Standex International Corporation
1998 Annual Report
ESSENTIAL PRODUCTS
FOR YOUR WORLD
ESSENTIAL PRODUCTS FOR YOUR WORLD
HIGHLIGHTS FROM 1998
Standex is a global, multi-industry company that
manufactures and markets products through 17 business units
and 92 facilities in 14 countries. Our strategy is to invest
in businesses that generate solid revenues and earnings
streams, and then to reinvest for long-term growth - while
providing attractive current returns to our shareholders.
We operate in three broad business segments. Our Food
Service and Consumer businesses are well positioned to
capitalize on trends that reflect new ways of living,
working, and shopping. Our Industrial businesses typically
serve niche OEM markets, so many of our products and
services are invisible to consumers and end-users. Yet we
typically add functionality, competitive advantage and
market appeal that are critical to the quality and value of
the finished product.
Standex International. What we do is essential - but most of
the time, you won't even notice that we're there.
Year Ended June 30 1998 1997 1996 1995 1994
Operations
Net Sales $616,180,090 $564,623,458 $562,678,620 $569,292,824 $529,399,483
Net Income** 20,148,905 26,918,588 30,713,794 34,976,944 27,147,163
Return on Sales** 3.3% 4.8% 5.5% 6.1% 5.1%
Return on Equity** 13.8% 19.1% 22.8% 26.4% 22.8%
Depreciation 13,851,599 12,777,339 12,497,148 12,355,863 12,477,651
Interest Expense 10,779,015 8,497,425 9,047,701 8,367,075 5,937,960
Per Share Data
Net Sales* $46.61 $41.85 $40.40 $39.15 $34.62
Earnings:**
Basic 1.54 2.02 2.24 2.45 1.81
Diluted 1.52 2.00 2.21 2.41 1.78
Book Value 11.19 10.75 10.01 9.45 8.16
Dividends .76 .75 .71 .63 .52
Average Shares
Outstanding:
Basic 13,072,105 13,337,197 13,735,643 14,281,363 14,983,207
Diluted 13,218,892 13,490,810 13,927,223 14,540,476 15,293,351
*Amounts calculated using average diluted shares outstanding.
**Fiscal 1995 amounts exclude a non-recurring net after tax gain from the disposition of
businesses and product lines of $3,343,000 or $.23 per share (both basic and diluted).
LETTER TO OUR SHAREHOLDERS
[Photo of Thomas L. King]
Thomas L. King
Chairman of the Board
[Photo of Edward J. Trainor]
Edward J. Trainor
President /CEO
TO OUR SHAREHOLDERS
Fiscal year 1998 was a transition year for Standex. We
spent considerable time and energy studying our business
units and planning the future direction of the Company.
The major result of this planning was a refocusing of our
business segments, a realignment of our management team
and a restructuring plan to eliminate businesses and
product lines that do not meet our new expectations. The
management team is committed to this refocusing plan. The
expected result of these efforts should begin to manifest
itself in fiscal year 1999 with full impact in fiscal year
2000.
FINANCIAL RESULTS
Fiscal year 1998 showed some improvement over fiscal year
1997. Sales reached a record high of $616,180,000 and
diluted earnings per share before a non-recurring
restructuring charge of 61 cents per share improved 6.5% to
$2.13. The acquisition of ACME Manufacturing more than
offset the loss in sales from the divestitures of
Toastswell and Doubleday Bros. & Co., and was the major
contributor to our record sales year and a positive
contributor to earnings as well. Exclusive of the recent
restructuring charge, return on sales was 4.6% and return
on equity was up slightly to 19.3%. A $12.8 million non-
recurring restructuring charge recorded in the fourth
quarter resulted in a negative 61 cents per share impact on
earnings for the year. Including the restructuring charge,
earnings per share were $1.52 on a diluted basis.
We invested $19.8 million in new capital to insure our
businesses remain strong and maintain the competitive edge
required in the future. Our debt-to-capital is at 53.2% up
due to the acquisition of ACME. The current ratio is at a
comfortable 2.7 to 1. As we close fiscal year 1998 the
Corporation has, exclusive of the recent restructuring
charge, shown five consecutive quarters with improved year
over year earnings comparisons.
SHAREHOLDER VALUE
The Corporation repurchased 314,604 shares of Standex
Common Stock for $10,177,761 and has, since the inception
of the program, acquired 18,796,418 shares for
$264,912,958. This works out to an average price paid per
share of $14.09. The equity per share reached a new high
of $11.19 per share compared with $10.75 per share last
year. We continued the enviable streak of 136 consecutive
quarterly dividends which equates to 34 years of
uninterrupted dividend payments to our shareholders.
ACQUISITIONS
We acquired ACME Manufacturing Co., in October 1997 to
enhance the geographical manufacturing and distribution of
Standex Air Distribution Products. That division now has
nine manufacturing facilities covering sales in 49 states.
Standex Electronics expanded their product offering and
manufacturing capabilities with the acquisition of ATR
Coil Co., in March 1998. We also opened two new Berean(R)
Christian Stores in fiscal year 1998 as well as acquired
some product lines for other divisions of Standex. We are
continually seeking opportunities through acquisitions
that provide a synergistic impact or growth potential in
our primary markets.
IN SUMMARY
The refocusing of our business and management efforts
along with the restructuring plan are well underway. We
are well prepared for both the Y2K and Euro currency
transitions. We have a well-trained and dedicated
workforce and record backlogs entering into fiscal year
1999. Barring unforeseen disruptions in the global
marketplace, we expect a strong year in 1999.
/S/ Thomas L. King
Thomas L. King
Chairman of the Board
/S/ Edward J. Trainor
Edward J. Trainor
President and Chief Executive Officer
INDUSTRIAL PRODUCTS FOR YOUR WORLD
The companies of the Standex Industrial segment provide
products and services that most people take for granted.
Yet the things we make and do add tangible value and
functionality in a host of settings. In most of the niche
OEM markets we serve, we're the leader in quality,
innovation -and often, sales. And, we are continually
investing in the resources and capabilities that will
sustain our leadership position.
Case in point: our Spincraft division. The company is a key
supplier to the aerospace companies that are developing
both reusable and expendable space launch vehicles for
commercial applications and has an excellent reputation
with companies supplying products to the commercial
satellite market. Spincraft recently installed the world's
largest heat-treating and quenching furnace which is used
in the production of rocket fuel tank domes. The furnace
complements the world's most powerful and largest spin
lathe -also at Spincraft - which forms the domes from 16-
ft. plates of aluminum. In addition, Spincraft has
extensive expertise in forming exotic metals such as
titanium for highly specialized applications ranging from
turbines to aircraft engines and nuclear reactors.
The capabilities of Standex Electronics were augmented with
the acquisition of ATR Coil in March 1998. Standex
Electronics makes reed switches, sensors, magnetic
components and connectors and is differentiated by a core
competency in designing and manufacturing electronic
products that meet the demands of automated assembly. Its
products are integral to the operation of hand-held phones
and computer modems, while its windshield washer fluid
sensors are used by automotive manufacturers throughout the
world and its connectors are utilized worldwide in air
conditioning and refrigeration products.
Standex also stands out in more basic industries. For
example, our James Burn Group owns one of the graphic art
world's most recognized brand names: Wire-O(R). These double
loop wire binding systems are used in a broad range of
products, including computer manuals, calendars, diaries,
and notebooks. Sustaining this leadership position is a
global network of offices that keeps Wire-O(R) products close
to the customer.
Custom Hoists, which makes hydraulic telescopic cylinders
for dump trucks and trailers, is benefiting from the boom
in highway construction and repair, as well as a resurgence
and consolidation in the waste hauling industry. Custom
Hoists has recently introduced a new cylinder that has
quickly proven itself one of the most reliable on the
market.
With more than 6,000 products, the Jarvis Caster Group is a
leader in the institutional and industrial caster markets,
providing mobility to virtually anything that rolls in a
hotel, restaurant, store, factory or office. Seven
manufacturing and distribution facilities across North
America assure responsiveness as well as quality.
Our Roehlen embossing unit makes complete texturizing
systems, including the rolls, plates and machines that
apply textures and patterns to products like vinyl siding,
wall coverings, fine writing paper and even leather
basketballs. Eastern Engraving, another Standex unit, works
on a more delicate scale, applying decorative embossed
patterns to wrapping paper and plastic packaging materials.
A commitment to understanding current end-user needs and
expectations - and to being at the forefront of emerging
trends - has made Standex the world leader in texturizing:
in creating the three-dimensional surfaces that enhance the
utility, appeal, and salability of molded products. The
only truly global texturizing resource, Standex's Mold-Tech
Unit operates 26 plants in 15 countries, serving companies
in the automotive, computer, housewares, construction
materials, and other industries. The company's
strategically positioned, full-service plants, coupled with
state-of-the-art optical imaging systems, allow OEMs and
marketers to incorporate new patterns and textures into
their designs in a matter of days.
