UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

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.  days.    YES [X] [X]     NO [  ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer   ____                  Accelerated filer      X                    Non-accelerated filer   ____

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES [  ]NO [X]

The number of shares of Registrant's Common Stock outstanding on November 6, 2006October 30, 2007 was 12,421,513.

STANDEX INTERNATIONAL CORPORATION

I N D E X12,497,237.

STANDEX INTERNATIONAL CORPORATION

INDEX

Page No.

PART I.

FINANCIAL INFORMATION:

Item 1.

CondensedStatementsUnaudited Condensed Consolidated Balance Sheets for

September 30, 2007 and June 30, 2007

2

Unaudited CondensedConsolidatedStatements of Consolidated Income for the

Three Months Ended September 30, 20062007 and 2005 (Unaudited)

2

Condensed Consolidated Balance Sheets, September 30, 2006 and

June 30, 2006 (Unaudited)

3

Unaudited Condensed Consolidated Statements of Consolidated Cash Flows for the

Three Months Ended September 30, 20062007 and 2005 (Unaudited)2006

4

Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management's Discussion and Analysis of Financial Condition and

Results of Operations

12

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

1920

Item 4.

Controls and Procedures

2021

PART II.

OTHER INFORMATION:

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

2122

Item 6.

Exhibits

22

2

3

STANDEX INTERNATIONAL CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)1)

1.

Management Statement

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the results of operations cash flows and comprehensive income for the three months ended September 30, 2007 and 2006, the cash flows for the three months ended September 30, 2007 and 20052006 and the financial position of the Company at September 30, 2006.2007.  The interim results are not necessarily indicative of results for a full year.  The unaudited condensed consolidated financial statements and notes do not contain information which would substantially duplicate the disclosuredisclosures contained in the audited annual consolidated financial statements and notes for the year ended June 30, 2006.2007.  The condensed consolidated balance sheet at June 30, 20062007 was derived from audited financial statements, but does not includei nclude all disclosures required by accounting principles generally accepted in the United States of America.  The prior year financial statements have been reclassified to report the discontinued operations discussed in Note 3.  The financial statements contained herein should be read in conjunction with the Annual Report on Form 10-K and in particular the audited consolidated financial statements for the year ended June 30, 2006.2007.  

2.

Significant Accounting Policies

New Pronouncements:  

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R),” (SFAS 158).

SFAS 158 requires an employer to recognize the funded status of each of its defined pension and postretirement benefit plans as an asset or liability in its statement of financial position with an offsetting amount in accumulated other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income. This reporting requirement becomes effective for our consolidated financial statements as of June 30, 2007 year-end. The provisions of SFAS 158 are to be applied on a prospective basis; therefore, prior periods presented will not be restated. The Company is evaluating the impact of this statement.  

Additionally, SFAS 158 requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. This provision becomes effective for our fiscal year ending on June 30, 2009. The funded status of the majority of our pension and other postretirement benefit plans are currently measured as of March 31.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements. SFAS 157 becomes effective for us on July 1, 2008. Upon adoption, the provisions of SFAS 157 are to be applied prospectively with limited exceptions. The adoption of SFAS 157 is not expected to have a material impact on our consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.  This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes.  This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  Interpretation No. 48 is effective for our fiscal years beginning July 1, 2007.  We are currently evaluating the effect of adopting this interpretation.

3.

Discontinued Operations

The results from discontinued operations during the quarter include the gains recognized upon the completion of the sales of the Standard Publishing and the Berean Christian Stores businesses.  As previously discussed, these businesses no longer strategically fit with our other operating segments, providing us no opportunities to leverage cost structures or achieve meaningful synergies.  We also determined that our capital resources could be better allocated among those businesses in our other operating segments that offered us opportunities for growth.  In July 2006, we sold substantially all the assets of the Standard Publishing business in an all cash transaction.  We recognized a pre-tax gain of $10.1 million in this transaction, including the recognition of a $334,000 pension curtailment loss.  In August 2006, we sold substantially all the assets of the Berean Christian Stores business in an all cash deal resulting in the recognition of a pre-tax gain of $200,000.  In connection with Berean, we were party under a number of operating leases for existing stores and one closed store.  The store leases in this transaction were assigned to the purchaser of the business for the remaining initial terms of the lease at the stated lease costs.  In conjunction with the transaction one existing location was closed.  For the one closed location, we recognized a liability of $285,000 representing the difference between the expected sub-lease rental income and the rental costs.  This obligation was netted against the gain recognized on the sale of Berean.

In March 2006, we entered into a plan to dispose of certain assets of our USECO product lines.  USECO, which was part of our Food Service Equipment Group, manufactures and sells rethermalization systems for meal deliveries to institutions, including governmental institutions, and under sink food disposals.  We have determined that the product lines of USECO do not strategically fit with the other products offered by the Food Service Equipment Group.  We also determined that the markets this business serves are not growing.  We continue to actively market the businesses and have committed to a plan to sell the businesses of USECO.  Subsequent to the end of the quarter, we completed the sale of a portion of USECO.  We expect to recognize a gain on this transaction of approximately $250,000 in the second quarter of fiscal 2007.

The following summarizes the activities associated with discontinued operations (in thousands):  

The major classes of discontinued assets and liabilities included in the Consolidated Balance Sheets are as follows (in thousands):

4.

Goodwill

Changes to goodwill during the current fiscal year were as follows (in thousands):

During the three months ended September 30, 2006, the Company recorded an additional $281,000 in connection with the acquisition of Innovent and the related costs to relocate and consolidate the Netherlands based operations to Germany.  SFAS No. 142 requires that the Company assess goodwill and intangible assets with indefinite lives for impairment at least annually, or on an interim basis if events or circumstances indicate, based on the fair value of the related reporting unit or intangible asset.  The Company performs its annual impairment assessment in the fourth quarter of each year.

