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, 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 March 31, 1997 was 13,288,079. STANDEX INTERNATIONAL CORPORATION I N D E X Page No. PART I. FINANCIAL INFORMATION: Statements of Consolidated Income for the Three and Nine Months Ended March 31, 1997 and 1996. . . . . . . . . . . . . . . . . 2 Consolidated Balance Sheet, March 31, 1997 and June 30, 1996. . . . . . . . . . . . . . . . . . . . . . . . . 3 Statement of Changes in Consolidated Cash Flows for the Nine Months Ended March 31, 1997 and 1996. . . . . . . . . . . 4 Notes to Financial Information . . . . . . . . . . . . . . . . 5 Management's Discussion and Analysis . . . . . . . . . . . . . 6-8 PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 9 <TABLE> Form 10-Q PART I. FINANCIAL INFORMATION STANDEX INTERNATIONAL CORPORATION Statement of Consolidated Income (000 Omitted) <CAPTION> Three Months Ended Nine Months Ended March 31 March 31 1997 1996 1997 1996 <S> <C> <C> <C> <C> Net Sales $130,454 $130,334 $422,968 $426,670 Cost of Products Sold 88,836 87,427 284,523 285,051 Gross Profit Margin 41,618 42,907 138,445 141,619 Selling, General & Admini- strative Expenses 32,444 31,671 99,839 96,862 Income from Operations 9,174 11,236 38,606 44,757 Other Income/(Expense): Interest Expense (2,064) (2,205) (6,400) (6,901) Interest Income 102 155 256 397 Other Income/(Expense) - net (1,962) (2,050) (6,144) (6,504) Income Before Income Taxes 7,212 9,186 32,462 38,253 Provision for Income Taxes 3,043 3,624 12,624 14,204 Net Income $ 4,169 $ 5,562 $ 19,838 $ 24,049 Earnings Per Share $ 0.31 $ 0.41 $ 1.47 $ 1.72 Cash Dividends per Share $ 0.19 $ 0.18 $ 0.56 $ 0.53 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheet (000 Omitted) <CAPTION> March 31 June 30 1997 1996 ASSETS CURRENT ASSETS: <S> <C> <C> Cash $ 7,412 $ 5,147 Receivables, net of allowance for doubtful accounts 80,185 88,567 Inventories (approximately 45% finished goods, 20% work in process, and 35% raw materials and supplies) 110,676 109,720 Prepaid expenses 6,650 3,958 Total current assets 204,923 207,392 PROPERTY, PLANT AND EQUIPMENT 222,477 217,478 Less accumulated depreciation 136,623 130,862 Total property, plant and equipment 85,854 86,616 OTHER ASSETS: Prepaid pension cost 23,556 20,744 Goodwill, net 15,254 14,656 Other 9,051 5,925 Total other assets 47,861 41,325 TOTAL $338,638 $335,333 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 2,308 $ 5,287 Accounts payable 28,637 29,202 Income taxes 4,254 1,567 Accrued expenses 30,879 32,476 Total current liabilities 66,078 68,532 LONG-TERM DEBT (less current portion included above) 115,083 113,822 DEFERRED INCOME TAXES AND OTHER LIABILITIES 16,197 18,288 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Paid-in capital 5,313 3,378 Retained earnings 309,346 296,991 Cumulative translation adjustment (1,025) (572) Less cost of treasury shares (214,330) (207,082) Total stockholders' equity 141,280 134,691 TOTAL $338,638 $335,333 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Statement of Consolidated Cash Flows (000 Omitted) <CAPTION> Nine Months Ended March 31 1997 1996 Cash Flows from Operating Activities: <S> <C> <C> Net income $ 19,838 $ 24,049 Depreciation and amortization 9,633 9,273 Net changes in assets and liabilities (4,101) (7,553) Net Cash Provided by Operating Activities 25,370 25,769 Cash Flows from Investing Activities: Expenditures for property and equipment (9,479) (11,116) Other 1,033 433 Net Cash Used for Investing Activities (8,446) (10,683) Cash Flows from Financing Activities: Proceeds from additional borrowings 1,581 51,445 Net payments of debt (3,299) (44,135) Cash dividends paid (7,483) (7,319) Purchase of treasury stock (9,664) (18,346) Other, net 4,351 2,566 Net Cash Used for Financing Activities (14,514) (15,789) Effect of Exchange Rate Changes on Cash (145) (135) Net Change in Cash and Cash Equivalents 2,265 (838) Cash and Cash Equivalents at Beginning of Year 5,147 9,543 Cash and Cash Equivalents at March 31 $ 7,412 $ 8,705 Supplemental Disclosure of Cash Flow Information: Cash paid during the nine months for: Interest $ 7,246 $ 6,748 Income taxes $ 11,537 $ 15,263 </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, 1997 and 1996. 