Spincraft manufactures rocket fuel tank domes which are
used for both reusable and expendable space launch vehicles
such as the one above. [Photo shown above this caption in
the right margin is a space launch vehicle during take
off.]
Standex Electronics components are utilized in
communications, computers, appliances, automobiles and
security systems. [Photo of Standex Electronics products
is shown above this caption in the right margin.]
Custom Hoists' telescopic hydraulic cylinders are used by
manufacturers of dump trucks and trailers as well as trash
collection vehicles, lift trucks and other mobile units
requiring hydraulic power. [Full page photo on the left of
this caption, shows a man measuring the width of a
cylinder.]
James Burn's Wire-O(R) systems are used for binding computer
manuals, calendars, diaries and notebooks. [James Burn's
binding products are shown in the photo above this caption
in top left margin.]
Jarvis Caster Group products are used in all types of
mobile equipment such as the grocery carts shown in the
above photo. [Jarvis Casters are shown on grocery carts
above this caption in middle of left margin.]
Mold-Tech and Roehlen Engraving products apply textures and
patterns to a variety of products we use everyday. The
metal embossing die shown on the right is used to put the
pebbled texture on much of the sports equipment used in
amateur and professional sports. [Full page photo shows
basketballs and a football which is located on the right of
this caption.]
FOOD SERVICE PRODUCTS FOR YOUR WORLD
As Americans and Europeans change the way they work,
they're also changing the way they live - and eat. Dual-
earner families mean more income but less time to prepare
meals. As a result, convenience and timesaving have become
critical factors in determining where consumers purchase
food, how they shop, what they eat, and when and where
meals are eaten. The companies of Standex's Food Service
segment are well positioned to capitalize on these trends.
Two Standex companies, Federal Industries and Master-Bilt,
specialize in food merchandising and display cases. Federal
Industries is an established leader in specialty display
cases for restaurants, supermarkets, convenience stores,
bakeries, delis, and confectionery shops. The company's
strong market position reflects its ability to help
retailers increase sales by presenting their products more
attractively and distinctively. Drawing on more than 60
years' experience, Federal begins with the retailer's
concept and then designs and manufactures a complete
merchandising and presentation center that implements the
concept in a customized modular design.
Master-Bilt manufactures refrigerated cabinets, cases,
display units, and a wide range of modular walk-in
refrigerated structures for convenience stores and
supermarkets. The company was one of the first to recognize
that precise temperature control is critical to healthful
refrigeration. Today, the company is a leader in designing
equipment that maximizes food safety with greater control
over temperature fluctuations in all types of storage
conditions.
Our BKI unit is helping retailers capitalize on the trend
toward home meal replacement (HMR). Instead of shopping for
individual ingredients at the supermarket after work,
consumers are often purchasing complete, prepared meals at
supermarkets, or ordering full, ready-to-eat meals-to-go
from restaurants. BKI's commercial food preparation
equipment - including ovens/rotisseries, pressure fryers,
and low-temperature cook-and-hold ovens and heated display
cases - are installed in thousands of supermarkets,
restaurants, institutional food servers, delicatessens and
convenience stores.
BKI Worldwide has two manufacturing locations, one in the
USA and one in England. The management of these units were
recently consolidated to reflect the increasingly global
nature of our business. We are currently experiencing
substantial growth in Europe, and we are entering some of
the world's most dynamic emerging markets through
distribution networks in the Far East and South America.
Procon Products manufactures pumps used in the carbonation
process for soft-drink dispensing machines. Its U.S. and
European operations have also been consolidated under a
single global management team. The unit has benefited from
a significant investment in a new automated manufacturing
process based on robotic systems and direct numerical
control computer technologies. In addition to maximizing
efficiency and quality, the new process ensures capacity to
meet increasing demand.
Standex serves the institutional food service market
through USECO, the first U.S. manufacturer to employ
convection reheating technology, which uses circulating air
to reheat chilled food - a process that preserves food
flavors and texture. USECO also utilizes standard
conduction techniques, which simply heat the serving plate.
Its sophisticated food handling and re-thermalization
systems are being used increasingly by hospitals,
correctional facilities, and other institutions where food
is frequently prepared at one location and served at
another. USECO's investment in its innovative convection
technology is producing attractive returns in the form of
increased sales and earnings.
Master-Bilt manufactures display merchandisers such as the
above deli case. [Photo above this caption in middle right
margin shows a deli display case.]
Federal Industries refrigerated display cases are used in
bakeries, restaurants and supermarkets to present
merchandise attractively. [Full page photo is showing a
Federal refrigerated display case which is on the left of
this caption.]
Procon(R) pumps are used in the above espresso coffee
machines. [Photo above this caption in top right margin
shows an espresso coffee machine.]
BKI products include the above revolving barbecue ovens for
fast food outlets, delicatessens and convenience stores.
[BKI products are shown in the photo above the caption in
middle right margin.]
USECO meal delivery systems provide an efficient method of
delivering both hot and cold food to the end user on the
same tray. [As depicted in full page photo.]
CONSUMER PRODUCTS FOR YOUR WORLD
The Standex Consumer segment is propelled by some of the
most significant trends shaping life in America: the
increasing demand for single family homes; the growth of
direct marketing as a preferred purchasing channel; and
perhaps most importantly, the reemergence of religion as a
spiritual force in the U.S.
The growing interest in spiritual and family values and
religious education for children place Standard Publishing
and Berean(R) Christian Stores among our most significant
opportunities. These non-cyclical businesses represent a
steady and growing source of cash flow and earnings for
Standex.
Berean stores are often the dominant religious outlets in
their markets, and the unit has developed a comprehensive
acquisition and site selection strategy designed to ensure
that new stores enjoy the same strong position. A
significant expansion of Berean's network is well underway,
with new stores recently opened in Albuquerque, New Mexico,
and Houston, Texas. A further store is slated to open later
this year. These large, modern stores - averaging over
15,000 square feet, typically much larger than competitors
and offering much wider selection - reflect the latest
trends in book and retail merchandising.
Our Standard Publishing unit is the leading publisher of
non-denominational religious curricula, Vacation Bible
School programs and children's books in the U.S. The
company publishes magazines with more than 170,000 copies
distributed to churches each week. In addition to Bible
study curricula and religious books, Standard continues to
explore innovative product and packaging ideas - like books
with CDs by popular Christian music artists and CD-ROM book
combinations - designed to appeal to today's increasingly
youthful, computer oriented and religious audience.
In recent years, direct marketing has captured a rapidly
increasing share of the retailing segment. Standex Direct
includes six catalogue units that market a broad selection
of exceptional quality, branded products - including Texas
Ruby Red grapefruit, Vidaliar* onions, Fresh Expressions
flowers, and salsa. While each product line presents a
discrete face to its niche market, all six product lines
share a common infrastructure that helps maximize both
sales and efficiency.
For example, while each unit maintains its own extensive
customer database, all product lines share a centralized
mailing list management capability and consolidated order-
taking function. In addition, the combined scale of the
Standex Direct product lines has allowed them to develop a
common transportation network, which not only reduces
costs, but also allows greater control over the shipping of
perishable items. All six product lines are actively
exploring cross-selling opportunities that can increase the
value of their individual mailing lists, each operation's
primary asset.
Standex also operates in one of the most basic and
important of American markets - home construction and
remodeling. With the market for single-family residences
growing each year, and with central air conditioning
becoming a standard feature in most new homes, we have
experienced steadily increasing demand for quality
ductwork. To capitalize on growth opportunities, Standex
recently acquired ACME Manufacturing Company, based in
Philadelphia - Standex's single largest acquisition.
Together, the Standex Air Distribution operations,
comprised of Snappy, ACME and ALCO, hold the leading
position in the market. With nine manufacturing facilities
throughout the U.S., they are positioned to provide
superior service to national and regional HVAC
distributors.
* A registered trademark of the Georgia Department of
Agriculture.
Berean(R) Christian Stores stock a wide variety of religious
literature and merchandise from religious publishers.
[Photo in right middle margin shows the Denver Berean
Christian Store.]
Standard Publishing's wide product range includes non-
denominational religious curricula, Vacation Bible School
programs, children's books and books with CDs by Christian
music artists. [This caption describes the full page left
of above text photo of Standard Publishing products.]
Standex Direct products include a broad selection of
branded products such as salsa and onions as shown above.
[The photo above this caption in the middle left margin is
salsa and onion products sold through Standex Direct.]
Standex Air Distribution is a major supplier of home air
distribution ductwork. [This caption describes the
products shown on the full page photo to the right of above
text.]
MANAGEMENT'S DISCUSSION AND ANALYSIS
Statements contained in the following "Management
Discussion and Analysis" that are not based on historical
facts are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue",
or similar terms or variations of those terms or the
negative of those terms. There are many factors that
affect the Company's business and the results of its
operations and may cause the actual results of operations
in future periods to differ materially from those
currently expected or desired. These factors include
uncertainties in competitive pricing pressures, general
domestic and international business and economic
conditions and market demand.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended June 30, 1998, net operating
cash flows of $32.2 million and $52.2 million in proceeds
from additional borrowings were used to purchase $10.2
million of the Company's Common Stock, invest $19.8
million in plant and equipment, pay out $9.9 million in
cash dividends to the Company's shareholders and pay $49.3
million for acquisitions.
