FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 1996 Commission file number 1-7233 Standex International Corporation (Exact name of Registrant as specified in its charter) Delaware 31-0596149 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 6 Manor Parkway, Salem, New Hampshire 03079 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (603) 893-9701 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 report), 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, 1996 was 13,518,532. 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, 1996 and 1995 ..................... 2 Consolidated Balance Sheet, March 31, 1996 and June 30, 1995 ............................................ 3 Statement of Consolidated Cash Flows for the Nine Months Ended March 31, 1996 and 1995 ............... 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 1996 1995 1996 1995 <S> <C> <C> <C> <C> Net Sales $130,334 $141,575 $426,670 $426,103 Cost of Products Sold 87,427 94,730 285,051 282,778 Gross Profit Margin 42,907 46,845 141,619 143,325 Selling, General & Admini- strative Expenses 31,671 32,987 96,862 98,486 Income from Operations 11,236 13,858 44,757 44,839 Other Income/(Expense): Net Gain on Disposition of Businesses and Product Lines - - - 5,426 Interest Expense (2,205) (2,130) (6,901) (5,934) Interest Income 155 159 397 438 Other Income/(Expense) - net (2,050) (1,971) (6,504) (70) Income Before Income Taxes 9,186 11,887 38,253 44,769 Provision for Income Taxes 3,624 3,829 14,204 15,884 Net Income $ 5,562 $ 8,058 $ 24,049 $ 28,885 Earnings Per Share $ .41 $ .56 $ 1.72 $ 1.98 Cash Dividends per Share $ .18 $ .16 $ .53 $ .46 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheet (000 Omitted) <CAPTION> March 31 June 30 __1996__ __1995_ ASSETS CURRENT ASSETS: <S> <C> <C> Cash $ 8,705 $ 9,543 Receivables, net of allowances for doubtful accounts 82,912 90,492 Inventories (approximately 40% finished goods, 25% work in process, and 35% raw material and supplies) 111,346 116,417 Prepaid expenses 6,159 3,895 Total current assets 209,122 220,347 PROPERTY, PLANT AND EQUIPMENT 216,424 210,139 Less accumulated depreciation 130,050 125,611 Total 86,374 84,528 OTHER ASSETS Goodwill, net 14,828 15,297 Prepaid pension and other 25,918 22,530 Total 40,746 37,827 TOTAL $336,242 $342,702 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 4,785 $ 3,321 Accounts payable 26,964 36,414 Income taxes 3,413 4,472 Accrued expenses 31,695 33,005 Total current liabilities 66,857 77,212 LONG-TERM DEBT (less current portion included above) 117,690 111,845 DEFERRED INCOME TAXES AND OTHER LIABILITIES 18,774 21,293 STOCKHOLDERS' EQUITY Common stock 41,976 41,976 Paid-in Capital 3,142 2,129 Retained earnings 292,760 276,031 Cumulative translation adjustment (44) 338 Less cost of treasury shares (204,913) (188,122) Total stockholders' equity 132,921 132,352 TOTAL $336,242 $342,702 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION STATEMENT OF CONSOLIDATED CASH FLOWS (000 OMITTED) <CAPTION> Nine Months Ended March 31 1996 1995 Cash Flows from Operating Activities: <S> <C> <C> Net income $ 24,049 $ 28,885 Depreciation and amortization 9,273 9,146 Net gain on disposition of businesses and product lines - (5,426) Net changes in assets and liabilities (7,553) (10,293) Net Cash Provided by Operating Activities 25,769 22,312 Cash Flows from Investing Activities: Expenditures for property and equipment (11,116) (9,292) Proceeds from disposition of businesses - 13,589 Other 433 480 Net Cash (Used for) Provided by Investing Activities (10,683) 4,777 Cash Flows from Financing Activities: Proceeds from additional borrowings 51,445 14,495 Net payments of debt (44,135) (13,547) Cash dividends paid (7,319) (6,599) Purchase of treasury stock (18,346) (19,365) Other, net 2,566 3,237 Net Cash Used for Financing Activities (15,789) (21,779) Effect of Exchange Rate Changes on Cash (135) 583 Net Change in Cash and Cash Equivalents (838) 5,893 Cash and Cash Equivalents at Beginning of Year 9,543 5,023 Cash and Cash Equivalents at March 31 $ 8,705 $ 10,916 Supplemental Disclosure of Cash Flow Information: Cash paid during the nine months for: Interest 6,748 5,707 Income taxes 15,263 13,991 </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, 1996 and 1995. 2. Per Share Calculation Shares (in thousands) used in per share data are as follows: March 31 1996 1995 Earnings 14,019 14,620 Cash Dividends 13,810 14,346 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 matters generally incidental to its business. Management has evaluated each matter based, in part, upon the advice of its independent environmental consultants 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. Additional Borrowings In September, the Company negotiated a $50,000,000 unsecured loan agreement with an institutional lender. The loan has a fixed interest rate of 7.13% and is repayable in level, annual principal payments beginning September, 1999 and ending September, 2005. The financial covenants of the new loan agreement are similar to those under the Company's revolving credit agreement. The proceeds of the loan were used to reduce borrowings under the revolving credit agreement. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MATERIAL CHANGES IN FINANCIAL CONDITION During the nine months ended March 31, 1996, the Company negotiated a $50 million unsecured loan agreement with an institutional lender. The loan has a fixed interest rate of 7.13% and is repayable in level, annual principal payments beginning September, 1999 and ending September, 2005. The financial covenants of the new loan agreement are similar to those under the Company's revolving credit agreement. Net Income of $24.0 million and the proceeds from the new loan agreement were used to reduce borrowings under the Company's revolving credit agreement, fund operating activities, invest $11.1 million in plant and equipment, purchase $18.3 million of the Company's Common Stock and pay out $7.3 million of cash dividends to the Company's shareholders. The Company believes that anticipated cash flows, along with current credit and loan agreements, are sufficient to meet its anticipated cash requirements for the foreseeable future. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (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) compensation costs to be measured based on the fair value of stock options awarded. The Company is not required to adopt this standard until the fiscal year beginning July 1, 1996. At the current time, 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. OPERATIONS Quarter Ended March 31, 1996 as compared to the Quarter Ended March 31, 1995 Management believes the fluctuations in Net Sales discussed below are primarily due to changes in unit volumes. In addition, although variations in the average foreign exchange rates from March 31, 1995 to March 31, 1996 have had a positive impact on Net Sales during the quarter, the total effect was not significant. For the quarter ended March 31, 1996, Net Sales declined $11.2 million, or 7.9%, when compared to the same period of the prior year. Improvements in Net Sales reported by the Graphics/Mail Order and Industrial segments were offset by a decline in Net Sales of $13.1 million reported by the Institutional segment. A group of divisions within this segment have experienced sluggish economic conditions within the U.S. markets they serve and this has been compounded by weather related problems.
