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, 1998 Commission File Number 1-7233
STANDEX INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its Charter)
DELAWARE 31-0596149
(State of incorporation) (I.R.S. Employer Identification No.)
6 MANOR PARKWAY, SALEM, NEW HAMPSHIRE 03079
(Address of principal executive offices) (Zip Code)
(603) 893-9701
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES X .
NO .
The number of shares of Registrant's Common Stock outstanding on
December 31, 1998 was 13,005,165.
STANDEX INTERNATIONAL CORPORATION
I N D E X
Page No.
PART I. FINANCIAL INFORMATION:
Item 1.
Statements of Consolidated Income for the Three
and Six Months Ended December 31, 1998 and 1997 2
Consolidated Balance Sheets, December 31, 1998 3
and June 30, 1998
Statements of Consolidated Cash Flows for the
Six Months Ended December 31, 1998 and 1997 4
Notes to Financial Information 5-6
Item 2.
Management's Discussion and Analysis 7-9
Item 3.
Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. OTHER INFORMATION:
Item 4.
Submission of Matters to a Vote of Security Holders 11
Item 6.
Exhibits and Reports on Form 8-K 11
PART I. FINANCIAL INFORMATION
STANDEX INTERNATIONAL CORPORATION
Statements of Consolidated Income
(000 Omitted)
Three Months Ended Six Months Ended
December 31 December 31
1998 1997 1998 1997
Net Sales $171,171 $168,090 $328,548 $309,151
Cost of Products Sold 112,560 111,309 220,020 206,505
Gross Profit Margin 58,611 56,781 108,528 102,646
Selling, General and
Administrative Expenses 40,351 40,640 74,568 72,113
Income from Operations 18,260 16,141 33,960 30,533
Other Income/(Expense):
Interest Expense (2,946) (2,878) (5,803) (4,970)
Interest Income 126 106 227 225
Other Income/(Expense) - net (2,820) (2,772) (5,576) (4,745)
Income Before Income Taxes 15,440 13,369 28,384 25,788
Provision for Income Taxes 6,036 5,047 11,023 9,807
Net Income $ 9,404 $ 8,322 $17,361 $15,981
Earnings Per Share:
Basic $ .72 $ .64 $ 1.33 $ 1.22
Diluted $ .72 $ .63 $ 1.33 $ 1.21
Cash Dividends Per Share $ .19 $ .19 $ .38 $ .38
STANDEX INTERNATIONAL CORPORATION
Consolidated Balance Sheets
(000 Omitted)
December 31 June 30
1998 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,065 $ 9,256
Receivables, net of allowances for
doubtful accounts 102,517 98,531
Inventories (approximately 45%
finished goods, 20% work in
process, and 35% raw materials and
supplies) 125,641 122,950
Prepaid expenses 7,719 4,493
Total current assets 240,942 235,230
PROPERTY, PLANT AND EQUIPMENT 256,776 252,349
Less accumulated depreciation 152,521 149,376
Property, plant and equipment, net 104,255 102,973
OTHER ASSETS:
Goodwill, net 32,759 33,149
Prepaid pension cost 32,430 30,255
Other 10,837 9,635
Total other assets 76,026 73,039
TOTAL $421,223 $411,242
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt $ 4,791 $ 2,995
Accounts payable 38,344 37,748
Income taxes 8,131 5,755
Accrued expenses 39,976 39,789
Total current liabilities 91,242 86,287
LONG-TERM DEBT (less current portion included above) 155,069 163,448
DEFERRED INCOME TAXES AND OTHER LIABILITIES 15,867 15,310
STOCKHOLDERS' EQUITY:
Common stock 41,976 41,976
Additional paid-in capital 8,835 8,517
Retained earnings 336,533 324,130
Accumulated other comprehensive income (802) (2,729)
Less cost of treasury shares (227,497) (225,697)
Total stockholders' equity 159,045 146,197
TOTAL $421,223 $411,242
STANDEX INTERNATIONAL CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(000 OMITTED)
Six Months Ended
December 31
1998 1997
Cash Flows from Operating Activities:
Net income $17,361 $15,981
Depreciation and amortization 7,506 6,771
Net changes in assets and liabilities (8,394) (8,758)
Net Cash Provided by Operating Activities 16,473 13,994
Cash Flows from Investing Activities:
Expenditures for property and equipment (8,658) (8,428)
Expenditures for acquisitions (439) (46,769)
Other 1,188 (6)
Net Cash Used for Investing Activities (7,909) (55,203)
Cash Flows from Financing Activities:
Proceeds from additional borrowings 26,804 56,150
Net payments of debt (33,387) (343)
Cash dividends paid (4,958) (4,968)
Purchase of treasury stock (2,514) (6,130)
Other, net 1,032 1,728
Net Cash Provided by/(Used for) Financing
Activities (13,023) 46,437
Effect of Exchange Rate Changes on Cash 268 (16)
Net Change in Cash and Cash Equivalents (4,191) 5,212
Cash and Cash Equivalents at Beginning of Year 9,256 6,149
Cash and Cash Equivalents at December 31 $ 5,065 $11,361
Supplemental Disclosure of Cash Flow Information:
Cash paid during the six months for:
Interest $ 5,471 $ 4,596
Income taxes $ 8,646 $ 7,483
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, 1998 and 1997.