During fiscal 1998 the Company acquired 100% of the net
assets of ACME Manufacturing Company (ACME), ATR Coil, and
certain assets of the hardware product line of an
unrelated company. All three of these acquisitions were
financed from cash flows from operations, existing bank
credit agreements, and the issuance of Standex Common
Stock. During the third quarter of 1998, the Company sold
the remaining product lines of its Doubleday Bros. & Co.
(Doubleday) division for cash and notes.
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 are similar
to the prior revolving credit agreement. While existing
cash flows, the Company's current working capital
position, and bank credit agreements are sufficient to
meet anticipated cash needs, the re-negotiated revolving
credit agreement will enhance the Company's financial
flexibility.
As of June 30, 1998, the Company had the ability to borrow
an additional $63.6 million under existing bank credit
agreements. The Company believes that this resource, along
with the Company's internally generated funds, will be
sufficient to meet anticipated needs for the foreseeable
future. The Company's existing bank credit agreements are
described in the notes to the Consolidated Financial
Statements.
The Company expects 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.
Net Cash Provided by Operating Activities was $32.2
million in 1998, a decrease of $4.7 million as compared to
$36.9 million in 1997. A $3.4 million rise in cash used to
fund accounts receivable was mainly due to a growth in
fourth quarter Net Sales while cash used to fund an
increase in inventory of $4.7 million was caused by the
expected growth in demand of several divisional products.
The full impact of these increases in the use of cash was
partially offset by a restructuring charge, which is
described below and in the Notes to the Consolidated
Financial Statements. This charge reflected an increase in
cash flows of $2.8 million primarily due to a reduction in
inventories and an increase in accrued liabilities. These
were partially offset by a decrease in accrued income
taxes.
FISCAL 1998 AS COMPARED TO FISCAL 1997
Net Sales increased by $51.6 million, or 9.1%, for the
year ended June 30, 1998 as compared to the fiscal year
ended 1997. Substantially all of this increase came from
acquisitions, primarily ACME, which was partially offset
by the absence of sales from businesses disposed of in the
prior year. Excluding these acquisitions, management
believes that the majority of fluctuations in Net Sales
reported by each segment are primarily due to changes in
unit volumes and market demand. In addition, although
changes in the average foreign exchange rates from June
30, 1997 to June 30, 1998 also had a negative impact on
Net Sales, the total effect was not significant.
The Consumer Segment reported the largest segment increase
in Net Sales of $46.9 million for the year ended June 30,
1998. Standex Air Distribution Products Divisions
accounted for the majority of this sales growth, which was
primarily due to the ACME acquisition. Also, Berean
Christian Stores' Net Sales increased 10% due to new
stores and improved consumer demand.
The Food Service Segment registered a $6.3 million, or
4.2%, rise in Net Sales for the year ended June 30, 1998
as compared to the prior fiscal year. Several divisions
reported significant gains in Net Sales due to increased
customer demand and the market's acceptance of new
products. However, the full impact of the growth in Net
Sales was reduced slightly due to the absence of sales
from the disposition of the Toastswell Company made in the
second half of fiscal 1997.
In the Industrial Segment, Net Sales declined by $1.6
million 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
the disposition of Doubleday product lines made in 1997
and continued sluggishness in some of our European
companies.
The Gross Profit Margin Percentage (GPMP) registered a
slight decrease in 1998 to 32.5% from 33% in 1997. The
GPMP reported in the Consumer Segment fell to 35.6%, a
decline from the prior year's percentage of 39.0%
primarily due to lower initial margins at ACME. The GPMP
reported in the Industrial Segment remained relatively
constant at 31.9% versus 32.1% in 1997. The Food Service
Segment reported an increase in GPMP from 27.9% in 1997 to
29.7% in 1998 as a result of reduced costs at several
divisions.
Selling, General and Administrative Expenses (SG&A)
increased by $9.1 million in fiscal 1998 when compared to
the prior year primarily due to the additional SG&A
expenses from acquisitions. Excluding acquisitions, the
fluctuations reported in both the Consumer and Food
Service Segments were in direct proportion with their
growth in Net Sales. These increases were partially offset
by a reduction in SG&A reported in the Industrial Segment
where dispositions in the second halves of both fiscal
1998 and fiscal 1997 accounted for most of the decline in
these expenses at this Segment. None of the remaining
fluctuations reported by the Company's three segments were
individually significant.
Depreciation and Amortization Expense was $13.9 million in
fiscal 1998, an increase of $1.1 million as compared to
the prior year expenses of $12.8 million. The acquisition
of ACME Manufacturing in the Consumer Segment accounted
for the majority of this increase.
Interest Expense rose by $2.3 million due to increased
borrowing to finance acquisitions and due to higher
interest rates.
A restructuring charge of $12.8 million was incurred in
the fourth quarter of fiscal 1998 in connection with the
implementation of a restructuring plan. This plan involves
the closing, disposal and liquidation of certain
relatively small under-performing and unprofitable
operating plants, product lines and businesses. This
charge, a significant portion of which was non-cash, is
more fully described in the Notes to Consolidated
Financial Statements.
The above factors resulted in a decline in Income Before
Income Taxes of $10.5 million, or 24.0%. The effective tax
rate increased in 1998 to 39.1% versus 38.1% in 1997 due
to several factors, the most significant being the absence
in the current year of certain foreign tax credits. None
of the remaining factors were individually significant.
Due to the above factors, Net Income declined $6.8
million, or 25.1%.
FISCAL 1997 AS COMPARED TO FISCAL 1996
Although it is difficult to quantify the impact of each
operation's sales price increases and decreases on Net
Sales during fiscal 1997, management believes the majority
of the fluctuations in Net Sales reported by each segment
are due to changes in unit volume. In addition, although
the effect of changes in annual average exchange rates
from 1996 to 1997 had a negative effect on Net Sales in
1997, the total effect of such changes was not
significant.
For the year ended June 30,1997, Net Sales increased $1.9
million as compared to fiscal 1996. The Consumer Segment
reported a $9.5 million, or 6.2%, growth in Net Sales due
to improved demand, the introduction of new products and
acquisitions made during fiscal 1997.
An increase in Net Sales of $2.8 million, or 1.9%, was
reported by the Food Service Segment. For the year ended
June 30, 1997, the majority of operations within this
segment reported growth in Net Sales which more than
compensated for softness reported by a few divisions and
the sale of a division in the third quarter of fiscal
1997.
The sales growth reported by the Consumer and Food Service
Segments was partially offset by a $10.4 million, or 4%,
decline in Net Sales from the Industrial Segment. This
segment's results were mainly caused by sluggish demand
reported by its European operations and the disposition of
a product line at the end of fiscal 1996.
As of June 30, 1997, the Gross Profit Margin Percentage
remained basically unchanged at 33% as compared to 32.9%
reported in the prior year. The Consumer Segment reported
an increase in the Gross Profit Margin Percentage of one
percentage point primarily due to increased volume and
more favorable material costs. Despite the growth in Net
Sales reported by the Food Service Segment, the Gross
Profit Margin Percentage declined slightly mainly due to
realignment costs at one division. The Gross Profit Margin
Percentage recorded by the Industrial Segment was
basically unchanged in total. However, European operations
reported unfavorable trends in profit margins due to
increased competitive pressures on pricing which was
offset by growth in margins recorded by a few domestic
units due mainly to favorable changes in product mix.
Selling, General and Administrative Expense (SG&A) rose
$7.1 million in 1997 to 23.6% of Net Sales versus 22.4% of
Net Sales in 1996. The majority of the increase was
attributable to the Consumer Segment. This segment
registered a 12.7% increase in SG&A as a result of
acquisitions made during fiscal 1997. These costs were
somewhat higher than anticipated due to difficulties
assimilating some of the acquisitions. Management has
taken steps to reduce these expenses to a more acceptable
level. The Food Service and Industrial Segments reported
minor fluctuations in SG&A.
For the year ended June 30, 1997, Depreciation and
Amortization Expenses increased slightly to $12.8 million
as compared to $12.5 million in 1996. All three segments
reported minor increases in Depreciation and Amortization
Expenses, none of which was individually significant.
Interest Expense decreased $551,000, or 6.1%, in 1997.
This was due to a decline in both borrowings and interest
rates compared to the prior year.
The above factors resulted in a decline in Income Before
Income Taxes of $4.6 million, or 9.6%, in 1997 as compared
to 1996. The Industrial Segment reported a $4.6 million,
or 15.1%, decrease in Operating Income due mainly to the
reduction in Net Sales discussed above. The Food Service
and Consumer Segments reported minor fluctuations in
Operating Income.