5.

Inventories

2)

Inventories are valued at the lower of cost or market.  Cost is determined using the first in, first out method.  

Inventories at September 30, 2006 and June 30, 2006 are comprised of the following (in thousands):

Distribution costs associated with the sale of inventory are recorded as a component of selling, general and administrative expenses in the accompanying Condensed Statementsunaudited condensed consolidated statements of Consolidated Incomeincome and were as follows$7.4 million and $6.9 million for the three months ended September 30, 2007 and 2006, and 2005:respectively.

3)

6.Goodwill

Debt

Debt is comprised ofChanges to goodwill during the following (in thousands):

The Company has a 5 year $150 million revolving credit facility (the facility) with nine participating banks, which expires in December 2010.  Proceeds under the facility may be used for general corporate purposes or to provide financing for acquisitions.  The agreement contains certain covenants including limitations on indebtedness and liens.  Borrowings under the agreement bear interest at a rate equal to the sum of a base rate or a Eurodollar rate, plus an applicable percentage based on the Company’s consolidated leverage ratio, as defined by the agreement.  The effective interest rate atthree months ended September 30, 2006 was 6.0875%.  Borrowings under the agreement are not collateralized.  As of September 30, 2006, the Company had the ability to borrow an additional $91.0 million under the agreement.

The Company’s loan agreements contain certain provisions relating to the maintenance of certain financial ratios and restrictions on additional borrowings and investments.  The most restrictive of these provisions requires that the Company maintain a minimum ratio of earnings to funded debt, as defined, on a trailing twelve months basis.  At September 30, 2006, the Company was in compliance with all debt covenants.

Debt is due as follows (in thousands):  

2007

$6,790

2008

3,571

2009

28,571

2010

42,571

2011

3,571

Thereafter

10,445

7.

Retirement Benefits

In the fiscal year ended June 30, 2005, the Company recorded a net pension and post retirement expense of $7.6 million.  The Company expects to report a net pension and post retirement expense of approximately $6.7 million in the current fiscal year.  Pension and other post-retirement expense for the three month period ending September 30, 2006 and 2005 were as follows (in thousands):

U.S. Plans:

Foreign Plans:

4)

Intangible Assets

Changes to intangible assets during the three months ended September 30, 2007 were as follows (in thousands):

Amortization expense for the three months ended September 30, 2007 and 2006 was $1.2 million and $543,000, respectively.

5)

Debt

As of September 11, 2007, the Company and its lenders executed two amendments to the $150 million unsecured revolving credit facility (the “facility”) which extended the maturity date to September 11, 2012 and modified certain financial covenants to reflect the recent acquisitions.  In connection with the amendment, the Company incurred approximately $231,000 of arrangement fees and related costs which have been deferred and are being amortized over the expected term of the facility.  After giving effect to the extended maturity date, the Company’s debt is due as follows at September 30, 2007 (in thousands):

The Company also executed an amendment as of September 11, 2007 to the note purchase agreements with the institutional investors which modified certain financial covenants to reflect the recent acquisitions.  In connection with the amendment, the Company incurred approximately $50,000 of arrangement fees and related costs.  The arrangement fees have been deferred and are being amortized over the remaining lives of the notes.  

6)

Sale - Leaseback

On September 24, 2007, Standex Air Distribution Products, Inc. (ADP), a subsidiary of the Company, sold certain real property consisting of land and improvements, including a manufacturing facility. In conjunction with the sale, ADP executed a lease for a major portion of the property, including the manufacturing facility which ADP actively utilizes in its business.  The lease has an initial term of ten (10) years with an option to renew for two (2) consecutive additional five-year options to renew.  The net proceeds from the sale, after transaction and other related costs, were $7.2 million resulting in a gain of approximately $2.0 million.  Under the provisions of sale-leaseback accounting, the transaction was considered a normal leaseback, therefore the realized gain was deferred and is being recognized in proportion to the lease payments charged to expense over the initial 10-year lease term.  

In connection with the sale-leaseback, the Company executed a guarantee of ADP’s indebtedness under the lease up to a maximum sum of $2 million. The minimum annual lease payments are approximately: fiscal 2008, $458,000; fiscal 2009, $550,000; fiscal 2010, $550,000; fiscal 2011, $550,000; fiscal 2012, $550,000; and thereafter through fiscal 2017, $2,945,000.

7)

Retirement Benefits

The Company adopted FASB No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans- an amendment of FASB Statements No. 87, 88, 106 and 123(R) (SFAS 158), on June 30, 2007. SFAS 158 requires the Company to change its measurement date to June 30, effective for the fiscal year ended June 30, 2009 with early adoption encouraged.  The Company adopted this part of the standard effective July 1, 2007 using the transition guidance of SFAS 158.

The effect of adopting the change in measurement date provisions of SFAS 158 as of July 1, 2007 was as follows:

Net Periodic Benefit Cost for the three months ended September 30, 2007 and 2006 included the following components:

8)

Income Taxes

The Company's effective tax rate for the three months ended September 30, 2007 was 36.1% compared with 34.5% for same period last year.  The higher effective tax rate is primarily due to the impact of a decrease in the statutory tax rate in Germany on deferred tax assets recorded in prior periods.

The Company has adopted FASB Interpretation 48,Accounting for Uncertainty in Income Taxes (“FIN 48”), as of July 1, 2007.  This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes, by prescribing the minimum recognition threshold and measurement attribute a tax position taken or expected to be taken on a tax return is required to meet before being recognized in the financial statements.  As a result of the implementation of FIN 48, the Company did not recognize any change in its liability for unrecognized tax benefits.