2. Per Share Calculation Shares (in thousands) used in per share data are as follows: March 31 1997 1996 Earnings 13,534 14,019 Cash Dividends 13,362 13,810 Earnings per share have been computed according to generally accepted accounting principles. Cash dividends per share have been computed based on the shares outstanding at the time the dividends were paid. 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 No. 5, "Accounting for Contingencies." Management believes that such provision is sufficient to cover any future payments, including legal costs, under such proceedings. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONSOLIDATION AND RESULTS OF OPERATIONS MATERIAL CHANGES IN FINANCIAL CONDITION During the nine months ended March 31, 1997, net operating cash flows of $25.4 million were used to purchase $9.7 million of the Company's Common Stock, invest $9.5 million in plant and equipment and pay out $7.5 million of cash dividends to the Company's shareholders. During the first quarter of fiscal 1997, the Company acquired certain assets of two companies: The Vidalia Onion Store and Salsa Express. In the second quarter, the Company acquired 100% of the Common Stock of Fellowship Bookstores. These purchases were primarily financed from operating cash flows and from the issuance of Standex stock. Aggregate annual net sales for these three acquisitions are approximately $9.1 million. 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 March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of." The Company has evaluated this standard and determined that it will not materially affect the Company's financial condition or operating results. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." This standard requires expanded disclosure of stock-based compensation arrangements with employees and encourages (but does not require) that such compensation costs be measured based on the fair value of stock options awarded. The Company is required to adopt this standard during fiscal year 1997. The Company does not intend to adopt that portion of the standard which is voluntary, but rather will continue the application of APB Opinion No. 25, since management has determined that the latter provides the more accurate presentation of costs associated with stock based compensation awards to employees. As a result, compliance with this standard will have no impact on the Company's 1997 financial statements, other than the required additional footnote disclosure of the proforma effect of SFAS No. 123 on net income and earnings per share. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." This standard changes the method of calculating earnings per share and is effective December 15, 1997; earlier adoption is not permitted. The Company has evaluated this standard and determined that it will not result in a significant change to the Corporation's earnings per share. OPERATIONS Quarter Ended March 31, 1997 as compared to the Quarter Ended March 31, 1996 For the quarter ended March 31, 1997, Net Sales increased $120,000 when compared to the same period of the prior year. Management believes the majority of the fluctuations in Net Sales reported by each segment are primarily due to changes in unit volumes. In addition, the effect of changes in the average foreign exchange rates from March 31, 1996 to March 31, 1997 on Net Sales for the quarter was not significant. The Graphics/Mail Order and Institutional segments reported growth in Net Sales of $1.8 million and $1.1 million, respectively, due to improved demand and acquisitions made during fiscal 1997. However, this growth was offset by a decline in Net Sales from the Industrial segment of $2.8 million due to slowness within the economy reported by its European operations and the disposition of a product line at the end of fiscal 1996. The Gross Profit Margin Percentage declined to 31.9% for the third quarter of fiscal 1997 as compared to 32.9% in the same period of the prior year. All three segments reported decreases in the Gross Profit Margin Percentage due to competitive pressures on pricing experienced by a few of the operations within each segment, as well as restructuring costs at one of the divisions within the