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, 1996 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, 1996 was 13,371,965. STANDEX INTERNATIONAL CORPORATION I N D E X Page No. PART I. FINANCIAL INFORMATION: Statements of Consolidated Income for the Three and Six Months Ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 2 Consolidated Balance Sheet, December 31, 1996 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Statement of Changes in Consolidated Cash Flows for the Six Months Ended December 31, 1996 and 1995. . . . . . . 4 Notes to Financial Information . . . . . . . . . . . . . . . . . . 5 Management's Discussion and Analysis . . . . . . . . . . . . . . . 6-8 PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 9 Form 10-Q <TABLE> PART I. FINANCIAL INFORMATION STANDEX INTERNATIONAL CORPORATION Statement of Consolidated Income (000 Omitted) <CAPTION> Three Months Ended Six Months Ended December 31 December 31 1996 1995 1996 1995 <S> <C> <C> <C> <C> Net Sales $152,315 $154,101 $292,514 $296,336 Cost of Products Sold 100,108 102,675 195,687 197,624 Gross Profit Margin 52,207 51,426 96,827 98,712 Selling, General & Admini- strative Expenses 37,153 34,872 67,395 65,191 Income from Operations 15,054 16,554 29,432 33,521 Other Income/(Expense): Interest Expense (2,213) (2,513) (4,336) (4,696) Interest Income 82 120 154 242 Other Income/(Expense) - net (2,131) (2,393) (4,182) (4,454) Income Before Income Taxes 12,923 14,161 25,250 29,067 Provision for Income Taxes 4,796 4,984 9,581 10,580 Net Income $ 8,127 $ 9,177 $ 15,669 $ 18,487 Earnings Per Share $ .60 $ .65 $ 1.16 $ 1.31 Cash Dividends per Share $ .19 $ .18 $ .37 $ .35 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Consolidated Balance Sheet (000 Omitted) <CAPTION> December 31 June 30 1996 1996 ASSETS CURRENT ASSETS: <S> <C> <C> Cash $ 8,642 $ 5,147 Receivables, net of allowance for doubtful accounts 85,642 88,567 Inventories (approximately 45% finished goods, 20% work in process, and 35% raw materials and supplies) 110,557 109,720 Prepaid expenses 7,683 3,958 Total current assets 212,524 207,392 PROPERTY, PLANT AND EQUIPMENT 225,343 217,478 Less accumulated depreciation 137,304 130,862 Total property, plant and equipment 88,039 86,616 OTHER ASSETS: Prepaid pension cost 22,546 20,744 Goodwill, net 15,491 14,656 Other 8,378 5,925 Total other assets 46,415 41,325 TOTAL $346,978 $335,333 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 1,942 $ 5,287 Accounts payable 31,229 29,202 Income taxes 4,978 1,567 Accrued expenses 30,983 32,476 Total current liabilities 69,132 68,532 LONG-TERM DEBT (less current portion included above) 116,246 113,822 DEFERRED INCOME TAXES AND OTHER LIABILITIES 16,650 18,288 STOCKHOLDERS' EQUITY: Common stock 41,976 41,976 Paid-in capital 5,125 3,378 Retained earnings 307,703 296,991 Cumulative translation adjustment 1,637 (572) Less cost of treasury shares (211,491) (207,082) Total stockholders' equity 144,950 134,691 TOTAL $346,978 $335,333 </TABLE> <TABLE> STANDEX INTERNATIONAL CORPORATION Statement of Consolidated Cash Flows (000 Omitted) <CAPTION> Six Months Ended December 31 1996 1995 Cash Flows from Operating Activities: <S> <C> <C> Net income $ 15,669 $ 18,487 Depreciation and amortization 6,435 6,059 Net changes in assets and liabilities (3,588) (6,685) Net Cash Provided by Operating Activities 18,516 17,861 Cash Flows from Investing Activities: Expenditures for property and equipment (6,797) (8,764) Other 133 86 Net Cash Used for Investing Activities (6,664) (8,678) Cash Flows from Financing Activities: Proceeds from additional borrowings 2,744 50,000 Net payments of debt (3,665) (51,846) Cash dividends paid (4,958) (4,886) Purchase of treasury stock (6,399) (7,721) Other, net 3,738 1,566 Net Cash Used for Financing Activities (8,540) (12,887) Effect of Exchange Rate Changes on Cash 183 112 Net Change in Cash and Cash Equivalents 3,495 (3,592) Cash and Cash Equivalents at Beginning of Year 5,147 9,543 Cash and Cash Equivalents at December 31 $ 8,642 $ 5,951 Supplemental Disclosure of Cash Flow Information: Cash paid during the six months for: Interest $ 4,348 $ 4,069 Income taxes $ 7,770 $ 10,544 </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, 1996 and 1995. 2. Per Share Calculation Shares (in thousands) used in per share data are as follows: December 31 1996 1995 Earnings 13,563 14,164 Cash Dividends 13,399 13,960 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. 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, 1996, net operating cash flows of $18.5 million were used to purchase $6.4 million of the Company's Common Stock, invest $6.8 million in plant and equipment and pay out $5.0 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. OPERATIONS Quarter Ended December 31, 1996 as compared to the Quarter Ended December 31, 1995 Net Sales for the quarter ended December 31, 1996 were the second highest quarterly sales in the Company's history. As compared to the same quarter of fiscal 1996, Net Sales declined $1.8 million. Management believes the majority of the fluctuations in Net Sales reported by each segment are primarily due to changes in unit volumes. In addition, although changes in the average foreign exchange rates from December 31, 1995 to December 31, 1996 have had a negative impact on Net Sales for the quarter, the total effect was not significant. Growth in Net Sales of $1.5 million was reported by the Graphics/Mail Order segment due to increased demand and acquisitions made during fiscal 1997. This sales growth was offset by a slight decrease in Net Sales reported by the