These financial statements should be read in conjunction with the
audited financial statements as of June 30, 1998. Accordingly, footnote
disclosures that would substantially duplicate the disclosures contained
in the latest audited financial statements have been omitted from this
filing.
2. Per Share Calculation
The following table sets forth the number of shares (in thousands) used
in the computation of basic and diluted earnings per share:
Three Months Ended Six Months Ended
December 31 December 31
1998 1997 1998 1997
Basic - Average Shares
Outstanding 13,005 13,050 13,030 13,080
Effect of Dilutive Securities:
Stock Options 68 187 68 174
Diluted - Average Shares
Outstanding 13,073 13,237 13,098 13,254
Both basic and diluted incomes are the same for computing earnings per
share.
Cash dividends per share have been computed based on the shares
outstanding at the time the dividends were paid. The shares (in
thousands) used in this calculation for the three months and six months
ended December 31, 1998 and 1997:
1998 1997
Quarter 13,012 13,033
Year-to-date 13,047 13,074
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 (SFAS) No.
5, "Accounting for Contingencies." Management believes that such
provision is sufficient to cover any future payments, including legal
costs, under such proceedings.
4.Comprehensive Income
Effective July 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." Currently, in addition to net income, the only
item, which would be included in comprehensive income, is foreign
currency translation adjustments. For the six months ended December 31,
1998 and 1997, comprehensive income (net of taxes) totaled approximately
$18,517,000 and $16,168,000 respectively.
5.Restructuring Charge
In June 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 was recorded in the
line item "Restructuring Charge" on the Statements of Consolidated
Income of the 1998 Annual Report. As part of this restructuring the
Company sold its Christmas Tree Stand product line in the second quarter
and its SXI Technologies division in January 1999 for cash and notes.
The following schedule reflects the Company's restructuring activities
(in thousands) for the six months ended December 31, 1998:
Involuntary
Employee
Severance and Asset Shutdown
Benefit Costs Impairment Costs Total
Reserve Beginning Balance $1,665 $10,061 $1,032 $12,758
Expended:
Cash 927 0 413 1,340
Non Cash (disposals and write-offs) 0 4,607 0 4,607
Committed 846 3,290 400 4,536
Expected Additional Expenditures 0 2,025 250 2,275
Change in Estimates (108) 139 (31) 0
6.Senior Unsecured Notes
In October, the Company negotiated unsecured loan agreements with two
institutional lenders in the amount of $25 million. The loans have a
fixed interest rate of 6.8% and are repayable in lump-sum payments in
October 2008. The financial covenants of the new loan agreements are
similar to those under the Company's revolving credit agreement. The
proceeds were used to refinance existing short-term indebtedness and for
general corporate purposes.
STANDEX INTERNATIONAL CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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
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.
MATERIAL CHANGES IN FINANCIAL CONDITION
During the first six months of fiscal 1999, the Company invested $8.7
million in plant and equipment, purchased $2.5 million of the Company's
Common Stock, paid down $33.4 million in debt and paid out $5 million in
cash dividends to the Company's shareholders. To fund these expenditures,
the Company utilized $26.8 million in proceeds from additional borrowings
and $16.5 million in net operating cash flows.
In October, the Company negotiated unsecured loan agreements with two
institutional lenders in the amount of $25 million. The agreements have
fixed interest rates of 6.8% and are repayable in lump-sum payments in
October 2008. These unsecured notes are more fully described in the Notes
to Financial Information.
