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 December 31, 1997 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 December 31, 1997 was 13,029,309. STANDEX INTERNATIONAL CORPORATION I N D E X PART I. FINANCIAL INFORMATION: Page No. Statements of Consolidated Income for the Three and Six Months Ended December 31, 1997 and 1996 2 Consolidated Balance Sheets, December 31, 1997 and June 30, 1997 3 Statements of Consolidated Cash Flows for the Six Months Ended December 31, 1997 and 1996 4 Notes to Financial Information 5 Management's Discussion and Analysis 6-8 PART II. OTHER INFORMATION: 9 <TABLE> PART I. FINANCIAL INFORMATION STANDEX INTERNATIONAL CORPORATION Statements of Consolidated Income (000 Omitted) <CAPTION> Three Months Ended Six Months Ended December 31 December 31 1997 1996 1997 1996 <S> <C> <C> <C> <C> Net Sales $168,090 $152,315 $309,151 $292,514 Cost of Products Sold 111,309 100,108 206,505 195,687 Gross Profit Margin 56,781 52,207 102,646 96,827 Selling, General & Administrative Expenses 40,640 37,153 72,113 67,395 Income from Operations 16,141 15,054 30,533 29,432 Other Income/(Expense): Interest Expense (2,878) (2,213) (4,970) (4,336) Interest Income 106 82 225 154 Other Income/(Expense) - net (2,772) (2,131) (4,745) (4,182) Income Before Income Taxes 13,369 12,923 25,788 25,250 Provision for Income Taxes 5,047 4,796 9,807 9,581 Net Income $8,322 $8,127 $15,981 $15,669 Earnings Per Share: Basic $.64 $.61 $1.22 $1.17 Diluted $.63 $.60 $1.21 $1.16 Cash Dividends Per Share $.19 $.19 $.38 $.37 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheets (000 Omitted) <CAPTION> December 31 June 30 1997 1997 ASSETS CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $11,361 $6,149 Receivables net of allowances for doubtful accounts 100,491 86,852 Inventories (approximately 45% finished goods, 25% work in process, and 30% raw materials and supplies) 120,074 109,454 Prepaid expenses 7,384 4,631 Total current assets 239,310 207,086 PROPERTY, PLANT AND EQUIPMENT 249,501 223,519 Less accumulated depreciation 143,155 137,921 Property, plant and equipment, net 106,346 85,598 OTHER ASSETS: Goodwill, net 28,937 15,195 Prepaid pension cost 25,809 24,320 Other 10,374 8,839 Total other assets 65,120 48,354 TOTAL $410,776 $341,038 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $3,202 $2,030 Accounts payable 37,413 31,380 Income taxes 6,805 4,481 Accrued expenses and other 31,391 32,249 Total current liabilities 78,811 70,140 LONG-TERM DEBT (less current portion included above) 166,982 112,347 DEFERRED INCOME TAXES AND OTHER LIABILITIES 16,876 17,366 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Additional paid-in capital 6,089 5,663 Retained earnings 324,921 313,908 Cumulative translation adjustment (771) (1,082) Less cost of treasury shares (224,108) (219,280) Total stockholders' equity 148,107 141,185 TOTAL $410,776 $341,038 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (000 OMITTED) <CAPTION> Six Months Ended December 31 1997 1996 Cash Flows from Operating Activities: <S> <C> <C> Net income $15,981 $15,669 Depreciation and amortiza tion 6,771 6,435 Net changes in assets and liabilities (8,758) (375) Net Cash Provided by Operating Activities 13,994 21,729 Cash Flows from Investing Activities: Expenditures for property and equipment (8,428) (6,444) Expenditures for acquisitions (46,769) (3,566) Other (6) 133 Net Cash Used for Investing Activities (55,203) (9,877) Cash Flows from Financing Activities: Proceeds from additional borrowings 56,150 2,744 Net payments of debt (343) (3,665) Cash dividends paid (4,968) (4,958) Purchase of treasury stock (6,130) (6,399) Other, net 1,728 3,738 Net Cash Provided by (Used for) Financing Activities 46,437 (8,540) Effect of Exchange Rate Changes on Cash (16) 183 Net Change in Cash and Cash Equivalents 5,212 3,495 Cash and Cash Equivalents at Beginning of Year 6,149 5,147 Cash and Cash Equivalents at December 31 $11,361 $8,642 Supplemental Disclosure of Cash Flow Information: Cash paid during the six months for: Interest $ 4,596 $4,348 Income taxes $ 7,483 $7,770 </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 six months ended December 31, 1997 and 1996. 