The effective tax rate increased to 38.1% for the year
ended June 30, 1997, as compared to 36.2% for the previous
fiscal year due mainly to reduced availability of foreign
tax credits.
Due to the above factors, Net Income decreased $3.8
million, or 12.4%.
OTHER MATTERS
Realignment of Management - On June 11, 1998, the Company
announced the realignment of its management team to more
clearly focus management responsibilities in concert with
the refocusing of its business units. The Company has
created three group vice president positions each
responsible for one of the operating segments. In
addition, other operating unit management was consolidated
to provide a more efficient focus in today's global
marketplace. These changes became effective July 1, 1998
and are in line with Standex's stated goal to realign its
business units into larger, more focused entities.
Long-Term Contract - On August 6, 1998, the Spincraft
Division entered into a five-year contract with The Boeing
Company of Huntington Beach, California, for the
production of 5-meter fuel tank domes. These domes are a
major component of the fuel tank system in the Boeing
Delta IV launch vehicles which are used to launch a full
spectrum of government and commercial satellites. This
contract has an estimated value of $147 million if all the
purchase options are exercised.
Inflation - Inflation has not been a significant factor in
fiscal 1998, 1997 and 1996 mainly due to fairly stable
labor and material costs.
Environmental Matters - The Company is party to various
claims and legal proceedings, generally incidental to its
business and has recorded an appropriate provision for the
resolution of such matters. As explained more fully in the
Notes to the Consolidated Financial Statements, the
Company does not expect the ultimate disposition of these
matters to have a material adverse effect on its financial
statements.
Year 2000 Computer Issues - Under a program started in
November 1997, the Company conducted a review of its
computer systems and identified the programs and
applications that were affected by the widely discussed
software problems associated with the Year 2000.
By June 30, 1998 substantially all systems have either
been appropriately modified and tested or have been
replaced with software that is Year 2000 compliant, except
for (1) the necessary modifications to several purchased
software packages that represent relatively small portions
of the overall systems at certain of the Company's
operating units, which have been delayed by the respective
software vendors but are all expected to be completed by
early calendar 1999; and (2) the final implementations,
which are expected to be completed by June 30, 1999, of
new Year 2000 compliant systems at two relatively small
foreign units. Management believes that the failure or
delays in completing the final stages of its Year 2000
program would not have a material impact on the Company's
operations or its financial position. The cost of
modifying the programs, which has been and will be charged
to expense (primarily in fiscal year 1998), is expected to
aggregate approximately $600,000.
The Company is also communicating with key suppliers,
financial institutions and others with which it and its
various operating units do business, to assure that such
third parties are also timely addressing and rectifying
their Year 2000 issues. However, the Company believes it
has alternate vendors who could provide for the Company's
needs if current vendors are negatively impacted by Year
2000 problems.
New Accounting Pronouncements
Several new accounting pronouncements (Statements of
Financial Accounting Standards Nos. 130, 131, 132 and 133
and Statement of Position No. 98-1) have been revised over
the past year and are pending implementation in future
years on the subjects of reporting comprehensive income,
segment reporting, pension and other post retirement
benefit disclosures, derivatives instruments and hedging
activities and costs of internally used computer software.
The Company does not expect the implementation of any of
these pending pronouncements will have a material effect
on its consolidated financial statements.
Five-year financial review
Standex International Corporation and Subsidiaries
(In thousands, except per share data) 1998 1997 1996 1995 1994
Year Ended June 30
Summary of Operations
Net sales $616,180 $564,623 $562,679 $569,293 $529,399
Gross profit margin 200,548 186,130 185,267 192,540 172,979
Interest expense 10,779 8,497 9,048 8,367 5,938
Income before income taxes 33,064 43,516 48,124 57,803 42,222
Provision for income taxes 12,915 16,597 17,410 19,483 15,075
Net income 20,149 26,919 30,714 38,320 27,147
_________ ________ ________ ________ ________
Per Share Data
Net sales (diluted) 46.61 41.85 40.40 39.15 34.62
Earnings:
Basic 1.54 2.02 2.24 2.68 1.81
Diluted 1.52 2.00 2.21 2.64 1.78
Dividends paid 0.76 0.75 0.71 0.63 0.52
Book value 11.19 10.75 10.01 9.45 8.16
Average shares outstanding:
Basic 13,072 13,337 13,736 14,281 14,983
Diluted 13,219 13,491 13,927 14,540 15,293
_________ ________ ________ ________ ________
June 30 Financial Condition
Working capital 148,943 136,946 138,860 143,135 126,803
Current ratio 2.73 2.95 3.03 2.85 2.81
Property, plant and equipment - net 102,973 85,598 86,616 84,528 89,697
Total assets 411,242 341,038 335,333 342,702 323,721
Long-term debt 163,448 112,347 113,822 111,845 112,854
_________ ________ ________ ________ ________
Stockholders' equity 146,197 141,185 134,691 132,352 118,932
_________ ________ ________ ________ ________
Sales and Earnings By Quarter
Year Ended June 30 (Unaudited)
(In thousands,
except per share data) 1998 1997
First Second Third Fourth First Second Third Fourth
Net sales $141,061 $168,090 $148,549 $158,480 $140,199 $152,315 $130,454 $141,655
Gross profit margin 45,865 56,781 47,987 49,915 44,620 52,207 41,618 47,685
Net income 7,659 8,322 4,987 (819) 7,542 8,127 4,169 7,081
Earnings/(loss) per share:
Basic 0.58 0.64 0.38 (0.06) 0.56 0.61 0.31 0.54
Diluted 0.58 0.63 0.38 (0.07) 0.56 0.60 0.31 0.53
_______ _______ _______ _______ _______ _______ _______ _______
Common Stock Prices and Dividends Paid
Common Stock Price Range
Year Ended June 30 1998 1997
Dividends Per Share
High Low High Low 1998 1997
First quarter $32-1/4 $28-1/16 $30 $27-7/8 $.19 $.18
Second quarter 36-13/16 32 31-5/8 29-7/8 .19 .19
Third quarter 35-1/4 27-1/4 30-1/2 26-1/8 .19 .19
Fourth quarter 31-1/2 29-1/2 30-3/8 24-1/2 .19 .19
Distribution of the 1998 Sales Dollar
Materials and services $366,825,000 59%
Wages, salaries and employee benefits 191,660,000 31
Depreciation and amortization 13,852,000 2
Interest on borrowed money 10,779,000 2
Income taxes 12,915,000 2
Reinvested in the Company 10,222,000 2
Dividends to stockholders 9,927,000 2
___________ ____
Total $616,180,000 100%
___________ ____
Statements of Consolidated Income
Standex International Corporation and Subsidiaries
Year Ended June 30 1998 1997 1996
Revenue
Net sales $616,180,090 $564,623,458 $562,678,620
Net (loss)/gain on disposition
of businesses and product lines (350,000) 1,034,927 -
Interest and other 1,993,533 906,371 879,359
_____________ _____________ _____________
Total revenue 617,823,623 566,564,756 563,557,979
_____________ _____________ _____________
Costs and Expenses
Cost of products sold 405,017,473 368,561,942 367,740,986
Selling, general and administrative 142,353,631 133,212,462 126,148,350
Depreciation and amortization 13,851,599 12,777,339 12,497,148
Interest 10,779,015 8,497,425 9,047,701
Restructuring charge 12,758,000 - -
_____________ _____________ _____________
Total costs and expenses 584,759,718 523,049,168 515,434,185
_____________ _____________ _____________
Income Before Income Taxes 33,063,905 43,515,588 48,123,794
Provision for Income Taxes 12,915,000 16,597,000 17,410,000
_____________ _____________ _____________
Net Income $ 20,148,905 $ 26,918,588 $ 30,713,794
___________ __________ __________
Earnings Per Share:
Basic $ 1.54 $ 2.02 $ 2.24
Diluted $ 1.52 $ 2.00 $ 2.21
See notes to consolidated financial statements.
Statements of Consolidated
Stockholders' Equity
Additional Cumulative
Paid-in Retained Translation Treasury Stock
Year Ended June 30 Common Stock Capital Earnings Adjustment Shares Amount
Balance, June 30, 1995 $41,976,417 $2,129,144 $276,031,161 $ 337,540 13,972,510 ($188,122,214)
Stock issued for employee stock
options and stock purchase plan,
net of related income tax benefit 1,248,554 (140,634) 1,915,462
Treasury stock acquired 702,961 (20,876,183)
Net income 30,713,794
Dividends paid (71 cents per share) (9,753,583)
Foreign currency translation adjustment (909,373)
__________ _________ ___________ _________ _________ _____________
Balance, June 30, 1996 41,976,417 3,377,698 296,991,372 (571,833) 14,534,837 (207,082,935)
Stock issued for employee stock
options and stock purchase plan,
net of related income tax benefit 959,999 (113,900) 1,641,943
Stock issued in conjunction with
acquisition 1,325,527 (79,616) 1,142,569
Treasury stock acquired 513,251 (14,981,914)
Net income 26,918,588
Dividends paid (75 cents per share) (10,001,657)
Foreign currency translation adjustment (510,568)
__________ _________ ___________ _________ _________ _____________
Balance, June 30, 1997 41,976,417 5,663,224 313,908,303 (1,082,401) 14,854,572 (219,280,337)
Stock issued for employee stock
options and stock purchase plan,
net of related income tax benefit 1,329,545 (150,813) 2,251,057
Stock issued in conjunction with acquisition 1,523,575 (100,418) 1,509,691
Treasury stock acquired 314,604 (10,177,761)
Net income 20,148,905
Dividends paid (76 cents per share) (9,926,801)
Foreign currency translation adjustment (1,646,188)
__________ _________ ___________ _________ _________ _____________
Balance, June 30, 1998 $41,976,417 $8,516,344 $324,130,407 ($2,728,589) 14,917,945 ($225,697,350)
_________ ________ __________ ________ ________ ____________
See notes to consolidated financial statements.