At the adoption date of July 1, 2007 the total amount of gross unrecognized tax benefits was approximately $3,277,000.  If these benefits were recognized in a future period, the entire amount of unrecognized tax benefit would impact the Company’s effective tax rate.  The total amount of gross unrecognized tax benefits at September 30, 2007 was approximately $3,728,000.  The increase is primarily attributable to tax positions taken in the current quarter includes a curtailment charge takenyear.

The Company and its subsidiaries are subject to U.S. Federal income tax as well as the income tax of multiple state and non-U.S. jurisdictions.  The Company's U.S. tax returns for the years ended June 30, 2004 and June 30, 2005 are currently under audit with the IRS.  At this time, the Company does not know when the audit will be completed.  The final outcome of the examination is not yet determinable; however, we do not expect that any adjustments as a result of the dispositionexamination would have a material effect on our financial position.

Within the next twelve months, the statute of limitations will close in various U.S., state and non-U.S. jurisdictions.  As a result, it is reasonably expected that net unrecognized tax benefits from these various jurisdictions would be recognized within the Consumer Group.  Contributionsnext twelve months.  The recognition of these tax benefits is not expected to pension planshave a material impact to the Company's financial statements.  The Company does not reasonably expect any other significant changes in the first three months of fiscal 2007 were approximately $731,000.  Contributions based on current actuarial evaluationsnext twelve months.  The following tax years, in the major tax jurisdictions noted, are expected to total $3.7 millionopen for all of fiscal 2007, including planned voluntary contributions.  Cash contributions in subsequent years will depend upon a number of factors including the investment performance of the plan assets and changes in employee census data affecting the Company’s projected benefit obligations.  assessment or refund:

8.

The Company’s policy is to include interest expense and penalties related to unrecognized tax benefits within the provision for taxes on the condensed consolidated statements of income.  At the date of adoption and at September 30, 2007, the Company has approximately $447,000 and $508,000, respectively, accrued for interest expense on unrecognized tax benefits.

9)

Earnings Per Share

The following table sets forth a reconciliation of the number of shares (in thousands) used in the computation of basic and diluted earnings per share:

Income available to common stockholders is the same for computing both basic and diluted earnings per share.  Options to purchase 3,47012,400 and 85,9203,470 shares of common stock were not included in the computation of diluted earnings per share for the three months ended September 30, 20062007 and 2005,2006, respectively.  Such options have been excluded because the options’ exercise prices were greater than the average market price of the common stock on those dates and, as a result, their inclusion would have been antidilutive.anti-dilutive.

In addition 134,000 performance stock units are excluded from the diluted earnings per share calculation as the performance criteria have not been met as of September 30, 2007.

9.10)

RestructuringComprehensive Income (Loss)

The Company periodically incurs costs associated with activities to close underutilized facilities, relocate operations or other exit related activities.  In accordance with SFAS No. 146, “AccountingTotal comprehensive income and its components for Costs Associated with Exit or Disposal Activities”, these charges are recorded generally when a liability was incurred or a severance plan was initiated.  A summary of the charges isthree months ended September 30, 2007 and 2006 were as follows (in thousands):

The restructuring costs related to the following segments:components of accumulated other comprehensive income (loss) are as follows (in thousands):

10.11)

Contingencies

The Company is a party to a number of actions filed or has been given notice of potential claims and legal proceedings related to environmental, commercial disputes, employment matters and other matters generally incidental to its business.  

Liabilities are recorded when the amount can be reasonably estimated and the liabilityloss is likely to arise.deemed probable.  Management has evaluated each matter based, in part, upon the advice of its in-house legal personnel and independent environmental consultants and in-house personnel.consultants.  Management has considered such matters and believes the ultimate resolution will not be material to the Company's financial position, results of operations or cash flows.

11.

Comprehensive Income

Total comprehensive income and its components for the three months ended September 30, 2006 and 2005 were as follows (in thousands):12)

The components of accumulated other comprehensive losses are as follows (in thousands):

12.

Income Taxes

The provision for income taxes for continuing operations differs from that computed using Federal income tax rates for the following reasons:

13.

Industry Segment Information

The Company is composed of five business segments.  Net sales and income from continuing operations by segment for the three months ended September 30, 2007 and 2006 were as follows (in thousands):

Net sales include only transactions with unaffiliated customers and include no intersegment sales.  Operating income by segment below excludes interest expense and other non-operating income (expense).

13)

Discontinued Operations

On September 27, 2007, the Company sold certain land, buildings and improvements related to the former Standard Publishing business, which is being accounted for as a discontinued operation, for net proceeds of $1.6 million in cash.  The Company recorded a gain on the disposal of $605,000 (net of taxes of $302,000) in the three months ended September 30, 2007.  

The following summarizes the activities associated with discontinued operations (in thousands).:  

The Company had accrued liabilities related to discontinued operations, primarily accrued rent and warranty costs, of $819,000 and $821,000 at September 30, 2007 and June 30, 2007, respectively.

