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, 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 March 31, 1998 was 13,119,202. 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, 1998 and 1997 2 Consolidated Balance Sheets, March 31, 1998 and June 30, 1997 3 Statements of Consolidated Cash Flows for the Nine Months Ended March 31, 1998 and 1997 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 <CAPTION> STANDEX INTERNATIONAL CORPORATION Statements of Consolidated Income (000 Omitted) Three Months Ended Nine Months Ended March 31 March 31 1998 1997 1998 1997 <S> <C> <C> <C> <C> Net Sales $148,549 $130,454 $457,700 $422,968 Cost of Products Sold 100,562 88,836 307,067 284,523 Gross Profit Margin 47,987 41,618 150,633 138,445 Selling, General & Administrative Expenses 36,963 32,444 109,076 99,839 Income from Operations 11,024 9,174 41,557 38,606 Other Income/(Expense): Interest Expense (2,880) (2,064) (7,850) (6,400) Interest Income 192 102 417 256 Other Income/(Expense) - net (2,688) (1,962) (7,433) (6,144) Income Before Income Taxes 8,336 7,212 34,124 32,462 Provision for Income Taxes 3,349 3,043 13,156 12,624 Net Income $ 4,987 $ 4,169 $20,968 $19,838 Earnings Per Share: Basic $ .38 $ .31 $ 1.60 $ 1.48 Diluted $ .38 $ .31 $ 1.59 $ 1.47 Average Shares Outstanding: Basic 13,047 13,335 13,072 13,373 Diluted 13,164 13,480 13,227 13,534 Cash Dividends Per Share $ .19 $ .19 $ .57 $ .56 </TABLE> <TABLE> <CAPTION> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheets (000 Omitted) March 31 June 30 1998 1997 ASSETS CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 15,165 $ 6,149 Receivables net of allowances for doubtful accounts 92,831 86,852 Inventories (approximately 45% finished goods, 25% work in process, and 30% raw materials and supplies) 125,630 109,454 Prepaid expenses 6,386 4,631 Total current assets 240,012 207,086 PROPERTY, PLANT AND EQUIPMENT 244,878 223,519 Less accumulated depreciation 141,498 137,921 Property, plant and equipment, net 103,380 85,598 OTHER ASSETS: Goodwill, net 33,607 15,195 Prepaid pension cost 27,501 24,320 Other 9,564 8,839 Total other assets 70,672 48,354 TOTAL $414,064 $341,038 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 2,972 $ 2,030 Accounts payable 37,351 31,380 Income taxes 5,352 4,481 Accrued expenses 32,874 32,249 Total current liabilities 78,549 70,140 LONG-TERM DEBT (less current portion included above) 167,235 112,347 DEFERRED INCOME TAXES AND OTHER LIABILITIES 16,888 17,366 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Additional paid-in capital 8,263 5,663 Retained earnings 327,435 313,908 Cumulative translation adjustment (2,564) (1,082) Less cost of treasury shares (223,718) (219,280) Total stockholders' equity 151,392 141,185 TOTAL $414,064 $341,038 </TABLE> <TABLE> <CAPTION> STANDEX INTERNATIONAL CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (000 OMITTED) Nine Months Ended March 31 1998 1997 Cash Flows from Operating Activities: <S> <C> <C> Net income $ 20,968 $ 19,838 Depreciation and amortization 10,289 9,633 Net changes in assets and liabilities (7,582) (3,308) Net Cash Provided by Operating Activities 23,675 26,163 Cash Flows from Investing Activities: Expenditures for property and equipment (10,664) (9,660) Expenditures for acquisitions (49,289) (2,259) Other 2,187 5,149 Net Cash Used for Investing Activities (57,766) (6,770) Cash Flows from Financing Activities: Proceeds from additional borrowings 56,208 1,581 Net payments of debt (377) (3,299) Cash dividends paid (7,441) (7,483) Purchase of treasury stock (7,838) (9,664) Other, net 2,966 1,882 Net Cash Provided by (Used for) Financing Activities 43,518 (16,983) Effect of Exchange Rate Changes on Cash (411) (145) Net Change in Cash and Cash Equivalents 9,016 2,265 Cash and Cash Equivalents at Beginning of Year 6,149 5,147 Cash and Cash Equivalents at March 31 $15,165 $ 7,412 Supplemental Disclosure of Cash Flow Information: Cash paid during the nine months for: Interest $ 8,409 $ 7,246 Income taxes $12,285 $11,537 </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, 1998 and 1997. These financial statements should be read in conjunction with the audited financial statements as of June 30, 1997. Accordingly, footnote disclosures that would substantially duplicate the disclosure contained in the latest audited financial statements have been omitted from this filing. 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 changed the method of calculating and presenting earnings per share, and was adopted by the Company in December, 1997. Accordingly, the earnings per share as presented in the Statements of Consolidated Income have been retroactively restated for all periods presented. <TABLE> <CAPTION> 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 Nine Months Ended March 31 March 31 1998 1997 1998 1997 Basic - Average Shares <S> <C> <C> <C> <C> Outstanding 13,047 13,335 13,072 13,373 Effect of Dilutive Securities: Stock Options 117 145 155 161 Diluted - Average Shares Outstanding 13,164 13,480 13,227 13,534 Both basic and diluted income are the same for computing earnings per share. </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 nine months ended March 31, 1998 and 1997 are 13,056 and 13,362, 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 and Dispositions 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. 