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 March 31, 1999 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 March
31, 1999 was 12,852,320.
STANDEX INTERNATIONAL CORPORATION
I N D E X
Page No.
PART I. FINANCIAL INFORMATION:
Item 1.
Statements of Consolidated Income for the Three
and Nine Months Ended March 31, 1999 and 1998 2
Consolidated Balance Sheets as of March 31, 1999
and June 30, 1998 3
Statements of Consolidated Cash Flows for the
Nine Months Ended March 31, 1999 and 1998 4
Notes to Financial Information 5-6
Item 2.
Management's Discussion and Analysis 7-10
Item 3.
Quantitative and Qualitative Disclosures About
Market Risk 11
PART II. OTHER INFORMATION:
Item 6.
Exhibits and Reports on Form 8-K 12
<TABLE>
PART I. FINANCIAL INFORMATION
STANDEX INTERNATIONAL CORPORATION
Statements of Consolidated Income
(000 Omitted)
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Sales $152,247 $148,549 $480,795 $457,700
Cost of Products Sold 101,592 100,562 321,612 307,067
Gross Profit Margin 50,655 47,987 159,183 150,633
Other Costs/(Income):
Selling, General and
Administrative Expenses 37,240 36,963 111,808 109,076
Restructuring Credit (700) 0 (700) 0
Total 36,540 36,963 111,108 109,076
Income from Operations 14,115 11,024 48,075 41,557
Other Income/(Expense):
Interest Expense (2,721) (2,880) (8,524) (7,850)
Interest Income 78 192 305 417
Other Income/(Expense) - net (2,643) (2,688) (8,219) (7,433)
Income Before Income Taxes 11,472 8,336 39,856 34,124
Provision for Income Taxes 4,841 3,349 15,864 13,156
Net Income $ 6,631 $ 4,987 $23,992 $20,968
Earnings Per Share:
Basic $ .52 $ .38 $ 1.85 $ 1.60
Diluted $ .51 $ .38 $ 1.84 $ 1.59
Cash Dividends Per Share $ .19 $ .19 $ .57 $ .57
</TABLE>
<TABLE>
STANDEX INTERNATIONAL CORPORATION
Consolidated Balance Sheets
(000 Omitted)
<CAPTION>
March 31 June 30
1999 1998
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 6,632 $ 9,256
Receivables, net of allowances for
doubtful accounts 96,590 98,531
Inventories (approximately 45%
finished goods, 20% work in
process, and 35% raw materials and
supplies) 128,761 122,950
Prepaid expenses 6,808 4,493
Total current assets 238,791 235,230
PROPERTY, PLANT AND EQUIPMENT 249,855 252,349
Less accumulated depreciation 146,442 149,376
Property, plant and equipment, net 103,413 102,973
OTHER ASSETS:
Goodwill, net 32,395 33,149
Prepaid pension cost 33,205 30,255
Other 10,550 9,635
Total other assets 76,150 73,039
TOTAL $418,354 $411,242
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 4,329 $ 2,995
Accounts payable 37,274 37,748
Income taxes 8,034 5,755
Accrued expenses 38,714 39,789
Total current liabilities 88,351 86,287
LONG-TERM DEBT (less current portion included above) 156,314 163,448
DEFERRED INCOME TAXES AND OTHER LIABILITIES 15,882 15,310
STOCKHOLDERS' EQUITY:
Common stock 41,976 41,976
Additional paid-in capital 8,885 8,517
Retained earnings 340,690 324,130
Cumulative translation adjustment (2,291) (2,729)
Less cost of treasury shares (231,453) (225,697)
Total stockholders' equity 157,807 146,197
TOTAL $418,354 $411,242
</TABLE>
<TABLE>
STANDEX INTERNATIONAL CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(000 OMITTED)
<CAPTION>
Nine Months Ended
March 31
1999 1998
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $23,992 $20,968
Depreciation and amortization 10,292 10,289
Net changes in assets and liabilities (8,215) (7,582)
Net Cash Provided by Operating Activities 26,069 23,675
Cash Flows from Investing Activities:
Expenditures for property and equipment (11,665) (10,664)
Expenditures for acquisitions (439) (49,289)
Other 1,993 2,187
Net Cash Used for Investing Activities (10,111) (57,766)
Cash Flows from Financing Activities:
Proceeds from additional borrowings 26,376 56,208
Net payments of debt (32,176) (377)
Cash dividends paid (7,432) (7,441)
Purchase of treasury stock (6,712) (7,838)
Other, net 1,324 2,966
Net Cash Provided by/(Used for) Financing
Activities (18,620) 43,518
Effect of Exchange Rate Changes on Cash 38 (411)
Net Change in Cash and Cash Equivalents (2,624) 9,016
Cash and Cash Equivalents at Beginning of Year 9,256 6,149
Cash and Cash Equivalents at March 31 $ 6,632 $15,165
Supplemental Disclosure of Cash Flow Information:
Cash paid during the nine months for:
Interest $ 8,861 $ 8,409
Income taxes $13,584 $12,285
</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 and nine months ended March 31, 1999 and 1998.