ITEM 22.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

STANDEX INTERNATIONAL CORPORATIONRESULTS OF OPERATIONS

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Statements contained in the following “Management’s Discussion and Analysis” that arenot 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 “should,” “could,” "may," “will,” "expect," "believe," "estimate," "anticipate," ”intends,” "continue," or similar terms or variations of those terms or the negative of those terms.  There are many factors that affect the Company’sour business and the results of itsour operations and may cause the actual results of operations in future periods to differ materially from those currently expected or desired. & nbsp;These factors include, but are not limited to general and international economic c onditions,conditions, including more specifically conditions in the automotive, aerospace, energy, housing and general transportation markets, specific business conditions in one or more of the industries served by the Company,us, lower-cost competition, the relative mix of products which impact margins and operating efficiencies, both domestic and foreign,non-U.S., new EPA emission regulations affecting our Hydraulics Products Group, market demand, in certain of our businesses, the impact of higher raw material and component costs, particularly steel, petroleum basedpetroleum-based products, refrigeration components and rhodium, uncertainty in the mergers and acquisitions market generally, an inability to realize the expected cost savings from the implementation of lean enterprise manufacturing techniques, the completionmove of the ramp-upproduction to Mexico and improved operations performance of  manufacturing operations at the Company's new plant in Mexico,China, and the inability to achieve the savings expected from the sourcing of raw materials from and impl ementation of manufacturing in China and the inability to achieveac hieve synergies contemplated by the Company.us. In addition, any forward-looking statements represent management's estimates only as of the day made and should not be relied upon as representing management's estimates as of any subsequent date.  While the Companywe may elect to update forward-looking statements at some point in the future, the Company and managementwe specifically disclaim any obligation to do so, even if management'sour estimates change.

Overview

We are a leading producermanufacturer of a variety of products and services for diverse market segments.  We have five reporting segments:  Food Service Equipment Group, Air Distribution Products Group (ADP) Group,, Engraving Group, Hydraulics Products Group and Engineered Products Group.  Because these segments serve different markets,Through the performanceexecution of each is affected by different external and economic factors.  

We believe that our diversification has helped to reduce the cyclicality of earnings that affects many companies that focus principally on only one or two market segments.  Therefore, we intend to continue to operate in selected market segments that may not directly relate to one another.  However, through our focused diversity strategy, we are seekinghave moved from a company comprised of a mix of consumer and industrial businesses to buildone that is now exclusively a manufacturing company.  This shift allows us to focus our time and expertise on the production and sale of manufactured goods to commercial, industrial and wholesale customers.  Our objective now is to identify those of our businesses which offerhold the best opportunitiesgreatest potential for futureprofitable growth, and profitability, throughdirect our resources to supporting both organic growth and acquisitions.  

As part ofacquisition initiatives in those bu sinesses.  In fiscal 2007, we made two significant acquisitions in the Food Service Equipment Group which have broadened our strategy,presence in the diverse food service equipment sector.  In addition, we are focusingseeking to expand our resources on those businessesmarkets to growth locations where synergies can be leveraged to enhance the performance of the individual businesses.  Consistent with this strategy, we committed tohave not previously had a planpresence, for example in fiscal 2006 to divest the businesses within the Consumer Products Group.  We completed this divestiture processTurkey, where we are establishing a mold texturing operation, and in the first quarter of fiscal 2007, resulting in the recognition of a $10.3 million gain in discontinued operations during the first quarter of fiscal 2007.

During fiscal 2006, we completed two acquisitions in furtherance of our strategy of growth in profitable businesses.  In November 2005, we acquired substantially all the assets of Kool Star, a manufacturer of walk-in refrigeration units, expanding our refrigerated walk-in cooler and freezer product line by providing improved access to the growing southwestern U.S. market,China, where our presence has not been strong.  Also in November 2005, we completed the purchase of substantially all the assets of Innovent Specialty Products, a manufacturer of processing tooling with locations in MassachusettsElectronics division is manufacturing and the Netherlands.  Innovent provides us accessselling to complementary markets where the products and technology of our Engraving Group can be adapted. We continue to pursue other acquisition opportunities.  domestic customers.

In addition, we continue to our strategic objectives, we are continually looking to reducefocus on reducing our operating costs, and to better reach new customers and markets not served by our existing operations.  We are achieving these goals through the sourcing products andof raw materials from China and other lower cost providers, transferring manufacturing activitiesproducers, primarily offshore, the move of production facilities to lower cost countries such as Mexico and China making capital expendituresand the consolidation of facilities in the United States, and the implementation of lean manufacturing processes throughout our operations.

At the present time, we are facing difficult economic conditions in three of the markets we serve – new residential construction, heavy construction vehicles, and the automotive industry.  The timing of recovery in these markets is not clear, so a greater focus on cost reduction, along with efforts to increase automationmarket share, will be needed to mitigate the effects of conditions in those markets.

There are a number of key external factors other than general business and implementing lean enterprise throughouteconomic conditions that can impact the performance of our production facilities.  In fiscal 2006, we completed construction of a manufacturing facility in Mexico and commenced manufacturing activities therebusinesses.  The key factors affecting each business are described below in the third quartersegment analysis.

There are several items that affect the comparability of fiscal 2006.   Upon completion ofour performance information between the facility, we relocated manufacturing activities to that facility from two locations, oneperiods discussed in Tennessee andthis report.  These items include the other in Colorado.  Both properties were sold during fiscal year 2006.   The Company also relocated the manufact uring activities of Kool Star immediately following the close of that acquisition to our facility in Mexico.  

In China, we established two new manufacturing locations, one to capitalize on the market for the Engraving Group and the second to establish a lower cost assembly operation for the Engineered Products Group.  Production output by the end of the first quarter exceeded our expectations, nearing the breakeven mark after operating for only one quarter.

Our first quarteracquisitions in fiscal 2007 ended with some indicationsand the impact of a slowdown in certain businesses mixed with some strong performances in several of our other businesses.  A detailed discussion by segment is set forth below.  the divestitures.

We monitor a number of key performance indicators including net sales, gross profit margin, income from operations backlog and gross profit margin.backlog.  A discussion of these key performance indicators is included within the discussion below.  Unless otherwise noted, references to years are to fiscal years.