2. Per Share Calculation In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share." This standard changes the method of calculating and presenting earnings per share, and was adopted by the Company in the current quarter. Accordingly, the earnings per share as presented in the Statements of Consolidated Income have been retroactively restated for all periods presented. The following table sets forth the number of shares (in thousands) used in the computation of basic and diluted earnings per share: Three Months Ended Six Months Ended December 31 December 31 1997 1996 1997 1996 Basic - Average Shares Outstanding 13,050 13,375 13,080 13,395 Effect of Dilutive Securities: Stock Options 187 172 174 168 Diluted - Average Shares Outstanding 13,237 13,547 13,254 13,563 Both basic and diluted income 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 six months ended December 31, 1997 and 1996 are 13,074 and 13,399, respectively. 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 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. Acquisitions On October 6, 1997, the Company completed the acquisition of the net assets of ACME Manufacturing Company for cash and a note. ACME Manufacturing is a manufacturer of heating, ventilation, and air conditioning pipe, duct, and fittings for the home building industry in the Northeast, Mid-West, and Southern United States. ACME, with annual sales of approximately $60 million, has seven manufacturing facilities. In addition, during the second quarter, the Company purchased for cash certain assets of an unrelated company's hardware product line which is complementary to an existing Standex division. Both acquisitions were accounted for as purchases, and, accordingly, the purchase price was allocated to the assets acquired based on their fair value and resulted in the recognition of goodwill of approximately $14,000,000. STANDEX INTERNATIONAL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations MATERIAL CHANGES IN FINANCIAL CONDITION During the six months ended December 31, 1997, net operating cash flows of $14 million and proceeds from additional borrowings of $56.2 million were used to purchase $6.1 million of the Company's Common Stock, invest $8.4 million in plant and equipment, pay out $5.0 million of cash dividends to the Company's shareholders and pay $46.8 million for acquisitions. During the second quarter of 1998 the Company acquired 100% of the net assets of ACME Manufacturing Company and certain assets of the hardware product line of an unrelated company. Both of these acquisitions were financed from existing bank credit agreements. The Company intends to continue its 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. In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company has reviewed both of these standards and does not expect their adoption to have a significant effect on the Company's operating results or disclosure. OPERATIONS Quarter Ended December 31, 1997 as compared to the Quarter Ended December 31, 1996 For the second quarter ended December 31, 1997, Net Sales increased by $15.8 million as compared to the second quarter of the prior year. This represents the highest second quarter sales level in the Company's history. Acquisitions accounted for the majority of this increase but were partially off-set by the absence of sales of businesses disposed of in the second half of the prior year. Management believes the majority of fluctuations in Net Sales reported by each segment, excluding these acquisition, are primarily due to changes in unit volumes and consumer demand. In addition, although changes in the average foreign exchange rates from December 31, 1996 to December 31, 1997 have had a negative impact on Net Sales for the quarter, the total effect was not significant. Net Sales in both the Food Service and Industrial Segments remained approximately the same as the prior year. There was, however, significant growth in sales at several divisions as a result of increased demand which was offset by the absence of sales from dispositions made in the second half of 1997 and continued sluggishness in some of our European companies. The Consumer Segment reported an increase of $16.2 million in Net Sales due to acquisitions and improved demand. The Gross Profit Margin Percentage (GPMP) decreased to 33.8%, as compared to the prior year's percentage of 34.3%. The GPMP reported in the Consumer Segment fell to 36.1%, a decline from the prior year's percentage of 40.0% primarily due to a combination of lower margins in a seasonal business and lower initial margins of an acquisition. The GPMP reported in the Industrial Segment also fell from the previous year's