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.
<TABLE>
2. Per Share Calculation
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 Nine Months Ended
March 31 March 31
1999 1998 1999 1998
Basic - Average Shares
<S> <C> <C> <C> <C>
Outstanding 12,946 13,047 12,999 13,072
Effect of Dilutive Securities:
Stock Options 59 117 65 155
Diluted - Average Shares
Outstanding 13,005 13,164 13,064 13,227
Both basic and diluted incomes are the same for computing earnings per
share.
</TABLE>
<TABLE>
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 and nine months
ended March 31, 1999 and 1998:
1999 1998
<S> <C> <C>
Quarter 13,024 13,020
Year-to-date 13,039 13,056
</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 foreign currency
translation adjustments. For the nine months ended March 31, 1999 and
1998, comprehensive income totaled approximately $24,430,000 and
$19,486,000 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 Statement of Consolidated Income
of the 1998 Annual Report. As part of this restructuring the Company
sold for cash and notes its Christmas Tree Stand product line in the
second quarter, its SXI Technologies division in the third quarter, and
its Williams Healthcare division in April 1999.
<TABLE>
The following schedule reflects the Company's restructuring activities
(in thousands) for the nine months ended March 31, 1999:
<CAPTION>
Involuntary
Employee
Severance and Asset Shutdown
Benefit Costs Impairment Costs Total
<S> <C> <C> <C> <C>
Reserve beginning balance $1,665 $10,061 $1,032 $12,758
Expended:
Cash 1,490 0 571 2,061
Non cash (disposals
and write-offs) 0 5,990 337 6,327
Reduction and changes
in estimated costs (64) 1,048 (284) 700
Estimated remaining
costs to be incurred $239 $3,023 $408 $3,670
</TABLE>
In the current fiscal quarter the restructuring reserve was reduced by
$700,000 to reflect a reduction in estimated costs. This credit is
shown in the Statements of Consolidated Income as "Restructuring
Credit."
6.Senior Unsecured Notes
In October, the Company negotiated unsecured loan agreements with two
institutional lenders in the amount of $25 million. The loans have a
fixed interest rate of 6.8% and are repayable in lump-sum payments in
October 2008. The financial covenants of the new loan agreements are
similar to those under the Company's revolving credit agreement. The
proceeds from were used to refinance existing short-term indebtedness
and for general corporate purposes.
STANDEX INTERNATIONAL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Statements contained in the following "Management Discussion and Analysis"
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 "may." "will," "expect," "believe," "estimate,"
"anticipate," "continue," or similar terms or variations of those terms or
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 uncertainties in competitive
pricing pressures, general domestic and international business and economic
conditions and market demand.
MATERIAL CHANGES IN FINANCIAL CONDITION
Net operating cash flows of $26.1 million funded the Company's investment
in plant and equipment of $11.7 million, dividend payments of $7.4 million,
and purchases of $6.7 million of the Company's Common Stock.
In October, the Company negotiated unsecured, fixed interest rate loan
agreements with two institutional lenders in the amount of $25 million.
The proceeds were used to pay down floating interest debt and for other
corporate purposes. The new agreements, which are more fully described in
the Notes to Financial Information, have an interest rate of 6.8% and are
repayable in lump-sum payments in October 2008.
