taxes. This action was intended to close, dispose of, or
liquidate certain small underperforming and unprofitable operating
plants, product lines and businesses. The charge was recorded in the
line item "Restructuring charge" on the Statements of Consolidated
Income of the 1998 Annual Report.
The components of the charge included involuntary employee severance and
benefit costs totaling $1.7 million, asset impairments of $10.1 million
and shutdown costs of $1.0 million. During the first quarter of fiscal
1999 the Company expended cash of $600,000 for employee severance and
benefit costs and $300,000 for other costs reducing its unexpended
reserve to $4.3 million. The current balance includes $1.3 million for
involuntary employee severance and benefit costs, $2.3 million in
disposition losses and $0.7 million in shutdown costs, all of which are
expected to be realized in full by the end of the current fiscal year.
STANDEX INTERNATIONAL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
MATERIAL CHANGES IN FINANCIAL CONDITION
During the quarter ended September 30, 1998, the Company invested $4.1
million in plant and equipment, purchased $2.3 million of the Company's
Common Stock and paid out $2.5 million in cash dividends to the Company's
shareholders. The Company utilized $3.6 million in proceeds from
additional borrowings and its own cash resources to fund these activities.
The Company's policy of using its funds to make acquisitions when
conditions are favorable, invest in property, plant and equipment, pay
dividends and purchase its Common Stock is expected to continue.*
Restructuring Charge - In June of fiscal year 1998, the Company recorded a
restructuring charge of $12.8 million before taxes. This action was
intended to close, dispose of, or liquidate certain small underperforming
and unprofitable operating plants, product lines and businesses. The
charge was recorded in the line item "Restructuring Charge" on the
Statements of Consolidated Income in the 1998 Annual Report. This change,
and the resultant reserve, is more fully discussed in the Notes to
Financial Information.
Year 2000 Computer Issues - Under a program started in November 1997, the
Company conducted a review of its computer systems and identified the
programs and applications that were affected by the widely discussed
software problems associated with the Year 2000.
All systems have either been appropriately modified and tested or have been
replaced with software that is Year 2000 compliant, except for (1) the
necessary modifications to several purchased software packages that
represent relatively small portions of the overall systems at certain of
the Company's operating units, which have been delayed by the respective
software vendors but are all expected to be completed by early calendar
1999; and (2) the final implementations, which are expected to be completed
by June 30, 1999, of new Year 2000 compliant systems at two relatively
small foreign units. Management believes that the failure or delays in
completing the final stages of its Year 2000 program would not have a
material impact on the Company's operations or its financial position.*
The cost of modifying the programs, which has been and will be charged to
expense (primarily in fiscal year 1998), is expected to aggregate
approximately $600,000.*
The Company has also communicated with key suppliers, financial
institutions and others with which it and its various operating units do
business, to assure that such third parties are also timely addressing and
rectifying their "Year 2000" issues. However, the Company believes it has
alternate vendors who could provide for the Company's needs if current
vendors are negatively impacted.*
Several new accounting pronouncements (Statement of Financial Accounting
Standards (SFAS) Nos. 130, 131, 132, 133 and statement of position No. 98-
1) have been adopted as of July 1, 1998 concerning comprehensive income,
segment reporting, pension and other post retirement benefit disclosures,
derivatives instruments and hedging activities and cost of internally used
computer software. The adoption of these pronouncements had no material
effect on the Company's consolidated financial statements. SFAS No. 130 is
more fully described in the Notes to Financial Information.
OPERATIONS
Quarter Ended September 30, 1998
as compared to the Quarter Ended September 30, 1997
For the first quarter ended September 30, 1998, Net Sales increased by
$16.3 million as compared to the first quarter of the prior year. The
majority of this increase came primarily from the added sales of ACME
Manufacturing Company (ACME) which was acquired in early October, 1997.
These added sales were partially offset by the absence of sales from the
Doubleday Bros. Product lines which were disposed of in the prior year.
Excluding the acquisition and dispositions, management believes the
majority of fluctuations in Net Sales reported by each segment are a result
of changes in unit volumes and consumer demand. In addition, changes in
the average foreign exchange rates from September 30, 1997 to September 30,
1998 have had a relatively minor impact on Net Sales for the quarter.