Consolidated Balance Sheets
Standex International Corporation and Subsidiaries
June 30 1998 1997
Assets
Current Assets
Cash and cash equivalents $ 9,256,316 $ 6,148,788
Receivables - less allowance of $3,551,000 in
1998 and $2,536,000 in 1997 98,530,861 86,852,399
Inventories 122,949,519 109,453,881
Prepaid expenses 4,493,110 4,631,050
____________ ___________
Total current assets 235,229,806 207,086,118
____________ ___________
Property, Plant and Equipment
Land and buildings 74,432,382 59,896,439
Machinery and equipment 177,916,799 163,622,416
____________ ___________
Total 252,349,181 223,518,855
Less accumulated depreciation 149,375,776 137,920,945
____________ ___________
Property, plant and equipment - net 102,973,405 85,597,910
____________ ___________
Other Assets
Goodwill - net 33,148,961 15,194,882
Prepaid pension cost 30,254,916 24,319,691
Other 9,634,968 8,839,295
____________ ___________
Total other assets 73,038,845 48,353,868
____________ ___________
Total $411,242,056 $341,037,896
___________ __________
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of debt $ 2,995,231 $ 2,029,708
Accounts payable 37,747,901 31,380,437
Accrued payroll and employee benefits 17,667,979 16,568,023
Income taxes 5,754,464 4,481,130
Other 22,121,209 15,680,749
____________ ___________
Total current liabilities 86,286,784 70,140,047
____________ ___________
Long-Term Debt - less current portion 163,447,647 112,347,000
____________ ___________
Deferred Income Taxes 11,937,000 13,819,000
____________ ___________
Other Noncurrent Liabilities 3,373,396 3,546,643
____________ ___________
Commitments and Contingencies
Stockholders' Equity
Common stock - authorized, 30,000,000
shares in 1998 and 1997; par value, $1.50
per share; issued 27,984,278 shares in
1998 and 1997 41,976,417 41,976,417
Additional paid-in capital 8,516,344 5,663,224
Retained earnings 324,130,407 313,908,303
Cumulative translation adjustment (2,728,589) (1,082,401)
Less cost of treasury shares: 14,917,945 shares
in 1998 and 14,854,572 in 1997 (225,697,350) (219,280,337)
____________ ___________
Total stockholders' equity 146,197,229 141,185,206
____________ ___________
Total $411,242,056 $341,037,896
__________ __________
See notes to consolidated financial statements.
Statements of Consolidated Cash Flows
Standex International Corporation and Subsidiaries
Year Ended June 30 1998 1997 1996
Cash Flows from Operating Activities
Net income $20,148,905 $26,918,588 $30,713,794
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,851,599 12,777,339 12,497,148
Profit improvement incentive plan 780,058 (258,640) (88,442)
Deferred income taxes (1,882,000) 1,236,000 475,000
Net pension credit (2,353,000) (1,573,000) (981,000)
Loss on sale of investments, real estate and equipment (950,603) 1,758 6,677
Loss/(Gain) on disposition of businesses 350,000 (1,034,927) -
Increase (decrease) in cash from changes in assets and liabilities,
net of effect of acquisitions and dispositions:
Receivables - net (2,088,038) 1,296,364 1,922,429
Inventories (5,089,382) (384,315) 6,690,380
Prepaid expenses and other assets 65,390 (4,035,386) (3,025,909)
Accounts payable 2,807,411 2,065,519 (7,221,125)
Accrued payroll, employee benefits and other liabilities 5,389,358 (2,969,247) (3,993,614)
Income taxes 1,215,228 2,889,399 (2,922,144)
___________ ___________ ___________
Net cash provided by operating activities 32,244,926 36,929,452 34,073,194
___________ ___________ ___________
Cash Flows from Investing Activities
Expenditures for property and equipment (19,849,069) (12,225,849) (15,328,374)
Expenditures for acquisitions, net of cash acquired (49,277,002) (2,124,841) -
Proceeds from sale of investments, real estate and equipment 2,483,933 597,769 525,765
Proceeds from disposition of businesses 2,583,143 5,190,655 -
___________ ___________ ___________
Net cash used for investing activities (64,058,995) (8,562,266) (14,802,609)
___________ ___________ ___________
Cash Flows from Financing Activities
Proceeds from additional borrowings 52,213,051 160,000 5,105,885
Payments of debt (418,585) (4,892,436) (1,162,197)
Stock issued for employee stock options and
stock purchase plans 3,580,602 2,601,942 3,164,016
Cash dividends paid (9,926,801) (10,001,657) (9,753,583)
Purchase of treasury stock (10,177,761) (14,981,914) (20,876,183)
___________ ___________ ___________
Net cash provided by (used for) financing activities 35,270,506 (27,114,065) (23,522,062)
___________ ___________ ___________
Effect of Exchange Rate Changes on Cash and Cash Equivalents (348,909) (251,276) (144,506)
___________ ___________ ___________
Net Changes in Cash and Cash Equivalents 3,107,528 1,001,845 (4,395,983)
Cash and Cash Equivalents at Beginning of Year 6,148,788 5,146,943 9,542,926
___________ ___________ ___________
Cash and Cash Equivalents at End of Year $ 9,256,316 $ 6,148,788 $ 5,146,943
__________ __________ __________
Supplemental Disclosure of Cash Flow Information
Issued for acquisitions:
Stock $ 3,033,266 $ 2,468,096 -
Note payable 271,704 - -
Cash paid during the year for:
Interest 10,495,183 8,465,024 $ 8,180,245
Income taxes 13,523,666 14,046,417 19,840,441
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Summary of Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include
the accounts of Standex International Corporation and its
subsidiaries.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid
investments purchased with a remaining maturity of three
months or less. Such investments are carried at cost,
which approximates fair value, due to the short period of
time until maturity.
Inventories
Inventories are stated at the lower of first-in, first-out
cost or market.
Property, Plant and Equipment
Property, plant and equipment are depreciated over their
estimated useful lives using primarily the straight-line
method.
Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard (SFAS) No. 109,
"Accounting for Income Taxes." Deferred assets and
liabilities are recorded for the expected future tax
consequences of events that have been included in the
financial statements or tax returns.
Goodwill
The excess of purchase price of acquired companies over
the fair value of net identifiable assets at date of
acquisition has been recorded as goodwill and is being
amortized on a straight-line basis over a forty-year
period. Accumulated amortization aggregated $9,428,000 and
$8,577,000 at June 30, 1998 and 1997, respectively. The
Company annually evaluates the net balance of goodwill
based on the projected operating income of the respective
businesses on an undiscounted cash flow basis.
Foreign Currency Translation
Assets and liabilities of non-U.S. operations are
translated into U.S. dollars at year-end exchange rates.
Revenue and expenses are translated using average exchange
rates. The resulting translation adjustment is reported as
a separate component of stockholders' equity. Gains and
losses from currency transactions are included in results
of operations.
Forward Foreign Currency Exchange Contracts
Forward foreign currency contracts are used by the Company
to protect certain anticipated foreign cash flows, such as
dividends and loan payments from subsidiaries, against
movements in the related exchange rates. The Company sells
the related foreign currency at a fixed price for
settlement on or before the date of the related receipt,
and thus protects the dollar value of the receipt. The
Company enters into such contracts for hedging purposes
only. Accordingly, for financial statement purposes
annualized gains or losses of forward contracts entered
into to hedge commitments are deferred until the position
is closed out. At June 30, 1998, the Company had no
significant forward foreign currency contracts.
Concentration of Credit Risk
The Company is subject to credit risk through trade
receivables and short-term cash investments. Credit risk
with respect to trade receivables is minimized because of
the diversification of the Company's operations, as well
as its large customer base and its geographical
dispersion. Short-term cash investments are placed with
high credit-quality financial institutions or in short-
duration, high quality debt securities. The Company limits
the amount of credit exposure in any one institution or
type of investment instrument.
Accounting Estimates
The preparation of the Company's consolidated financial
statements in conformity with generally accepted
accounting principles necessarily requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results
could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses
approximate fair value because of their short-term nature.