Consolidated Results from Continuing Operations (in thousands):Operations:

Net Sales

Net sales for the first quarter decreased $391,000of fiscal 2008 increased $26.0 million, or 17%, when compared to the same period of fiscal 2006, a less than 1% decrease.  Acquisitions added $4.3 million2007.  The increase in net sales during the quarter, while exchange rates resulted in increased sales of approximately $800,000.  After taking these into consideration, organic sales decreased by approximately 3.7% over the first quarter of last year.  The decrease was largely attributableis due to the ADP Group and, to a lesser extent, thestrong sales across our Food Service Equipment Group.  Revenue increasesThe recent food service acquisitions added approximately $25.9 million in revenues.  Sales were notednegatively impacted in all other segments.the ADP, Hydraulics and Engraving Groups due to continued recessionary conditions in new residential construction, continued downturn in the heavy construction vehicle market and continued project delays at our automotive OEM customers, respectively.  Sales in the Engineered Products Group were slightly below the same period last year.  A further discussion by segment follows.

Gross Profit Margin

Our consolidated gross profit margin increaseddecreased to 28.8%28.3% for the first quarter ended September 30, 2006,of fiscal 2008 versus 28.6%28.8% in the same quarter of last year.  Margin improvementsWith the exception of the Food Service Equipment Group and Engineered Products Group, margins declined across our segments when compared to the same period last year.  The largest declines occurred in ADP, where margins were pressured due to volume declines and material cost increases, and the ADP, Engraving and Hydraulics Products Groups.  These improvementsGroup, where continuing delays of several new platform projects reduced volumes.  The declines were substantially offset by a decline inimproved margins in the Food Service Equipment Group, due primarily to manufacturing inefficiencies and volume declines within certain brands.Group.  The margins are more fully discussed below in the segment performance.  

Other Operating Income/(Expense) and RestructuringIncome from Operations

We include restructuring charges and certain other operating expenses and income as separate line items.  “OtherIncome from operations for the first quarter of fiscal 2008 was $10.8 million, or 6% higher than the $10.2 million reported for the same period a year ago.  Improvements in operating income (expense)” includeswere realized in the Food Service Equipment Group and Engineered Products Groups, with decreases in the other segments.  A detailed explanation by segment follows.  

Interest Expense

Interest expense for the first quarter of fiscal 2008 increased $853,000, or 47%, to $2.7 million due to higher average borrowing levels, primarily due to the acquisitions in January 2007, and to higher average interest rates compared to the same period last year.

Income Taxes

Our effective income tax rate for the first quarter of 2008 was 36.1% compared to 34.5% for the first quarter of 2007.  The higher effective tax rate is primarily due to the impact of a decrease in the statutory tax rate in Germany on deferred tax assets recorded in prior periods.  

Backlog

Backlog at September 30, 2007 increased $18.5 million, or 18.5%, compared to September 30, 2006. Approximately $13.2 million of the increase relates to the businesses acquired in fiscal 2007.  The Food Service Equipment Group (excluding the impact of the acquisitions) and Engineered Products Groups reported higher backlog while the Engraving Group reported much lower backlog. Backlog in ADP and the Hydraulics Products Group were approximately the same as the prior year.

Segment Analysis

Net Sales

The following table presents net sales by business segment (in thousands):

Food Service Equipment Group

Net sales in the first quarter of 2008 increased $31.3 million, or 48%, over the same period one year earlier.  Acquisitions accounted for approximately $25.9 million of the increase.  Strong sales improvements were noted in our walk-in cooler and refrigerated cabinet businesses.  BKI also had strong sales performance within our fryer and rotisserie business in the United Kingdom.  The first quarter of fiscal 2008 reflects the recovery of some lost sales volume due to operational issues at Master-Bilt several quarters ago.

Air Distribution Products Group

Net sales decreased $2.4 million, or 8%, from the first quarter of fiscal 2007.  The decrease is the result of an ongoing severe downturn in the new residential construction markets that we serve.  In real volume, sales declined approximately 11% from the level realized in the first quarter of fiscal 2007.  The reduced volume was partially offset by higher sales prices, which were approximately 3% higher in the first quarter of fiscal

2008.  Housing starts on a nationwide basis reached a ten-year low in the most recent completed quarter, decreasing nearly 25% compared to prior year.  ADP has been pursuing opportunities to capture market share including pursuing additional big box retail locations, seeking further geographical penetration with several national wholesalers, and leveraging our nationwide manufacturing capabilities.  After excluding price increases, the unit volume decreases were still less than the housing start decreases largely due to the gains in market share.  These market share gains are consistent with our strategy for the ADP Group, which is to capitalize on our unique nationwide manufacturing infrastructure.  We continue to face recessionary conditions in the residential construction market and, therefore, we do not know the future direction of the market nor do we kno w when it will recover.

Hydraulics Products Group

Net sales decreased $1.2 million, or 12%, from the first quarter of fiscal 2007.  The decrease was attributable to continued depressed conditions in the domestic market, which were exacerbated by new regulations from the U.S. Environmental Protection Agency (EPA). During the quarter, we continued to experience a decline in domestic demand for our cylinders, which was partially offset by increased sales in South America.  Changes in EPA engine emission regulations which took effect January 1, 2007 as well as higher interest rates and a slow-down in the economy are significantly affecting current domestic market conditions.

Engraving Group

Net sales decreased by $1.0 million, or 5%, when compared to the same period one year ago.  The decrease is primarily attributable to the continuing delays of several new platform projects by the Group’s OEM automotive customers in North America.  That delay has continued to significantly impact the sales of our domestic mold texturization business.  Our international engraving operations reported higher sales bolstered by our new texturizing facility in Turkey which provides us with a competitive edge in that emerging region.