The Company's policy of using its funds to make acquisitions when
conditions are favorable, invest in property, plant and equipment, pay
dividends and purchase its Common Stock is expected to continue.
Restructuring Charge - In June of fiscal year 1998, the Company recorded a
restructuring charge of $12.8 million 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 was recorded in the line item "Restructuring Charge" on the
Statements of Consolidated Income in the fiscal 1998 Annual Report. This
charge and the reserve activity are discussed in the Notes to Financial
Information. As part of this restructuring the Company sold its Christmas
Tree Stand product line in the second quarter and its SXI Technologies
division in January for cash and notes.
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. As of December 31, 1998
the Company's systems have either been appropriately modified and tested or
have been replaced with software that is Year 2000 compliant. The only
exceptions are the final implementations of new systems at two relatively
small foreign units scheduled for the second half of fiscal 1999.
Management believes that any delays or failure to complete this final stage
of its Year 2000 program will not have a material impact on the Company's
operations or its financial position. The total cost of modifying and
testing all programs, which has been charged to expense (primarily in
fiscal year 1998), was approximately $600,000.
The Company has also communicated with key suppliers, financial
institutions and others with which it does 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.
Several new accounting pronouncements (Statement of Financial Accounting
Standards (SFAS) Nos. 130,131, and 132 and Statement of Position No. 98-1)
have been adopted as of July 1, 1998 and concern comprehensive income,
segment reporting, pension and other post retirement benefit disclosures,
and cost of internally used computer software. The adoption of these
pronouncements had no material effect on the Company's consolidated
financial statements. SFAS No. 130 (Reporting Comprehensive Income) is
more fully described in the Notes to Financial Information. SFAS, No. 133
(Accounting for Derivative Instruments and Hedging Activities) will be
adopted in the next fiscal year and is not expected to have a material
effect on the Company's consolidated financial statements.
OPERATIONS
Quarter Ended December 31, 1998
As compared to the Quarter Ended December 31, 1997
For the second quarter ended December 31, 1998, Net Sales increased by $3.1
million as compared to the second quarter of the prior year. The effect of
changes in the average foreign exchange rates from December 31, 1997 to
December 31, 1998 on Net Sales for the quarter was not significant.
Net Sales in the Food Service and Industrial Segments were flat as compared
to the prior year due to several factors, none of which were significant.
The Consumer Segment's Net Sales increased by $2.7 million when compared to
the prior year due to a high demand for air distribution ducting from the
Standex Air Distribution Products division and increased consumer demand at
the Company's Berean Christian Stores.
The Gross Profit Margin Percentage (GPMP) increased to 34.2%, as compared
to the prior year's percentage of 33.8%. The GPMP reported by the Consumer
and Industrial Segments increased slightly from the previous year's
percentages; however, none of the changes were individually significant.
The Food Service Segment reported an increase in GPMP from 29.2% last year
to 31.3% in the current year as a result of productivity gains and reduced
costs at several divisions.
For the three months ended December 31, 1998 Selling, General and
Administrative Expenses decreased by $289,000, or 0.7%. None of the
fluctuations reported by the Company's three segments were individually
significant.
In the second quarter of fiscal 1999, Interest Expense remained
approximately the same as reported in the prior year. While the Company
incurred moderately higher average interest rates as compared to the prior
year, average borrowings were lower for the same period.
The above factors resulted in a $2.1 million increase in Income Before
Income Taxes as compared to the prior year. The effective tax rate in the
first quarter rose to 39.1% from 37.8% reported in the second quarter of
the prior year due mainly to reduced foreign tax credits.
As a result of the above activity, Net Income for the second quarter of
fiscal 1999 increased by $1.1 million, or 13.0%, over the same period in
the prior year.
Six Months Ended December 31, 1998
As compared to the Six Months Ended December 31, 1997
Net Sales for the first six months of fiscal 1998 increased $19.4 million
as compared to the same period in the prior year. The majority of this
increase came from the added sales of ACME Manufacturing Company (ACME)
which was acquired in early October 1997. These added sales were partially
offset by the absence of sales from the Doubleday Bros. product lines,
which were disposed of in the prior year. Excluding the acquisition and
dispositions, management believes the majority of fluctuations in Net Sales
reported by each segment are a result of changes in unit volumes and
customer demand. In addition, although changes in the average foreign
exchange rates from December 31, 1997 to December 31, 1998 have had a
negative impact on Net Sales, the total effect was not significant.