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. In February, 1998, the acquisition of ATR Coil Company, Inc. for stock and cash was completed. ATR Coil is a manufacturer of electronic coils and windings for the industrial, automotive, and consumer markets. All three acquisitions were accounted for as purchases, and, accordingly, the respective purchase prices were allocated to the assets acquired based on their fair value and resulted in the recognition of goodwill of approximately $19 million. Also in February, the Company sold the remaining product lines of its Doubleday Bros. & Co. division for cash and notes. Doubleday Bros. had sales in fiscal year 1997 of approximately $16.5 million. 5. Revolving Credit Agreement In May, 1998 the Company re-negotiated its Revolving Credit Agreement which increased the maximum credit line available from $125 million to $175 million and extended payment terms to May, 2003 from October, 1999. The financial covenants, conditions, and warranties are similar to the prior Revolving Credit Agreement. STANDEX INTERNATIONAL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations MATERIAL CHANGES IN FINANCIAL CONDITION During the nine months ended March 31, 1998, net operating cash flows of $23.7 million and $56.2 million in proceeds from additional borrowings were used to purchase $7.8 million of the Company's Common Stock, invest $10.7 million in plant and equipment, pay out $7.4 million in cash dividends to the Company's shareholders and pay $49.3 million for acquisitions. During the first nine months of fiscal 1998, the Company acquired 100% of the net assets of ACME Manufacturing Company, the assets of ATR Coil, and certain assets of the hardware product line of an unrelated company. All three of these acquisitions were financed from existing bank credit agreements and the issuance of Standex Common Stock. Also, in the third quarter of 1998, the Company sold the remaining product lines of it's Doubleday Bros. & Co. division for cash and notes. The Company intends to continue its policy of using its funds to acquire property, plant and equipment, pay dividends, purchase its Common Stock and make acquisitions when conditions are favorable. In May, 1998, the Company re-negotiated its Revolving Credit Agreement which increased the maximum credit line available from $125 million to $175 million and extended repayment terms from October, 1999 to May, 2003. The financial covenants, conditions and warranties will be similar to the prior Revolving Credit Agreement. While existing cash flows and bank credit agreements are sufficient to meet anticipated cash needs, the re-negotiated Revolving Credit Agreement will enhance the Company's financial flexibility. 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. Recently the AICPA released two statements of position, No. 98-1 and No. 98- 5, that prescribe accounting for internally developed software and start-up costs. The latter statement will not have a significant impact on the Company's financial statements. The former is currently being studied and its future impact is unknown at this time. In February of 1998, the FASB issued SFAS No.132, "Employers' Disclosure about Pensions and Other Postretirement Benefits." SFAS No. 132 revises and standardizes pension and other benefit plan disclosures that are to be included in the employer's financial statements and is effective for fiscal years beginning after December 15, 1997. The Company is evaluating this standard and does not expect its adoption to have a material impact on the Company's financial statements. OPERATIONS Quarter Ended March 31, 1998 as compared to the Quarter Ended March 31, 1997 For the quarter ended March 31, 1998, Net Sales increased by $18.1 million as compared to the same period of the prior year. This latest quarter generated the highest third quarter sales level in the Company's history. The majority of this increase came from acquisitions which were partially off-set by the absence of sales from businesses disposed of in the prior year. Excluding these acquisitions, management believes the majority of fluctuations in Net Sales reported by each segment are primarily due to changes in unit volumes and consumer demand. In addition, although changes in the average foreign exchange rates from March 31, 1997 to March 31, 1998 have had a negative impact on Net Sales for the quarter, the total effect was not significant. Net Sales in the Food Service Segment increased by $3.4 million as compared to the prior year due to improved demand at several divisions. In the Industrial Segment Net Sales remained approximately the same as the prior year. However, there was significant growth in sales at several divisions due to increased demand which was offset by the absence of sales from dispositions in the second half of fiscal 1997 and continued sluggishness in some of our European companies. The Consumer segment reported and increase of $15 million in Net Sales due to acquisitions and improved