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 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 of the 1998 Annual Report. This charge
and the related activity during fiscal 1999 are discussed in the Notes to
Financial Information. As part of this restructuring the Company sold for
cash and notes its Christmas Tree Stand product line in the second quarter,
SXI Technologies in January and Williams Healthcare Systems in April 1999.
Year 2000 Computer Issues - Under a program started in November 1997, the
Company conducted a review of its computer system and identified the
programs and applications that were affected by the widely discussed
software problems associated with the Year 2000. As of March 31,1999 the
Company's systems have either been appropriately modified and tested or
have been replaced with software that is Year 2000 compliant. The only
exceptions are the final implementations of new systems at two relatively
small non-U.S. units scheduled for the fourth quarter of fiscal 1999.
Management believes that any delays or failure to complete this final stage
of its Year 2000 program will not have a material impact on the Company's
operations or its financial position. The total cost of modifying all
programs, which has been charged to expense (primarily in fiscal year
1998), was 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 and Statement of Position No. 98-1)
have been adopted as of July 1, 1998 and concern comprehensive income,
segment reporting, pension and other post retirement benefit disclosures
and the 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 (Reporting Comprehensive Income) is
more fully described in the Notes to Financial Information. SFAS No. 133
(Accounting for Derivative Instruments and Hedging Activities) will be
adopted in the next fiscal year and is not expected to have a material
effect on the Company's consolidated financial statements.
OPERATIONS
Quarter Ended March 31, 1999
As compared to the Quarter Ended March 31, 1998
For the third quarter ended March 31, 1999, Net Sales increased by $3.7
million as compared to the third quarter of the prior year. The effect of
changes in the average foreign exchange rates from March 31, 1998 to March
31, 1999 on Net Sales for the quarter was not significant.
Net Sales in the Food Service Segment declined by $2.1 million as compared
to the prior year due in part to the closure of a refrigeration plant in
Nevada and sluggish demand at both our BKI and Procon divisions. The
Consumer Segment's Net Sales rose by $3.1 million when compared to the
prior year due primarily to high customer demand for ducting from the
Standex Air Distribution Products division. The Industrial Segment
reported a slight improvement of $2.8 million as compared to the prior
year. While the Company enjoyed strong sales from most divisions in the
Industrial Segment, the continuing poor performance at our binding division
and the absence of sales from a disposition completed in February 1998
offset these increases.
The Gross Profit Margin Percentage (GPMP) increased to 33.3%, as compared
to the prior year's percentage of 32.3%. The GPMP reported by the Consumer
Segment grew from the previous year's 34.5% to 36.7% this year due to
reductions in costs associated with the sale of National Metal's seasonal
product line. The Food Service Segment reported a rise in GPMP from 30.1%
last year to 33.8% in the current year which resulted from reductions in
material and labor costs as well as lower factory expenses at several
divisions. In addition, the segment's GPMP has been positively impacted by
the closure of its Nevada operation in June 1998. The GPMP in the
Industrial Segment fell to 29.7% from the previous year's percentage of
31.6%. The poor performance of our binding division offset solid
performances at other Industrial divisions.
For the three months ended March 31, 1999 Selling, General and
Administrative Expenses increased by $277,000, or 0.7%. None of the
fluctuations reported by the Company's three segments were individually
significant and were in line with the changes in Net Sales discussed above.
A restructuring credit of $700,000 was recorded in the third quarter of
fiscal 1999 which relates to a $12.8 million restructuring charge
recognized in the fourth quarter of fiscal 1998. This credit is more fully
described in the Notes to Financial Information.
In the third quarter of fiscal 1999, Interest Expense declined by $159,000,
or 5.5%, as compared to the prior year. While the Company incurred
moderately higher average interest rates as compared to the prior year,
average borrowings were lower for the same period.
The above factors resulted in a $3.1 million increase in Income Before
Income Taxes as compared to the prior year. The effective tax rate in the
current quarter rose to 42.2% from 40.2% reported in the third quarter of
the prior year. Divisions in higher taxed countries generated a larger
percentage of the Company's income in fiscal 1999 as compared to fiscal
1998.