The Gross Profit Margin Percentage declined slightly to 32.9% for the third quarter of fiscal 1996 as compared to 33.1% in the same period of the prior year. The Institutional segment reported a 2.3% decrease in the Gross Profit Margin Percentage due to reorganization expenses and this segment's decline in Net Sales which led to unabsorbed costs. The Graphics/Mail Order and Industrial segments registered minor changes in their Gross Profit Margin Percentages. For the quarter ended March 31, 1996, Selling, General and Administrative Expenses (SG&A) declined $1.3 million, or 4.0%. However, as a percentage of Net Sales, SG&A increased slightly from 23.3% of Net Sales in the third quarter of fiscal 1995 to 24.3% of Net Sales for the three months ended March 31, 1996. All three segments reported a decrease in SG&A expenses. However, the Institutional segment reported an increase in SG&A as a percentage of Net Sales primarily due to the decline in Net Sales reported for the period. In the third quarter of fiscal 1996, Interest Expense increased slightly as compared to the same period of the prior year. The above factors resulted in a $2.7 million, or 22.7%, 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 39.4% from 32.2% reported in the third quarter of the prior year. The third quarter of fiscal 1995 was positively impacted primarily by foreign tax credits generated by a UK subsidiary which were not repeated in the current quarter. For the third quarter of fiscal 1996, Net Income decreased $2.5 million, or 31%, when compared to the same period of the prior year as a result of the factors described above. Nine Months Ended March 31, 1996 as compared to Nine Months Ended March 31, 1995 For the nine months ended March 31, 1996, Net Sales increased $567,000. 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. Due primarily to improved European economic conditions, the Graphics/Mail Order segment reported growth in Net Sales of $7.0 million. This growth was offset by a $5.8 million decline in Net Sales reported by the Institutional segment for the reasons described in the discussion of quarterly results. Despite gains reported by several foreign divisions within the Industrial segment, a slight decline in Net Sales was reported due to the sale of a German subsidiary in the first quarter of the prior fiscal year. For the nine months ended March 31, 1996, the Gross Profit Margin Percentage remained relatively unchanged at 33.2% versus 33.6% reported in the same period of the prior year. The Company's three segments reported minor fluctuations in their Gross Profit Margin Percentages. Selling, General and Administrative Expenses (SG&A) decreased $1.6 million, or 1.6%, for the nine months ended March 31, 1996 when compared to the same period last year. As a percentage of Net Sales, SG&A declined from 23.1% of Net Sales to 22.7% of Net Sales in current fiscal year. All three segments reported only slight increases or decreases in SG&A. Interest Expense rose $967,000 for the nine months ended March 31, 1996 primarily due to higher interest rates during the first two quarters of fiscal 1996 as compared to those experienced in the same period of the prior fiscal year.
During the nine months ended March 31, 1995, a net gain of $5.4 million was reported due to the disposition of certain businesses and product lines. This prior year gain, in addition to the factors described above, resulted in a $6.5 million decrease in Income Before Income Taxes for the nine months ended March 31, 1996. The effective tax rate for the nine months ended March 31, 1996 increased to 37.1% as compared to 35.5% in the same period of fiscal 1995 due mainly to the factors described in the analysis of quarterly results. For the nine months ended March 31, 1996, Net Income declined $4.8 million, or 16.7%, when compared to the same period of the prior year due to the factors described above. PART II. OTHER INFORMATION NO APPLICABLE ITEMS. Form 10-Q STANDEX INTERNATIONAL CORPORATION SIGNATURES 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 13, 1996 /s/ Robert R. Kettinger Robert R. Kettinger, Corporate Controller Date: May 13, 1996 /s/ Lindsay M. Sedwick Lindsay M. Sedwick, Senior Vice President of Finance/CFO