The carrying amount of the Company's debt instruments
approximates fair value.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board
(FASB) issued 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.
The following table sets forth the number of shares (in
thousands) used in the computation of basic and diluted
earnings per share:
Year ended June 30 1998 1997 1996
Basic - average shares
outstanding 13,072 13,337 13,736
Effect of dilutive
securities - stock options 147 154 191
________ _______ _______
Diluted - average shares
outstanding 13,219 13,491 13,927
________ _______ _______
Both basic and dilutive income are the same for computing earnings per
share.
New Accounting Pronouncements
Several new accounting pronouncements (Statements of
Financial Accounting Standards Nos. 130, 131, 132 and 133
and Statement of Position No. 98-1) have been revised over
the past year and are pending implementation in future
years on the subjects of reporting comprehensive income,
segment reporting, pension and other post retirement
benefit disclosures, derivatives instruments and hedging
activities and costs of internally used computer software.
The Company does not expect the implementation of any of
these pending pronouncements will have a material effect on
its consolidated financial statements.
Inventories
Inventories are comprised of (in thousands):
June 30 1998 1997
Raw materials $ 42,452 $ 34,466
Work in process 26,327 26,975
Finished goods 54,171 48,013
_________ _________
Total $122,950 $109,454
_________ _________
Debt
Debt is comprised of (in thousands):
June 30 1998 1997
Bank credit agreements $111,381 $ 62,737
Institutional investors
7.13% (due 2000-2006) 50,000 50,000
Other 3.0% to 6.875%
(due 1999-2018) 5,062 1,640
_________ _________
Total 166,443 114,377
Less current portion 2,995 2,030
_________ _________
Total long-term debt $163,448 $112,347
_________ _________
Bank Credit Agreements
In May 1998, the Company entered into a new revolving line
of credit agreement with eight banks. The new revolving
credit line replaced a similar agreement negotiated in
November 1994. The new agreement increased the available
borrowing capacity to $175,000,000 from $125,000,000, with
all outstanding loans due in May 2003. Borrowings under the
agreement generally bear interest at rates that approximate
the prime rate. The Company is required to pay a commitment
fee of 0.2% on the average daily unused amount. There were
no borrowings outstanding under either revolving credit
agreement during 1998, 1997 or 1996.
In addition, the Company has the option to borrow up to
$175,000,000 on an unsecured short-term basis at rates
which are generally below the prime rate (such rates varied
from 5.74% to 5.97% during 1998). Available borrowings
under the revolving credit agreement as described in the
first paragraph are reduced by short-term borrowings.
The Company may refinance the unsecured short-term
borrowings on a long-term basis under the revolving credit
agreement discussed above. As such, the short-term
outstanding borrowings, which are not expected to be paid
within a year, are classified as long-term debt, and the
debt repayment schedule as presented below, is based on the
terms of the revolving credit agreement. Management
believes that the recorded amount of both short-term and
long-term borrowings approximate their fair value.
At June 30, 1998, the Company had the ability to borrow an
additional $63,619,000 under the aforementioned bank credit
agreements.
Institutional Investor Agreement
The Company also has a note purchase agreement with an
institutional investor for $50,000,000. The 7.13% note is
due September 2005 and requires principal payments of
$7,143,000 annually beginning in September 1999.
Loan Covenants and Repayment Schedule
The Company's loan agreements contain limited provisions
relating to the maintenance of certain financial ratios and
restrictions on additional borrowings and investments.
Debt is due as follows: 1999, $2,995,000; 2000, $7,403,000;
2001, $7,368,000; 2002, $7,379,000; 2003, $116,110,000; and
thereafter, $25,188,000.
Accrued Payroll and Employee Benefits
This current liability caption consists of
(in thousands):
June 30 1998 1997
Payroll $14,014 $12,644
Benefits 2,756 2,746
Taxes 898 1,178
________ ________
Total $17,668 $16,568
________ ________
Commitments
The Company leases certain property and equipment under
agreements with initial terms ranging from one to twenty
years. Rental expense for the years ended June 30, 1998,
1997 and 1996 was approximately $7,500,000; $6,800,000 and
$6,500,000, respectively. At June 30, 1998, the minimum
annual rental commitments under noncancelable operating
leases, principally real estate, were approximately: 1999,
$4,800,000; 2000, $3,800,000; 2001, $2,600,000; 2002,
$1,800,000; 2003, $1,300,000; and thereafter, $4,900,000.
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.
INCOME TAXES
The provision for income taxes consists of (in thousands):
Year Ended June 30 1998 1997 1996
Current:
Federal $ 8,014 $ 8,997 $ 9,000
State 1,771 2,122 2,240
Non-U.S. 5,012 4,242 5,695
________ ________ ________
Total 14,797 15,361 16,935
Deferred (1,882) 1,236 475
________ ________ ________
Total $12,915 $16,597 $17,410
________ ________ ________
The components of income before income taxes are as follows (in
thousands):
Year Ended June 30 1998 1997 1996
U.S. operations $23,872 $32,232 $33,505
Non-U.S. operations 9,192 11,284 14,619
________ ________ ________
Total $33,064 $43,516 $48,124
________ ________ ________
A reconciliation of the U.S. Federal income tax rate to the effective
income tax rate is:
Year Ended June 30 1998 1997 1996
Statutory tax rate 35.0% 35.0% 35.0%
Non-U.S. (2.5) (0.8) (1.5)
State taxes 3.0 3.4 3.1
Other items, net 3.6 0.5 (0.4)
______ ______ ______
Effective income tax rate 39.1% 38.1% 36.2%
______ ______ ______
Significant components of the Company's net deferred tax
liability are as follows (in thousands):
June 30 1998 1997
Deferred tax liabilities:
Accelerated depreciation $ 9,525 $10,973
Net pension credit 10,079 8,802
Other items 508 490
Deferred tax assets:
Expense accruals (4,931) (6,063)
Restructuring charge (2,846) -
Compensation costs (398) (383)
________ ________
Deferred income taxes $11,937 $13,819
________ ________
Significant components of deferred income taxes impact
deferred income tax expense as follows (in thousands):
Year Ended June 30 1998 1997 1996
Accelerated depreciation $(1,448) $ (615) $(419)
Net pension credit 1,277 1,160 1,386
Compensation costs (15) 887 1,338
Restructuring charge (2,846) - -
Expense accruals 821 (419) (1,749)
Other items 329 223 (81)
________ ________ ______
Total $(1,882) $1,236 $ 475
________ ________ ______
At June 30, 1998, accumulated retained earnings of non-
U.S. subsidiaries totaled $32,366,000. No provision for
U.S. income and foreign withholding taxes has been made
because it is expected that such earnings will be
reinvested indefinitely or the distribution of any
remaining amount would be principally offset by foreign
tax credits. The determination of the withholding taxes
that would be payable upon remittance of these earnings
and the amount of unrecognized deferred tax liability on
these unremitted earnings is not practicable.
Industry Segment Information
The Company is composed of three product groups. These
groups are described on pages 4-15.
Net sales include only transactions with unaffiliated
customers and include no significant intersegment or
export sales. Operating income by product group and
geographic area excludes general corporate and interest
expenses. Assets of the Corporate segment consist
primarily of cash, administrative buildings and equipment
and other noncurrent assets.
NET SALES OPERATING INCOME
Year Ended June 30 (In thousands) 1998 1997 1996 1998 1997 1996
Food Service $155,706 $149,371 $146,547 $10,602 $11,665 $11,731
Industrial 251,015 252,742 263,145 22,642 25,998 30,611
Consumer 209,459 162,510 152,987 16,810 18,511 18,321
Corporate and other - - - (16,990) (12,658) (12,539)
_________ ________ ________ ________ _______ _______
Total $616,180 $564,623 $562,679 $33,064 $43,516 $48,124
_________ ________ ________ ________ _______ _______
ASSETS EMPLOYED CAPITAL EXPENDITURES
As of and Year Ended June 30
(In thousands) 1998 1997 1996 1998 1997 1996
Food Service $ 79,027 $ 77,906 $ 79,604 $ 2,598 $ 2,182 $ 5,028
Industrial 161,971 154,483 155,386 9,419 7,306 7,722
Consumer 140,631 82,056 76,180 7,662 2,525 2,436
Corporate and other 29,613 26,593 24,163 170 213 142
_________ ________ ________ ________ _______ _______
Total $411,242 $341,038 $335,333 $19,849 $12,226 $15,328
__________ __________ __________ __________ ________ ________
DEPRECIATION AND AMORTIZATION
Year Ended June 30 (In thousands) 1998 1997 1996
Food Service $ 2,621 $ 2,736 $ 2,689
Industrial 7,062 6,959 6,774
Consumer 3,920 2,842 2,785
Corporate and other 249 240 249
________ _______ _______
Total $13,852 $12,777 $12,497
________ _______ _______
Financial data related to U.S. and non-U.S. operations:
U.S. Non-U.S.