Engineered Products Group

Net sales decreased $599,000, or 3%, when compared to the same period one year earlier.  Last year’s sales were positively affected by a non-recurring low-margin shipment of $1.2 million.  We continue to see robust demand across our energy, aviation and aerospace end-user markets.  During the quarter we initiated the installation of several major machine tools to support the previously announced contract with a large energy OEM customer that should continue to contribute revenue growth in the second half of fiscal 2008.  In addition, we are currently quoting on several significant aerospace programs and we are optimistic about the opportunities for growth in this segment over the next 2 to 4 years.  At the electronics business we continue to see improved year-over-year performance due to price increases and the positive effect of our Chinese operation and plant consolidations.  

Income from Operations

The following table presents income from continuing operations by business segment (in thousands):

Food Service Equipment Group

Income from operations for the first quarter of 2008 increased $4.7 million, or 95%, when compared to the same period one year earlier.  Approximately $1.9 million of the increase was due to the acquisitions.  Excluding the effect of acquisitions, income from operations increased $2.8 million, or 57%, due to strong demand for our walk-in coolers and refrigerated cabinets as well as cost reductions, better labor efficiency and improved productivity.  

Air Distribution Products Group

Income from operations decreased $1.8 million, or 82%, from the same period one year earlier primarily due to higher material costs totaling $1.5 million.  In response to the continued weak residential construction outlook and the inability to pass the material price increases fully through to customers, ADP is implementing raw material cost reduction strategies.

Hydraulics Products Group

Income from operations decreased $529,000, or 30%, when compared to the same period one year earlier due to reduced sales volumes and start-up costs in the European and Chinese markets.  We continue to develop markets in Europe, South America and China in order to diversify our revenue base and decrease dependence on the North American market.  

Engraving Group

Income from operations decreased by $1.5 million, or 55%, when compared to the same quarter in the prior year.  The sales delays in the North American auto industry caused income from operations to be lower in the first quarter of fiscal 2008.  The lower results in North America were partially offset by improved performance in our international markets.  International operations benefited from cost reductions and productivity improvements realized at our new texturizing facility.  

Engineered Products Group

Income from operations increased $913,000, or 46%, when compared to the same period one year earlier due to price increases totaling $670,000, a more favorable product mix totaling $230,000, cost reductions, plant consolidations and the positive effect of the Chinese operation in our electronics business.  

Corporate and Other

Corporate expenses of approximately $4.6 million in the first quarter of fiscal 2008 were comparable to corporate expenses of $4.5 million (excluding a gain on the sale of excess land in the prior year) incurred in the first quarter of fiscal 2007.

Other operating income represents gains or losses on the sale of assets.  DuringNo significant gains or losses on asset sales were recognized in the first quarter of fiscal 2007, we recorded2008.  We recognized a gain of approximately $1.1 million associated with the sale of excess land connected to our corporate offices.  We alsooffices in the first quarter of fiscal 2007.  

Restructuring Costs

In first quarter of fiscal 2007, we incurred restructuring charges of $106,000, in the first quarter ended September 30, 2006, largely in connection with the consolidation of manufacturing activities into Ohio for our Engineered Products Group.  No charges were recorded in the first quarter of fiscal 2008.  

Discontinued Operations

IncomeAs more fully discussed in our Annual Report on Form 10-K for the year ended June 30, 2007, we are accounting for three former businesses (USECO, Standard Publishing and Berean Christian Stores) as discontinued operations.

In the first quarter of 2007, we recorded operating losses related to these businesses of $252,000 (net of $157,000 in taxes) and gains on the disposals of the Standard Publishing and Berean Christian Stores businesses totaling $6.4 million (net of $3.9 million in taxes).  Substantially all of the assets of the Standard Publishing and Berean Christian Stores businesses were sold in July 2006 and August 2006, respectively.  Accordingly, we reported income from Operationsdiscontinued operations of approximately $6.1 million (net of taxes) in the first quarter of fiscal 2007.  

ForIn the first quarter of 2008, we sold certain land, buildings and improvements related to the Standard Publishing business for $1.7 million cash and realized a gain on disposal of approximately $605,000 (net of taxes of $302,000).  The gain on disposal was reported in discontinued operations.

Liquidity and Capital Resources

Cash Flows – Three Months Ended September 30, 2007

Operating activities from continuing operations during the three months ended September 30, 2006, income from operations was consistent with that noted in the same period one year earlier, decreasing slightly by $236,000, a 2.3% change.  Improvements in income from operations occurred in the Hydraulics, Engraving and Engineered Products Groups, but these were offset by decreases in the Food Service Equipment and ADP Groups.  A detailed explanation by segment follows.  

Income Taxes

Our effective income tax rate for the three months ended September 30, 2006 was 34.5%, a slight decrease from 34.8% in the same period in fiscal 2006.  This change is more fully explained in the Notes to Condensed Consolidated Financial Statements.  

Backlog

For the period ended September 30, 2006, backlog increased $4.72007 generated $13.2 million a 5.0% increase from the same period one year earlier.  All segments except the ADP and Engineered Products Groups reported higher backlog for the current year first quarter.  The most significant improvement came in our Engraving Products Group, whose backlog increased by more than $5 million, or over 50%, when compared to the same period one year earlier.  This positive improvement was offset by the decrease in backlog in the Hydraulics Products Group.  Sales within the Hydraulics segment are expected to be impacted negatively in the near term by the changes being made to Class VIII trucks to lower emissions standards.  