demand. The Gross Profit Margin Percentage (GPMP) increased to 32.3%, as compared to the prior year's percentage of 31.9%. The Food Service Segment reported an increase in GPMP from 26.6% in 1997 to 30.1% in 1998 as a result of reduced costs. The GPMP reported in the Industrial Segment increased slightly from the previous year's percentage of 30.9% to 31.6%; however none of the changes were individually significant. The GPMP reported in the Consumer Segment fell to 34.5%, a decline from the previous year's percentage of 38.4% primarily due to lower initial margins of an acquisition. Selling, General and Administrative Expense (SG&A) rose approximately $4.5 million in 1998 as compared to 1997. However, as a percentage of Net Sales, SG&A remained stable at approximately 24.9% for both periods. The Food Service and Consumer Segments reported increases in SG&A primarily due to the changes in Net Sales discussed above. These increases were partially offset by a decline in SG&A reported by the Industrial Segment where dispositions in the second half of 1997 account for most of the decline in these expenses. 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. Interest Expense increased by 39.5%, or $816,000, as compared to the third quarter of fiscal 1997 primarily due to increased borrowing to finance acquisitions and to higher interest rates. The above factors resulted in a $306,000 increase in Income Before Income Taxes as compared to the same period of the prior year. A larger portion of the Company's income was derived from U.S. operations in the current quarter as compared to the same quarter last year. Since the U.S. tax rates are generally lower than non-U.S. rates, the effective tax rate for the latest quarter declined to 40.2% from the prior year's third quarter of 42.2% As a result of the above activity, Net Income for the third quarter of fiscal 1998 increased $818,000, or 19.6%, over the same period in the prior year. Nine Months Ended March 31, 1998 as compared to the Nine Months Ended March 31, 1997 Net Sales for the nine months ended March 31,1998 increased $34.7 million as compared to the same period of the prior year. As indicated in the discussion of quarterly results the majority of this increase ($28.3 million) resulted from acquisitions. Excluding sales from acquisitions, management believes that the majority of the fluctuations in Net Sales reported by each segment were primarily due to changes in unit volumes and consumer demand. Also, the effect of changes in average foreign exchange rates on operating results was not significant. The Food Service Segment registered growth in Net Sales of $4.3 million due to increased demand at several divisions. In the Industrial Segment Net Sales remained flat as compared to the prior year. While increased demand resulted in higher sales at several divisions, these increases were offset by the absence of sales from dispositions made in 1997 and continued sluggishness in some of our European companies. The Consumer Segment's Net Sales increased by $32.7 million due to acquisitions and improved demand. The Gross Profit Margin Percentage (GPMP) registered a slight increase in 1998 to 32.9% from 32.7% in 1997. The Food Service Segment and the Industrial Segment reported minor changes in GPMP, neither of which was individually significant. However, the Consumer Segment reported a decrease in the GPMP to 35.4% in 1998 as compared to 38.3% in 1997. This reduction was primarily due to the same reason discussed in the analysis of quarterly results. Selling, General and Administrative Expenses (SG&A) rose $9.2 million to represent 23.8% of Net Sales for the nine months ended March 31, 1998 as compared to 23.6% for the same period of fiscal 1997. The primary reason for this increase was the additional SG&A costs ($4 million) of acquisitions. Excluding acquisitions, the fluctuations reported in both the Consumer and Food Service Segments were primarily due to the changes in Net Sales discussed above. However, the Industrial Segment reported a 5.4% reduction in SG&A due to dispositions in the second half of fiscal 1997. The remaining fluctuations reported by the Company's three segments were not individually significant and were in line with the changes in Net Sales discussed above. Interest Expense increased by $1.5 million due to increased borrowings to finance acquisitions and to higher interest rates. For the nine months ended March 31, 1998, Income Before Taxes increased $1.7 million for the reasons described above. The effective tax rate remained fairly stable at 38.6% in 1998 which represents a slight decline from the 38.9% effective tax rate reported in 1997. Due to the factors mentioned above, Net Income rose $1.1 million, or 5.7%. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk NOT APPLICABLE. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10. Employment Agreement between the Company and David R. Crichton, dated as of February 1, 1998 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: May 12, 1998 /s/ Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: May 12, 1998 /s/ Lindsay M. Sedwick Lindsay M. Sedwick Sr. Vice President of Finance/CFO