For the six months ended December 31, 1998, both the Food Service and
Industrial Segments reported minor decreases in Net Sales as compared to
the prior year. The reduction in the Industrial Segment was caused by the
absence of sales due to the disposition of the Doubleday Bros. product
lines in the second half of fiscal 1998. The decline in the Food Service
Segment is attributed to several factors, none of which was material. The
Consumer Segment's Net Sales increased by $22.1 million when compared to
last year due to the acquisition of ACME and improved demand, as noted
above.
The Gross Profit Margin Percentage (GPMP) for the six months ended December
31, 1998 remained the same (at approximately 33%) for both current and
prior year. The Food Service Segment reported a GPMP of 30.8%, as compared
to the prior year percentage of 28.9% resulting from production
efficiencies and reduced costs at several companies. The GPMP reported in
the Consumer Segment fell to 34.6%, a decline from the previous year's
percentage of 35.8% due to lower initial margins at ACME. The Industrial
Segment's GPMP remained flat at 32.4% in fiscal 1998 versus 32.6% last
year.
Selling, General and Administrative Expenses (SG&A) increased by $2.5
million when compared to the same period in the prior year. The majority
of this increase ($2.2 million) was from the additional SG&A expenses of
ACME. None of the remaining fluctuations reported by the Company's three
segments were individually significant and corresponded with the changes in
Net Sales discussed above.
Interest Expense increased by 16.8%, or $833,000, when compared to the
first six months of fiscal 1998, due to increased borrowings ($45 million)
to finance the ACME acquisitions and moderately higher average interest
rates. In the current year, the Company recorded six months of interest
charges on the increased borrowings related to the ACME acquisition as
compared to three months in the prior year.
The above factors resulted in a $2.6 million increase in Income Before
Taxes as compared to the same period of the prior year. The effective tax
rate increased slightly from 38% in fiscal 1998 to 38.8% in fiscal 1999 for
the same reasons described above in the discussion of quarterly results.
Due to the factors described above, Net Income for the six months ended
December 31, 1998 increased $1.4 million, or 8.6%, when compared to the
same period of the prior year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a number of market risks, primarily the effects
of changes in foreign currency exchange rates and interest rates.
Investments in foreign subsidiaries and branches, and their resultant
operations, denominated in foreign currencies, create exposures to changes
in exchange rates. The Company's use of its bank credit agreements
creates an exposure to changes in interest rates. The effect of changes
in exchange rates and interest rates on the Company's earnings has been
relatively insignificant compared to other factors that also affect
earnings, such as business unit sales and operating margins. The Company
does not hold or issue financial instruments for trading, profit or
speculative purposes.
Based on historical foreign currency rate movements and the fair value of
market-rate sensitive instruments at December 31, 1998, the Company does
not believe that near term changes in foreign currency or interest rates
will have a material impact on its future earnings, fair values or cash
flows.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders of the Company was held on
October 27, 1998. Four matters were voted upon at the meeting: the
election of directors, the adoption of a long term incentive plan,
an amendment to the Certificate of Incorporation of the Company 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
Thomas L. King 10,752,014 191,760
Edward F. Paquette 10,661,162 282,613
Sol Sackel 10,737,241 206,533
Proposal 2 (Adoption of 1998 Long Term Incentive Plan)
For Against No Vote Abstain
8,931,992 853,046 1,009,275 149,161
Proposal 3 (Amendment to Certificate of Incorporation increasing the
Common Stock authorized for Issuance to 60,000,000 shares)
For Against Abstain
9,401,454 1,454,042 88,278
Proposal 4 (Appointment of Auditors)
For Against Abstain
10,880,758 21,067 41,949
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Amendment to Restated Certificate of Incorporation
approved by Stockholders on October 27, 1998.
10. 1998 Long Term Incentive Plan approved by Stockholders
and effective on October 27, 1998.
27. Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 1998. The
item reported was the adoption of a Stockholders' Rights Agreement.
The date on which the report was filed was December 18, 1998.
ALL OTHER ITEMS ARE INAPPLICABLE
STANDEX INTERNATIONAL CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STANDEX INTERNATIONAL CORPORATION
Date: February 11, 1999 /s/ Robert R. Kettinger
Robert R. Kettinger
Corporate Controller
Date: February 11, 1999 /s/ Edward F. Paquette
Edward F. Paquette
Vice President/CFO