As of and Year Ended June 30
(In thousands) 1998 1997 1996 1998 1997 1996
Net sales $517,586 $463,654 $457,877 $98,594 $100,969 $104,802
Operating income 41,022 45,236 46,292 9,032 10,938 14,371
Assets employed 310,101 242,189 239,829 71,528 72,256 71,341
The Corporate segment is excluded from the above table.
Employee Benefit Plans
Retirement Plans
The Company and its subsidiaries have several company
sponsored, funded retirement plans covering substantially
all U.S. and many non-U.S. employees. Benefits are
principally based on an employee's years of service and
compensation during employment. The Company's funding
policy with respect to the U.S. plans is to contribute
annually the amount required by the Employee Retirement
Income Security Act of 1974. Non-U.S. plans are funded in
accordance with local requirements.
The periodic pension credit is comprised of the components
listed below as determined using the projected unit credit
actuarial cost method (in thousands):
Year Ended June 30 1998 1997 1996
Service costs for benefits
earned during the period $ 4,064 $ 3,696 $ 3,669
Interest cost on projected
benefit obligation 9,055 8,459 8,337
Actual return on plan assets (39,984) (14,651) (20,447)
Net amortization and deferral 24,512 923 7,460
_________ _________ _________
Net pension credit $ (2,353) $ (1,573) $ (981)
_________ _________ _________
The following table sets forth the funded status and
obligations of the Company's principal plans at year end,
using a measurement date of April 1 (in thousands):
June 30 1998 1997
Accumulated vested benefit obligation $111,424 $ 86,961
________ ________
Projected benefit obligation 134,912 109,596
Fair value of assets 181,017 145,918
________ ________
Funded status 46,105 36,322
Unrecognized transition amount (6,643) (8,497)
Unrecognized prior service cost 2,894 1,612
Unrecognized gain (16,631) (8,792)
________ ________
Prepaid pension cost $ 25,725 $ 20,645
________ ________
The accumulated benefit obligation approximated the
accumulated vested benefit obligation in 1998 and 1997.
For its U.S. plans, the Company used an assumed weighted
average discount rate of 7.25% for 1998 and 8.5% for 1997
and 1996, and a rate of increase in future compensation
levels of 4.5% in 1998 and 5% in 1997 and 1996 in
determining the actuarial present value of its projected
benefit obligation. The expected long-term rate of return
on U.S. plan assets was 10% in 1998 and 9% in 1997 and
1996. At June 30, 1998, U.S. plan assets consist of equity
securities, government and agency obligations, corporate
bonds and cash equivalents. For its non-U.S. plans, the
Company used assumed weighted average discount rates
ranging from 5.75% to 6.75% in 1998, 6.5% to 8.25% in 1997
and 7.0% to 8.75% in 1996 and rates of increase in future
compensation levels ranging from 4.0% to 5.0% in 1998 and
1997 and 4.0% to 5.5% in 1996 in determining the actuarial
present value of the projected benefit obligation. The
expected long-term rate of return on plan assets was 9.75%
in 1998 and 9.5% in 1997 and 1996. As of June 30, 1998,
non-U.S. plan assets consist of units in pooled investment
funds. Non-U.S. obligations and assets are not considered
material and hence these plans have been included with the
U.S. plans in the funded status reconciliation.
Certain U.S. employees are covered by union-sponsored,
collectively bargained, multi-employer pension plans.
Contributions and costs are determined in accordance with
the provisions of negotiated labor contracts or terms of
the plans. Pension expense for these plans was $1,726,000;
$1,305,000; and $1,203,000 in 1998, 1997 and 1996,
respectively.
Employees' Stock Ownership Plan
The Company has an Employee Stock Ownership Plan covering
certain salaried employees. Amounts provided for this plan
are approved by the Board of Directors and aggregated
$1,200,000 for the year ended June 30, 1998 and $1,000,000
for each of the years ended June 30, 1997 and 1996.
Profit Improvement Participation Share Plan
The Company has maintained a profit improvement incentive
plan in which certain officers and employees participate.
The plan is being phased-out and, consequently, no new
units have been awarded since 1995. Units under this plan
were issued at the discretion of the Salary and Employee
Benefits Committee of the Board of Directors and were
assigned a value equal to a multiple of earnings per share
payable in five years based upon the net increase in
earnings per share over the five-year period. Each fiscal
year, amounts are charged or credited to operations to
reflect this liability. Amounts charged/(credited) to
operations for the years ended June 30, 1998, 1997 and
1996 were $780,000, $(259,000) and $(88,000),
respectively. The last outstanding units will be paid with
respect to the year ending June 30, 2000.
Postretirement Benefits Other Than Pensions
The Company sponsors unfunded postretirement medical and
life plans covering certain full time employees who retire
and have attained the requisite age and years of service.
Retired employees are required to contribute toward the
cost of coverage according to various rules established by
the Company.
The Company accounts for postretirement benefits in
accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which
requires accrual of postretirement benefits (such as
health care and life insurance benefits) during the years
an employee provides services.
Postretirement cost is comprised of
the components listed below (in
thousands):
Year Ended June 30 1998 1997 1996
Service costs for benefits
earned during the period $ 65 $ 77 $ 92
Interest cost on projected
benefit obligation 583 559 651
Amortization of transition
amount 317 309 402
_____ _____ _______
Total postretirement costs $965 $945 $1,145
_____ _____ _______
The following table sets forth the funded status of the
Company's postretirement benefit plans other than pensions
(in thousands):
June 30 1998 1997
Accumulated benefit obligation:
Retirees $ 4,674 $ 3,807
Eligible active employees 1,762 1,501
Other active employees 1,581 1,563
_______ _______
Total 8,017 6,871
Unrecognized net loss 1,261 2,455
Unrecognized transition obligation (6,690) (7,147)
_______ _______
Accrued postretirement cost $ 2,588 $ 2,179
_______ _______
The Company used an assumed discount rate of 7.25% for
1998 and 8.5% for 1997 and an assumed health care cost
trend rate of 4% for 1998 and 1997. A 1% increase in the
assumed health care cost trend rate would have increased
the accumulated benefit obligation by $773,000 and the
postretirement cost by $67,000 in 1998.
Stock Option and Stock Purchase Plans
Stock Option Plans
At June 30, 1998, 636,906 shares of common stock were
reserved for issuance under the Stock Option Plans. Of
this amount, and as noted in the table below, 591,786
shares are for options granted but unexercised. Options
may be granted at or below fair market value as of the
date of grant and must be exercised within the period
prescribed by the Salary and Employee Benefits Committee
of the Board of Directors at the time of grant but not
later than ten years from the date of grant. Certain
options granted at fair market value can be exercised
anytime after six months from the date of grant, and other
options can only be exercised in accordance with vesting
schedules prescribed by the Committee.
A summary of options issued under the plans is as follows:
Number Weighted Average
Year Ended June 30 of options Exercise Price
Outstanding, June 30, 1995
($6.75 to $31.00 per share) 441,897 $15.94
Granted ($22.50 to $29.75 per share) 144,200 28.48
Exercised ($6.75 to $31.00 per share) (64,552) 11.11
Canceled ($24.75 to $31.00 per share) (3,800) 22.76
________ _______
Outstanding, June 30, 1996
($7.50 to $31.00 per share) 517,745 19.98
Granted ($28.00 per share) 5,000 28.00
Exercised ($8.00 to $20.75 per share) (28,685) 11.12
Canceled ($29.75 to $31.00 per share) (4,900) 27.43
________ _______
Outstanding, June 30, 1997
($7.50 to $31.00 per share) 489,160 20.51
Granted ($27.1875 to $32.1875 per share) 201,150 28.55
Exercised ($7.50 to $31.00 per share) (79,554) 13.55
Canceled ($20.75 to $31.5625 per share) (18,970) 29.54
________ _______
Outstanding, June 30, 1998
($7.50 to $32.1875 per share) 591,786 23.89
________ _______
Exercisable, June 30, 1998
($7.50 to $31.00 per share) 291,968 $20.15
________ _______
The following table sets forth information regarding
options outstanding at June 30, 1998:
Weighted
Weighted Average
Weighted Average Number Exercise Prices
Number Range of Average Remaining Life Currently for Currently
Of Options Exercise Prices Exercise Price (Years) Exercisable Exercisable
94,060 $7.50 - $12.50 $10.07 3 94,060 $10.07
50,350 $15.8125 - $22.50 $18.38 3 40,510 $17.71
155,896 $23.00 - $28.00 $24.31 5 82,830 $23.95
183,500 $28.375 - $28.50 $28.39 10 6,800 $28.50
107,980 $29.75 - $32.1875 $30.24 8 67,768 $30.09
_______ ________________ ______ __ _______ ______
591,786 $7.50 - $32.1875 $23.89 7 291,968 $20.15
The Company uses the intrinsic value method to measure
compensation expense associated with grants of stock
options to employees. Had the Company used the fair value
method to measure compensation for grants after fiscal
1995, net income and earnings per share would have been as
follows:
Year Ended June 30 (In thousands) 1998 1997
Income before income taxes $31,952 $42,815
Provision for income taxes 12,850 16,410
_______ _______
Net income $19,102 $26,405
_______ _______
Earnings per share:
Basic $1.46 $1.98
Diluted $1.45 $1.96
_______ _______
Options granted during 1998 and 1997 had a weighted
average grant date fair value of $8.42 and $7.44,
respectively. The fair value of options on the grant date,
including the valuation of the option feature implicit in
the Company's stock purchase plan, was measured using the
Binomial option pricing model. Key assumptions used to
apply this pricing model are as follows:
Year Ended June 30 1998 1997
Range of risk-free interest rates 5.74% 6.49%
to 6.4%
Range of expected life of
option grants (in years) 9 8
Expected volatility of underlying stock 17.1% 18.5%
to 23.0%
Range of expected quarterly
dividends (per share) $0.19 $0.18
to $0.19
It should be noted that the option-pricing model used was
designed to value readily tradable stock options with
relatively short lives. The options granted to employees
are not tradable and have contractual lives of up to ten
years. However, management believes that the assumptions
used and the model to value the awards yields a reasonable
estimate of the fair value of the grants made under the
circumstances.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan which
allows employees to purchase shares of common stock of the
Company at a 15% discount from market value. Shares of
stock reserved for the plan were 372,968 at June 30, 1998.