Institutional segment. For the quarter ended March 31, 1997, Selling, General and Administrative Expenses (SG&A) rose $773,000, or 2.4%, to represent 24.9% of Net Sales for the third quarter of fiscal 1997 as compared to 24.3% for the same period of the prior year. The Institutional and Industrial segments reported slight increases in SG&A. SG&A reported by the Graphics/Mail Order segment rose 10%. The majority of this increase was attributable to acquisitions within this segment; however, these costs were somewhat higher than anticipated due to difficulties assimilating some of the acquisitions. Management is taking steps to reduce these costs to a more acceptable level. Interest Expense decreased 6.4%, or $141,000, as compared to the third quarter of fiscal 1996 due to a decrease in borrowings and lower interest rates than those experienced in the same period of the prior year. The above factors resulted in a $2.0 million decline in Income Before Income Taxes as compared to the same period of the prior year. The
effective tax rate in the third quarter rose to 42.2% from 39.4% reported in the third quarter of the prior year due mainly to reduced availability of foreign tax credits. For the third quarter of fiscal 1997, Net Income decreased $1.4 million, or 25%, when compared to the same period of the prior year as a result of the factors described above. Nine Months Ended March 31, 1997 as compared to Nine Months Ended March 31, 1996 Net Sales for the nine months ended March 31, 1997, decreased $3.7 million as compared to the same period of the prior year. As indicated in the discussion of quarterly results, management believes the majority of the fluctuations in Net Sales discussed below are due to changes in unit volumes. Also, the effect of changes in average foreign exchange rates on operating results was not significant. The Graphics/Mail Order segment registered growth in Net Sales of $4.1 million due to increased demand and acquisitions made during fiscal 1997. This sales growth was offset by declines in Net Sales reported by the Institutional and Industrial segments. Net Sales from the Institutional segment decreased $2.2 million mainly due to softness in some portions of the food service sector and a decrease in demand for seasonal products. The Industrial segment's Net Sales dropped $5.6 million due to factors discussed in the analysis of results for the quarter. For the nine months ended March 31, 1997, the Gross Profit Margin Percentage declined to 32.7% from 33.2% reported in the same period of the prior year. The Graphics/Mail Order segment's Gross Profit Margin Percentage rose slightly. However, the Gross Profit Margin Percentages reported by the Institutional and Industrial segments each decreased one percentage point due to reduced sales volumes, competitive pressures on pricing and restructuring costs at one of the divisions within the Institutional segment. Selling, General and Administrative Expenses (SG&A) rose $3.0 million to represent 23.6% of Net Sales for the nine months ended March 31, 1997 as compared to 22.7% of Net Sales for the same period of fiscal 1996. The Institutional and Industrial segments reported slight increases in SG&A. However, the Graphics/Mail Order segment reported an 8.6% increase in SG&A due to the same factors described in the discussion of quarterly results. Interest Expense declined $501,000 for the nine months ended March 31, 1997, primarily due to lower interest rates than those experienced in the same period of the prior year. For the nine months ended March 31, 1997, Income Before Income Taxes decreased $5.8 million for the reasons described above. The effective tax rate rose to 38.9% as compared to 37.1% for the nine months ended March 31, 1996 for the same reasons described in the discussion of quarterly results. Due to the factors described above, Net Income for the nine months ended March 31, 1997 decreased $4.2 million, or 17.5%, from the same period of the prior year. PART II. OTHER INFORMATION NO APPLICABLE ITEMS. Form 10-Q 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, 1997 /s/ Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: May 12, 1997 /s/ Lindsay M. Sedwick Lindsay M. Sedwick Sr. Vice President of Finance/CFO