Segment Analysis

Net Sales

The following table presents net sales by business segment (in thousands):

Food Service Equipment Group

Net sales for the Group were largely unchanged, decreasing $120,000, or less than 1.0%, when compared to the same period one year earlier.  The Kool Star acquisition added $1.9 million, while the effects of foreign exchange rates on sales added an additional $300,000.  When removing the effect of acquisitions and foreign exchange, sales decreased $2.3 million when compared to the same period one year earlier.  In the first quarter of fiscal 2006, sales benefited from the completion of several large rollouts with national accounts in the U.S. and the U.K. affecting our Master-Bilt walk-in coolers and freezers and our BKI branded products.  This business did not repeat in fiscal 2007.  Demand for refrigerated cabinets and walk-in coolers and freezers across the various brands remained strong, especially cabinets in our scientific line of products.  In addition, the sales performance in our pump business improved.  With co ntinued improvements in production output in our manufacturing facility in Mexico, our pump business has been able to reduce some of its backlog which had grown during the relocation of the manufacturing activities in fiscal 2006.  

Air Distribution Products Group

Sales decreased $5.6 million, or 15.9%, from the first quarter of fiscal 2006.  We believe the decrease is attributable to a slowdown in new home construction in the principal markets served by ADP.  Residential housing starts in the U.S. have decreased over 19% while new residential building permits have decreased over 27% according to the U.S. Census Bureau for the quarter ended September 30, 2006.  ADP is pursuing opportunities to capture market share in areas not principally served by us in the past.  This includes pursuing additional big box retail locations for distribution of our products and seeking further geographical penetration with several national wholesalers, leveraging our nationwide manufacturing capabilities.  Current outlooks indicate that lower housing starts will continue.  

Hydraulics Products Group

Sales increased $294,000, or 3.0%, from the first quarter of fiscal 2006.  This increase is attributable to the continued strength in the U.S. truck market.  Recent indicators, including backlog for this segment, have pointed to a slow down in the dump truck and trailer industry.  Effective January 1, 2007, new Federal regulations requiring the reduction in emissions of Class VIII heavy trucks will be enacted.  These regulations will require changes to existing diesel engine technology used in heavy trucks that will result in higher fuel consumption and a higher purchase cost.  We expect these regulations will result in a decrease to sales for this segment in calendar 2007.  

Engraving Group

Net sales of the Engraving Group increased by $2.4 million, or 12.3%, when compared to the first quarter of fiscal 2006.  This increase is attributable to several factors, the largest of which is the effect of the acquisition of Innovent. The improvement is also attributable to the increased sales performance within the Group's mold texturization products, both in the United States and in the international markets served by this Group. Many automotive customers are revamping existing models and introducing new models to combat the soft auto demand.  Each revamp and new model results in mold texturization business for the Group. Net sales across many of the Group’s core product offerings, including rolls and plate engraving, and embossing equipment businesses were up as well when compared to the same period in fiscal 2006.   

Engineered Products Group

Net sales of the Engineered Products Group increased $2.7 million, or 13.8%, when compared to the same period one year earlier.  Our metal spinning businesses accounted for 71% of the sales growth, benefiting from strong demand in the aviation industry while strong demand for our products within the energy industry continued.  Our electronics businesses accounted for the remainder of the increased sales, attributable to strong demand in sensors for appliances and the effect of price increases implemented to offset the cost of raw materials.  

Income from Operations

The following table presents income from operations by business segment (in thousands):

Food Service Equipment Group

Income from operations for the quarter ended September 30, 2006 decreased $2.7 million, or 35.0% when compared to the same period one year earlier.  This decrease is largely attributable to the performance of our Master-Bilt and BKI brands.  Our Master-Bilt branded refrigerated cabinets and walk-in coolers experienced sales declines during the current quarter as discussed above.  In response to the decreased sales, we took several steps to help control costs including reducing headcount and an intentional reduction in inventory production resulting in lower absorption of factory overhead costs.  These steps, in particular the reduction in inventory production and resulting lower absorption, resulted in lower margins.  We believe that the reduction in sales volume is short term and sales will improve over the next several quarters.  Further, with the corrections made to production levels, inventory levels have been reduced po sitioning the factory to maintain more normal production output levels to meet the expected sales volume.  Our BKI brand’s operating income declined as well with the decrease in sales volume, a change in sales mix to lower margin items and one-time costs associated with several management position transitions all adding to the decrease during the quarter.  These decreases offset the positive performance of our Nor-Lake brands during the quarter.  With increased sales to key national accounts and buying groups coupled with a positive shift in sales mix to more profitable products, Nor-Lake increased operating income in the quarter.   

Air Distribution Products Group

Income from operations of the ADP Group decreased $832,000, or 27.6% when compared with the same quarter of last year.  With sales declines discussed above of $5.6 million, ADP successfully maintained gross margins and took several cost saving steps including headcount reductions to offset the decline in sales and maintain gross margins.    

Engraving Group

Income from operations increased $868,000, or 44.8%, when compared to the same quarter in the prior year.  A combination of the Innovent acquisition and the use of technologies in the manufacturing process in our mold texturization businesses contributed to this improved performance.  Our Engraving Group has focused on leveraging its sales infrastructure to help the Innovent branded products increase their market share in developing countries.  We believe that the growth for Innovent’s products will largely come from developing countries in the future.  In addition to the growth in new markets, many of the Engraving Group’s businesses have engineered solutions for their customers, often providing savings opportunities in materials as well as using technology to present solutions.  This strength in engineering capabilities positions our Engraving Group to create opportunities for growth in the future.

Hydraulics Products Group

Income from operations increased $273,000, or 18.5% when compared to the same period one year earlier.  The combination of increased sales, high production levels and improved materials costs all contributed to the improvement.  With the volume of business the Hydraulics Products Group has experienced in the last twelve months, the production has increased, resulting in higher absorption of overhead costs.  This business has also benefited from some material price improvements in steel tubing when compared to the same period one year earlier.