percentage of 33.6% to 32.3%, reflecting competitive pressures encountered by certain operations in Europe. However, the Food Service Segment reported an increase in GPMP from 28.0% in 1997 to 29.2% in 1998 as a result of reduced costs. Selling, General and Administrative Expenses (SG&A) decreased to 24.2% of Net Sales for the second quarter of 1998 as compared to 24.4% for the same period in the prior year. None of the fluctuations reported by the Company's three segments were individually significant; such fluctuations were in line with the changes in Net Sales discussed above. Interest Expense increased by 30%, or $665,000, as compared to the second quarter of 1997 due mainly to increased borrowings and higher interest rates. The above factors resulted in a $446,000 increase in Income Before Income Taxes as compared to the same period of the prior year. The effective tax rate in the second quarter increased from 37.1% in 1997 to 37.8% in 1998 due to several factors, none of which was individually significant. As a result of the above, Net Income for the second quarter of 1998 increased $195,000, or 2.4%, over the same period in the prior year. Six Months Ended December 31, 1997 as compared to the Six Months Ended December 31, 1996 Net Sales for the six months ended December 31,1997 increased $16.6 million as compared to the same period of the prior year. As stated in the discussion of quarterly results, the majority of this increase ($14.7 million) resulted from acquisitions. Net Sales for both the Food Service and Industrial Segments remained flat as compared to the prior year. While increased demand resulted in higher sales at several divisions in both segments, these increases were offset by the absence of sales from dispositions made in the second half of 1997. The Consumer Segment reported an increase of $17.7 million in Net Sales due to acquisitions and improved demand. The Gross Profit Margin Percentage (GPMP) for the six months ended December 31, remained the same (at approximately 33%) for both the current and prior year. The Food Service Segment reported GPMP of 28.9%, compared to the prior year percentage of 27.6%, reflecting reduced costs. The Consumer Segment reported a decline in GPMP from 38.3% in 1997 to 35.8% in 1998 primarily for the same reasons enumerated in the discussion of quarterly results. GPMP in the Industrial Segment was approximately the same (at 33%) as compared to the prior year. Selling, General and Administrative Expenses (SG&A) rose to 23.3% of Net Sales for the six months ended December 31, 1997 as compared to 23% of Net Sales for the same period of 1997. None of the fluctuations reported by the Company's three segments were individually significant, and such fluctuations were in line with the changes in Net Sales discussed above. Interest Expense increased by $634,000 as compared to the prior year, due to increased borrowings and higher interest rates. For the six months ended December 31, 1997, Income Before Taxes increased $538,000 for the reasons described above. The Company's effective tax rate was almost the same as the prior year's effective tax rate. Due to the factors described above, Net Income for the six months ended December 31, 1997 increased $312,000, or 2%, when compared to the same period of the prior year. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of the Company was held on October 28, 1997. Three matters were voted upon at the meeting: the election of directors, the adoption of a new Employee Stock Purchase Plan and the approval of the appointment of independent auditors of the Company. The name of each director elected at the meeting and the number of votes cast as to each matter are as follows: Proposal 1 (Election of Directors) Nominee For Withheld William R. Fenoglio 10,825,746 140,246 Walter F. Greeley 10,832,902 133,090 C. Kevin Landry 10,797,302 168,690 H. Nicholas Muller, III Ph.D. 10,789,451 176,541 Edward J. Trainor 10,818,930 147,062 Proposal 2 (Adoption of Employee Stock Purchase Plan) For Against Abstain 10,711,802 195,615 58,576 Proposal 3 (Appointment of Auditors) For Against Abstain 10,888,826 28,795 48,371 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 December 31, 1997. 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: February 12, 1998 /s/ Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: February 12, 1998 /s/ Lindsay M. Sedwick Lindsay M. Sedwick Sr. Vice President of Finance/CFO