As a result of the above activity, Net Income for the third quarter of
fiscal 1999 increased by $1.6 million, or 33.0%, over the same period in
the prior year.
Nine Months Ended March 31, 1999
As compared to the Nine Months Ended March 31, 1998
Net Sales for the nine months ending March 31, 1999 increased $23.1 million
as compared to the same period in the prior year. The majority of this
increase came 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, although changes in the average foreign
exchange rates from March 31, 1998 to March 31, 1999 have had a negative
impact on Net Sales, the total effect was not significant.
For the nine months ended March 31, 1999, the Food Service Segment reported
a small drop in Net Sales as compared to the prior year. This decline was
mainly due to the closure of the Nevada operation and sluggish demand in
the beverage dispensing industry. Net Sales in the Industrial Segment were
flat as compared to the same period in the prior year. While most
divisions posted marginal increases over last year the poor performance of
our binding division and the absence of sales from the disposition of the
Doubleday Bros. division in the second half of fiscal 1998 offset these
gains. The Consumer Segment's Net Sales increased by $25.2 million when
compared to last year due to the acquisition of ACME. Almost all divisions
of the Consumer Segment reported 5% or greater sales improvements.
The Gross Profit Margin Percentage (GPMP) for the nine months ended March
31, 1999 remained the same (at approximately 33%) for both the current and
prior year. The Food Service Segment reported a GPMP of 31.9%, as compared
to the prior year percentage of 29.8% as a result of the disposition of the
Nevada operation and reduced costs at several companies. The GPMP reported
in the Industrial Segment fell to 31.5%, a decline from the previous year's
percentage of 32.4%. As stated in the results for the quarter, continued
poor performance at the Company's binding division has offset solid
positive performances at most of the other Industrial divisions. The
Consumer Segment's GPMP remained flat at 35.2% in fiscal 1999 versus 35.5%
last year.
Selling, General and Administrative Expenses rose by $2.7 million when
compared to the same period in the prior year. The majority of this
increase ($2.6 million) was from the additional expenses of ACME which was
acquired in October 1997. None of the remaining fluctuations reported by
the Company's three segments were individually significant and corresponded
with the changes in Net Sales discussed above.
As stated in the discussion of quarterly results, the Company recorded a
$700,000 restructuring credit in the current year.
Interest Expense grew by 8.6%, or $674,000, when compared to the first nine
months of fiscal 1998, due to increased borrowings ($45 million) to finance
the ACME acquisition and moderately higher average interest rates. In the
current year, the Company incurred nine months of interest charges on the
increased borrowings related to the ACME acquisition as compared to six
months in the prior year.
Income Before Taxes for the nine months ended March 31, 1999 improved $5.7
million. The effective tax rate increased slightly from 38.6% in fiscal
1998 to 39.8% in fiscal 1999 for the same reasons described in the
discussion of quarterly results. Net Income rose $3.0 million or 14.4%
when compared to the same period in the prior year.
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 March 31, 1999, 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 March 31, 1999.
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: May 12, 1999 /s/ Robert R. Kettinger
Robert R. Kettinger
Corporate Controller
Date: May 12, 1999 /s/ Edward F. Paquette
Edward F. Paquette
Vice President/CFO
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,632
<SECURITIES> 0
<RECEIVABLES> 101,117
<ALLOWANCES> 4,527
<INVENTORY> 128,761
<CURRENT-ASSETS> 238,791
<PP&E> 249,855
<DEPRECIATION> 146,442
<TOTAL-ASSETS> 418,354
<CURRENT-LIABILITIES> 88,351
<BONDS> 156,314
0
0
<COMMON> 41,976
<OTHER-SE> 115,831
<TOTAL-LIABILITY-AND-EQUITY> 418,354
<SALES> 480,795
<TOTAL-REVENUES> 481,100
<CGS> 321,612
<TOTAL-COSTS> 321,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,524
<INCOME-PRETAX> 39,856
<INCOME-TAX> 15,864
<INCOME-CONTINUING> 23,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,992
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.81
</TABLE>