Engineered Products Group

Income from operations was largely unchanged from the same period one year earlier, reporting a $78,000 increase, or 4.1%.  In the prior year, one of our metal spinning businesses received a one-time price adjustment which resulted in an additional $235,000 in operating income in the prior year.  Removing this adjustment, income from operations increased more than 18%.  The improved performance is largely attributable to the performance of our metal spinning businesses, whose sales increases were discussed above.  Despite the overall improvements, performance was negatively impacted by sales mix changes between energy-related and aerospace customers resulting in lower margins.  Our electronics business experienced additional overhead costs during the quarter, resulting in flat income from operations despite the growth in sales.  This business opened a new manufacturing facility in China, which is ahead of our plan in terms o f cost recovery.  We expected the facility to break even after approximately six months of operation, but it reached breakeven in half that time.  With operations in North America, Europe and now China, our electronics business is more capable of serving our multi-national accounts worldwide.  

Corporate and Other Operating Expenses

Corporate and other operating expenses decreased $2.0 million, or 36.7%, when compared to the same period one year earlier.  Included in the current year performance is a gain on the disposition of excess corporate land of $1.1 million.  Excluding the gain, expenses decreased $864,000, or 16%.  A combination of decreased pension costs, decreases in stock-based compensation and a decrease in professional fees all contributed to the decline.    

Discontinued Operations

The results from discontinued operations during the quarter include the gains recognized upon the completion of the sales of the Standard Publishing and the Berean Christian Stores businesses.  As previously discussed, these businesses no longer strategically fit with our other operating segments, providing us no opportunities to leverage cost structures or achieve any synergies.  We also determined that our capital resources could be better allocated among those businesses in our other operating segments that offered us opportunities for growth.  In July 2006, we sold substantially all the assets of the Standard Publishing business in an all cash deal.  We recognized a pre-tax gain of $10.1 million in this transaction.  In August 2006, we sold substantially all the assets of the Berean Christian Stores business in an all cash deal resulting in the recognition of a pre-tax gain of $200,000.  In connection with Berean, we wer e party under a number of operating leases for existing stores and one closed store.  The store leases in this transaction were assigned to the purchaser of the business for the remaining initial terms of the lease at the stated lease costs.  For the one closed location, we recognized a liability of $285,000 representing the difference between the expected sub-lease rental income and the rental costs.  

In March 2006, we entered into a plan to dispose of certain assets of our USECO product lines.  USECO, which was part of our Food Service Equipment Group, manufactures and sells rethermalization systems for meal deliveries to institutions, including governmental institutions, and under sink food disposals.  We have determined that the product lines of USECO do not strategically fit with the other products offered by the Food Service Equipment Group.  We also determined that the markets that this business serves are not growing.  We continue to actively market the businesses and have committed to a plan to sell the businesses of USECO.  Subsequent to the end of the quarter, we completed the sale of a portion of USECO.  We expect to recognize a gain on this transaction of approximately $250,000 in the second quarter of fiscal 2007.

MATERIAL CHANGES IN FINANCIAL CONDITION

Cash Flows

Three Months Ended September 30, 2006

For the three months ended September 30, 2006, operating activities from continuing operations used $149,000 in cash, as compared to the generationuse of $978,000$149,000 in cash for the same period one year earlier.last year.  The use ofincrease in cash flow is primarily attributable to several factors.improved working capital management.  Net working capital levels for continuing operations (defined as accounts receivable plus inventories less accounts payable) increased $8.2 million when compared period over period, taxes paid increased more than $3 million when compared period over period and accrued expenses decreased over $4.6$2.1 million in the three month period,months ended September 30, 2007 compared to an $8.2 million increase in the three months ended September 30, 2006.  Investing activities from continuing operations provided $4.6 million in cash during the three months ended September 30, 2007 due primarily due to the timingsale and leaseback of payments.  Discontinuedcertain land and improvements by Standex Air Distribution Products, Inc. (ADP), one of our subsidiaries. &n bsp;Investing activities from discontinued operations used $5.8generated net cash of $1.6 million from operating activities, while the completion of the sale of certain land, buildings and improvements related to our former Standard Publishing business.  

We used the Consumer Products Group provided $29.9positive cash flows from our operating and investing activities to reduce debt by $13.5 million, in proceeds.  In addition, the sale of assets generated an additional $1.3 million in proceeds.  These funds were used to fund capital expenditures of $2.2$2.7 million p ayand pay dividends of $2.6 million in the three months ended September 30, 2007.  Discontinued operations generated $24.1 million of net cash flow from operating and pay down debt by $22.1 million.investing activities in the three months ended September 30, 2006 due to the sales of the Standard Publishing and the Berean Christian Stores businesses.  

Liquidity and Capital Resources

Our primary cash requirements include working capital, interest and mandatory debt payments, capital expenditures, operating lease payments, pension plan contributions and dividends.  We expect to spend between $7 million and $10 million on capital expenditures in fiscal 2007.  The Company expects that depreciation will be approximately $13 million for fiscal year 2007.  The primary sources of cash for each of the Company’s requirements are cash flows from continuing operations and borrowings under ourhave a revolving credit facility.

In addition, we anticipate that any cash needed for future acquisition opportunities would be obtained from borrowings underagreement with a group of banks.  The agreement provides us with the ability to borrow up to $150 million at competitive interest rates and the option to increase the facility up to $225 million.  The revolving credit facility contains customary affirmative and negative covenants.  Among other restrictions, they require that we meet specified financial tests, including minimum net worth levels and minimum interest coverage and leverage ratios.  The covenants also limit, but do not preclude, our ability to incur additional debt, merge with other entities, create or other sources of liquidity availablebecome subject to us.  We have available borrowing capacity of up to $91.0 million as of September 30, 2006 under the revolving credit facility.