Shares purchased under this plan aggregated 71,261;
85,222; and 76,082 in 1998, 1997 and 1996, respectively.
Shareholders Rights Plan
The Company has a Shareholders Rights Plan for which
purchase rights have been distributed as a dividend at the
rate of one right for each share of common stock held. The
rights may be exercised only if an entity has acquired
beneficial ownership of 20% or more of the Company's
common stock, or announces an offer to acquire 30% or more
of the Company.
Acquisitions and Dispositions
During fiscal 1998, the Company purchased two companies
and a product line for $52,800,000 for cash, stock and a
note. In October, the acquisition of the net assets of
ACME Manufacturing Company for cash and a note was
completed. ACME is a manufacturer of heating, ventilation
and air conditioning pipe, duct and fittings for the home
building industry. During the second quarter, the Company
purchased a hardware product line, which included
inventory and machinery, of an unrelated company. In
March, the Company acquired ATR Coil Company, Inc. for
cash and shares of the Company's common stock. ATR Coil is
a manufacturer of electronic coils and windings for the
industrial, automotive and consumer markets.
During fiscal year 1997, the Company purchased five
companies for $4,800,000 in cash and stock. Acquired were
three mail order companies, a Christian bookstore company,
and a publishing company.
These transactions were accounted for as purchases and,
accordingly, the consolidated financial statements include
the results of operations of the acquired businesses from
their respective acquisition dates. The purchase price of
the acquisitions was allocated to the assets acquired
based on their respective fair market values and resulted
in the recognition of goodwill of approximately
$18,500,000 and $1,500,000 in fiscal years 1998 and 1997,
respectively. If the above acquisitions had occurred as of
July 1, 1996, the unaudited pro forma consolidated results
of operations would have been as follows:
Year ended June 30
(in thousands except per share data) 1998 1997
Net sales $632,771 $624,313
Net income 20,702 26,685
Earnings per share:
Basic 1.58 2.00
Diluted 1.57 1.98
In February 1998, the Company sold a division for net
proceeds of approximately $2,600,000 and a net loss of
$350,000. During fiscal year 1997, the Company sold a
division and two product lines for net proceeds of
approximately $5,200,000 and a net gain of approximately
$1,035,000.
RESTRUCTURING CHARGE
In June of fiscal year 1998, the Company recorded a
restructuring charge of $12,758,000 before taxes. This
action was intended to close, dispose of, or liquidate
certain small underperforming and unprofitable operating
plants, product lines and businesses. The charge has been
recorded in the line item "Restructuring charge" on the
Statements of Consolidated Income. The components of the
charge include involuntary employee severance and benefit
costs totaling $1,665,000, asset impairments of
$10,061,000 and shutdown costs of $1,032,000. In 1998,
$200,000 was paid in cash.
Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for the
years ended June 30, 1998 and 1997 are set forth on page
18.
Independent Auditors' Report
To the Board of Directors and Stockholders of Standex
International Corporation:
We have audited the accompanying consolidated balance
sheets of Standex International Corporation and
subsidiaries as of June 30, 1998 and 1997, and the related
statements of consolidated income, stockholders' equity,
and cash flows for each of the years in the three-year
period ended June 30, 1998. These financial statements are
the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Standex International Corporation and
subsidiaries as of June 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the
years in the three year period ended June 30, 1998 in
conformity with generally accepted accounting principles.
/S/ Deloitte & Touche LLP
[Deloitte & Touche LLP logo]
Boston, Massachusetts
August 20, 1998
Corporate Headquarters
Standex International Corporation
6 Manor Parkway
Salem, NH 03079
(603) 893-9701
Facsimile: (603) 893-7324
http://www.standex.com
Common Stock
Listed on the New York Stock
Exchange (Ticker symbol:SXI)
Transfer Agent and Registrar:
Boston EquiServe
Box 8040, Mail Stop 45-02-64,
Boston, MA 02102-8040
(781) 575-3400
http://www.equiserve.com
Counsel
Hale and Dorr
60 State Street
Boston, MA 02109
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Shareholder Services
Stockholders should contact
Standex's Transfer Agent (Boston
EquiServe, Box 8040, Mail Stop 45-
02-64, Boston, MA 02102-8040)
regarding changes in name, address
or ownership of stock; lost
certificates or dividends; and
consolidation of accounts.
Form 10-K
Shareholders may obtain a copy of
Standex's Form 10-K Annual Report,
as filed with the Securities and
Exchange Commission without charge
by writing to: Standex Investor
Relations Department, 6 Manor
Parkway, Salem, NH 03079
Stockholder Meeting
The Annual Meeting of Stockholders
will be held at 11:00 AM on
Tuesday, October 27, 1998 at
BankBoston, Auditorium, Main Lobby,
100 Federal Street, Boston, MA
Essential products for your world
Board of directors
Thomas L. King*
Chairman of the Board
Edward J. Trainor*
President and Chief Executive Officer
John Bolten, Jr.+
Consultant
William L. Brown*
Former Chairman of the Board of
Bank of Boston Corporation and
The First National Bank of Boston
David R. Crichton
Executive Vice President/Operations
Samuel S. Dennis 3d*+
Retired Partner,
Hale and Dorr, Attorneys
William R. Fenoglio
Former President and Chief
Executive Officer of Augat Inc.
Walter F. Greeley
Chairman, High Street Associates,
An Investment Partnership
Daniel B. Hogan, Ph.D.
President, The Apollo Group,
Management Consultants
C. Kevin Landry
Managing Partner, T.A. Associates,
A Venture Capital Firm
H. Nicholas Muller, III, Ph.D.
President, CEO
Frank Lloyd Wright Foundation
Sol Sackel
Former Senior Vice President
of the Company
Lindsay M. Sedwick
Senior Vice President and
Chief Financial Officer
(Retired effective June 30, 1998)
Corporate officers
Thomas L. King
Chairman of the Board
Edward J. Trainor
President and
Chief Executive Officer
David R. Crichton
Executive Vice President/Operations
Lindsay M. Sedwick
Senior Vice President and
Chief Financial Officer
(Retired effective June 30, 1998)
Edward F. Paquette
Vice President and
Chief Financial Officer
(Elected CFO effective July 1, 1998)
Deborah A. Rosen
General Counsel and Secretary
Robert R. Kettinger
Corporate Controller
Daniel C. Potter
Assistant Treasurer and
Corporate Tax Manager
Mark R. Hampton
Assistant Treasurer/Europe
Operating divisions
Industrial
David R. Crichton
Group Vice President
Industrial Group
James Burn International
Custom Hoists
Spincraft
Roehlen Industries
Eastern Engraving
Keller-Dorian
Mold-Tech
Roehlen Engraving
Standex GmbH
Jarvis Caster Group
Can-Am Casters and Wheels
Standex Electronics
ATR Coil Company
Food service
Jerry G. Griffin
Group Vice President
Food Service Group
Procon Products
Master-Bilt Products
Federal Industries
United Service Equipment Company
General Slicing
BKI Worldwide
BKI USA
Barbecue King UK
H.F. Coors China
Mason Candlelight
Consumer
Edward J. Trainor
Group Vice President
Consumer Group
Standard Publishing
Berean Christian Stores
Standex Direct
National Metal Industries
Williams Healthcare Systems
Standex Air Distribution Products
Snappy/ACME/ALCO
*Member of Executive Committee
+Founder of Company
Industrial [Photo of cylinders top left]
Food service [Photo of bakery case center]
Consumer [Photo of books right bottom]
STANDEX
6 Manor Parkway Salem, NH 03079 603.893.9701
www.standex.com
931-AR-98