The Industrial Segment reported a reduction of $2.1 million in Net Sales as
compared to the prior year as a result of the dispositions in the second
half of fiscal 1998 noted above. Net Sales in the Food Service Segment
decreased slightly as compared to the prior year due to several factors
none of which was materially significant. The Consumer Segment's Net Sales
increased by $19.4 million when compared to last year primarily due to the
acquisition of ACME, as noted above.
The Gross Profit Margin Percentage (GPMP) decreased to 31.7%, as compared
to the prior year's percentage 32.5%. The GPMP reported in the Consumer
Segment fell to 32%, a decline from the previous year's percentage of 35.3%
due to lower initial margins at ACME. The GPMP reported in the Industrial
Segment declined slightly from the previous year's percentage of 32.8% to
32%; however, none of the changes were individually significant. The Food
Service Segment reported an increase in GPMP from 28.7% last year to 30.3%
in the current year as a result of productivity gains, as well as the
closure of an under-performing manufacturing facility.
For the three months ended September 30, 1998 Selling, General and
Administrative Expenses increased by $2.7 million, or 8.7%. Excluding the
acquisition and dispositions noted above, none of the fluctuations reported
by the Company's three segments were individually significant and
corresponded to the changes in Net Sales discussed above.
Interest Expense increased by 36.6%, or $765,000, as compared to the first
quarter of fiscal 1998 as a result of increased borrowings to finance the
ACME acquisition.
The above factors resulted in a $525,000 increase in Income Before Income
Taxes as compared to the same period of the prior year. The effective tax
rate in the first quarter increased slightly from the rate in the
comparable quarter in fiscal 1998.
As a result of the above activity, Net Income for the first quarter of
fiscal 1999 increased $298,000, or 3.9%, over the same period in the prior
year.
<F1>
*These "forward looking" statements are necessarily dependent upon
uncertainties in general domestic and international business and economic
conditions and, where applicable, the accuracy of Year 2000 compliance
representations from vendors and suppliers of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a number of market risks, primarily the effects
of changes in foreign currency exchange rates and interest rates.
Investments in foreign subsidiaries and branches, and their resultant
operations, denominated in foreign currencies, create exposures to changes
in exchange rates. The Company's use of its bank credit agreements
creates an exposure to changes in interest rates. The effect of changes
in exchange rates and interest rates on the Company's earnings has been
relatively insignificant compared to other factors that also affect
earnings, such as business unit sales and operating margins. The Company
does not hold or issue financial instruments for trading, profit or
speculative purposes.
Based on historical foreign currency rate movements and the fair value of
market-rate sensitive instruments at September 30, 1998, the Company does
not believe that near term changes in foreign currency or interest rates
will have a material impact on its future earnings, fair values or cash
flows.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended September 30, 1998.
ALL OTHER ITEMS ARE INAPPLICABLE
STANDEX INTERNATIONAL CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STANDEX INTERNATIONAL CORPORATION
Date: November 13, 1998 /s/ Robert R. Kettinger
Robert R. Kettinger
Corporate Controller
Date: November 13, 1998 /s/ Edward F. Paquette
Edward F. Paquette
Vice President/CFO
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 4,601
<SECURITIES> 0
<RECEIVABLES> 106,155
<ALLOWANCES> 3,578
<INVENTORY> 122,976
<CURRENT-ASSETS> 241,688
<PP&E> 251,371
<DEPRECIATION> 148,052
<TOTAL-ASSETS> 418,849
<CURRENT-LIABILITIES> 88,004
<BONDS> 165,887
0
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<COMMON> 41,976
<OTHER-SE> 107,486
<TOTAL-LIABILITY-AND-EQUITY> 418,849
<SALES> 157,377
<TOTAL-REVENUES> 157,478
<CGS> 107,460
<TOTAL-COSTS> 107,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,857
<INCOME-PRETAX> 12,944
<INCOME-TAX> 4,987
<INCOME-CONTINUING> 7,957
<DISCONTINUED> 0
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<NET-INCOME> 7,957
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