Institutional segment and a $2.5 million reduction in Net Sales reported by the Industrial segment. The Industrial segment's decline in Net Sales was 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 increased from 33.4% reported for the second quarter of fiscal 1996 to 34.3% for the three months ended December 31, 1996. The Institutional and Industrial segments reported minor changes in the Gross Profit Margin Percentages, neither of which was individually significant. However, the Graphics/Mail Order segment reported a 2.2% increase in the Gross Profit Margin Percentage due to the growth in Net Sales reported above and the mix of products sold. Selling, General and Administrative Expenses (SG&A) rose $2.3 million for the three months ended December 31, 1996 to represent 24.4% of Net Sales versus 22.6% of Net Sales for the same period of the prior year. The Institutional and Industrial segments reported slight increases in SG&A, neither of which was individually significant. However, SG&A rose $1.4 million for the Graphics/Mail Order segment due to the marketing efforts required to support this segment's growth in Net Sales and new business acquisitions. Interest Expense decreased 11.9%, or $300,000, as compared to the second quarter of fiscal 1996 due mainly to lower interest rates than those experienced during the same period of the prior year. The above factors resulted in a $1.2 million decline in Income Before Income Taxes as compared to the same period of the prior year. The effective tax rate for the quarter ended December 31, 1996 increased from 35.2% for the same period of the prior year to 37.1% due mainly to reduced availability of foreign tax credits. Net Income for the second quarter of fiscal 1997 decreased $1.0 million, or 11.4%, from the same quarter last year due to the factors described above. Six Months Ended December 31, 1996 as compared to the Six Months Ended December 31, 1995 Net Sales for the six months ended December 31, 1996 dropped $3.8 million as compared to the same period of the prior year. As indicated in the discussion of quarterly results, management believes that the majority of the fluctuations in Net Sales reported by each segment are primarily due to changes in unit volumes. Also, the effect of changes in average foreign exchange rates on operating results was not significant. For the six months ended December 31, 1996, the Graphics/Mail Order segment reported a $2.3 million increase in Net Sales for the reasons described in the above discussion of quarterly results. The Institutional segment reported a decline in Net Sales of $3.3 million primarily due to softness in the food service sector and a decrease in demand for certain seasonal products. The Industrial segment registered a $2.8 million decline in Net Sales for the same reasons described in the analysis of results for the second quarter. The Gross Profit Margin Percentage for the six month period declined modestly from 33.3% for the same period of fiscal 1996 to 33.1% for the six months ended December 31, 1996. The Graphics/Mail Order segment reported a 1.4% increase in the Gross Profit Margin Percentage for the same reasons described in the discussion of quarterly results. The Institutional and Industrial segments reported declines in the Gross Profit Margin Percentages of 1.2% and 1%, respectively, due primarily to reduced sales volumes and competitive pressures on pricing. Selling, General and Administrative Expenses (SG&A) rose $2.2 million to represent 23% of Net Sales for the six months ended December 31, 1996 as compared to 22% of Net Sales for the same period of fiscal 1996. SG&A for the Graphics/Mail Order segment rose $1.9 million for the same reasons described within the discussion of results for the second quarter. The Institutional and Industrial segments reported minor increases and decreases in SG&A, neither of which was individually significant. Interest Expense declined 7.7%, or $360,000, for the six months ended December 31, 1996 due to lower interest rates than those experienced in the same period of the prior fiscal year. During the six months ended December 31, 1996, Income Before Income Taxes decreased $3.8 million for the reasons described above. The effective tax rate rose from 36.4% for the same period of the prior year to 37.9% for the six months ended December 31, 1996 for the same reasons discussed in the analysis of results for the second quarter. Due to the factors described above, Net Income for the six months ended December 31, 1996 decreased $2.8 million, or 15.2%, from 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 29, 1996. Two matters were voted upon at the meeting: the election of directors 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 John Bolten, Jr. 10,773,066 680,275 David R. Crichton 11,251,862 201,479 Samuel S. Dennis 3d 11,259,461 193,879 Daniel B. Hogan, Ph.D. 11,299,957 153,384 Proposal 2 (Appointment of Auditors) For Against Abstain 11,364,585 53,656 35,100 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10. (i) Standex International Corporation Executive Security Program as amended and restated on October 29, 1996. (l) Standex International Corporation Executive Life Insurance Plan as amended and restated on October 29, 1996. 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, 1996. ALL OTHER ITEMS ARE INAPPLICABLE 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: February 11, 1997 /s/ Robert R. Kettinger Robert R. Kettinger Corporate Controller Date: February 11, 1997 /s/ Lindsay M. Sedwick Lindsay M. Sedwick Sr. Vice President of Finance/CFO