UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended | Commission File Number 1-7233 |
STANDEX INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE |
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| 31-0596149 |
(State of incorporation) |
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| (IRS 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. 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 February 6,October 30, 2007 was 12,442,640.
STANDEX INTERNATIONAL CORPORATION
I N D E X12,497,237.
STANDEX INTERNATIONAL CORPORATION
INDEX
Page No.
PART I.
FINANCIAL INFORMATION:
Item 1.
CondensedStatements of Consolidated Income for the Three and
Six Months Ended December 31, 2006 and 2005 (Unaudited)
2
Unaudited Condensed Consolidated Balance Sheets December 31, 2006for
September 30, 2007 and
June 30, 2007
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Unaudited CondensedConsolidatedStatements of Income for the
Three Months Ended September 30, 2007 and 2006 (Unaudited)
3
Unaudited Condensed Consolidated Statements of Consolidated Cash Flows for the
SixThree Months Ended December 31,September 30, 2007 and 2006 and 2005 (Unaudited)
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Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)
5
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
1412
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
2220
Item 4.
Controls and Procedures
2421
PART II.
OTHER INFORMATION:
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
2422
Item 4.
Submission of Matters to a Vote of Security Holders
25
Item 6.
Exhibits
2522
PART I. FINANCIAL INFORMATION | ||||
ITEM 1 | ||||
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STANDEX INTERNATIONAL CORPORATION | ||||
Condensed Statements of Consolidated Income | ||||
(In thousands, except per share data) | ||||
(Unaudited) | ||||
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Net sales | $ 139,268 | $138,170 | $ 288,758 | $ 288,051 |
Cost of sales | (100,799) | (98,330) | (207,232) | (205,354) |
Gross profit | 38,469 | 39,840 | 81,526 | 82,697 |
Selling, general and administrative expenses | (30,334) | (31,563) | (64,212) | (63,817) |
Other operating income/(expense) | (42) | 669 | 1,071 | 662 |
Restructuring | (184) | (614) | (290) | (788) |
Total operating expenses | (30,560) | (31,508) | (63,431) | (63,943) |
Income from operations | 7,909 | 8,332 | 18,095 | 18,754 |
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Interest expense | (1,548) | (1,719) | (3,370) | (3,652) |
Other non-operating income/(expense), net | 11 | (72) | 792 | 610 |
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Income from continuing operations before income taxes | 6,372 | 6,541 | 15,517 | 15,712 |
Provision for income taxes | (1,602) | (2,225) | (4,758) | (5,423) |
Income from continuing operations | 4,770 | 4,316 | 10,759 | 10,289 |
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Income from discontinued operations, net of taxes | 48 | 1,046 | 6,190 | 502 |
Net income | $ 4,818 | $ 5,362 | $ 16,949 | $ 10,791 |
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Basic earnings per share: |
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Continuing operations | $0.39 | $0.35 | $ 0.88 | $0.84 |
Discontinued operations | 0.01 | 0.09 | 0.51 | 0.04 |
Total | $0.40 | $0.44 | $1.39 | $0.88 |
Diluted earnings per share: |
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Continuing operations | $0.38 | $0.34 | $0.86 | $0.82 |
Discontinued operations | 0.00 | 0.09 | 0.50 | 0.04 |
Total | $0.38 | $0.43 | $1.36 | $0.86 |
Cash dividends per share | $0.21 | $0.21 | $0.42 | $0.42 |
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See notes to condensed consolidated financial statements. |
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STANDEX INTERNATIONAL CORPORATION | ||
Condensed Consolidated Balance Sheets | ||
(In thousands) | ||
(Unaudited) | ||
| December 31, | June 30, |
| 2006 | 2006 |
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ 31,108 | $ 32,590 |
Receivables, net | 79,631 | 92,798 |
Inventories, net | 85,448 | 75,751 |
Prepaid expenses and other current assets | 2,187 | 3,392 |
Deferred tax asset | 13,366 | 14,479 |
Current assets - discontinued operations | 395 | 24,039 |
Total current assets | 212,135 | 243,049 |
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Property, plant and equipment | 217,060 | 210,553 |
Less accumulated depreciation | (120,414) | (113,481) |
Property, plant and equipment, net | 96,646 | 97,072 |
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Other assets: |
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Prepaid pension cost | 31,463 | 30,639 |
Goodwill, net | 73,068 | 73,272 |
Non-current assets – discontinued operations | 68 | 5,659 |
Other non-current assets | 29,782 | 28,982 |
Total non-current assets | 231,027 | 235,624 |
Total assets | $ 443,162 | $ 478,673 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Short-term borrowings and current portion of long-term debt | $ 4,229 | $ 3,873 |
Accounts payable | 47,643 | 54,534 |
Income taxes | 5,051 | 4,125 |
Accrued expenses | 40,051 | 42,547 |
Current liabilities – discontinued operations | 641 | 10,731 |
Total current liabilities | 97,615 | 115,810 |
Long-term debt (less current portion included above) | 85,158 | 113,729 |
Deferred pension and other liabilities | 48,692 | 48,333 |
Non-current liabilities – discontinued operations | -- | 506 |
Stockholders' equity: |
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Common stock | 41,976 | 41,976 |
Additional paid-in capital | 25,169 | 25,572 |
Retained earnings | 427,021 | 415,205 |
Accumulated other comprehensive loss | (20,642) | (21,000) |
Treasury shares | (261,827) | (261,458) |
Total stockholders' equity | 211,697 | 200,295 |
Total liabilities and stockholders’ equity | $ 443,162 | $ 478,673 |
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See notes to condensed consolidated financial statements. |
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PART I. FINANCIAL INFORMATION |
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ITEM 1. |
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STANDEX INTERNATIONAL CORPORATION |
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Unaudited Condensed Consolidated Balance Sheets |
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| September 30, |
| June 30, |
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(In thousands) | 2007 |
| 2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents | $ 26,259 |
| $ 24,057 |
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Accounts receivable | 106,097 |
| 106,116 |
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Inventories | 93,985 |
| 91,301 |
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Prepaid expenses and other current assets | 5,195 |
| 3,762 |
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Deferred tax asset | 12,592 |
| 11,093 |
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Total current assets | 244,128 |
| 236,329 |
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Property, plant and equipment | 117,569 |
| 122,315 |
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Goodwill | 120,104 |
| 118,911 |
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Intangible assets | 30,024 |
| 31,228 |
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Prepaid pension cost | 13,094 |
| 8,256 |
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Other non-current assets | 23,536 |
| 22,861 |
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Total non-current assets | 304,327 |
| 303,571 |
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Total assets | $ 548,455 |
| $ 539,900 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Current portion of long-term debt | $ 3,665 |
| $ 4,162 |
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Accounts payable | 70,749 |
| 65,977 |
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Accrued expenses | 49,374 |
| 49,370 |
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Current liabilities - discontinued operations | 819 |
| 821 |
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Total current liabilities | 124,607 |
| 120,330 |
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Long-term debt - less current portion | 151,157 |
| 164,158 |
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Accrued pension and other non-current liabilities | 50,835 |
| 50,981 |
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Total non-current liabilities | 201,992 |
| 215,139 |
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Stockholders' equity: |
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Common stock | 41,976 |
| 41,976 |
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Additional paid-in capital | 25,685 |
| 25,268 |
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Retained earnings | 428,591 |
| 426,171 |
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Accumulated other comprehensive loss | (12,219) |
| (26,533) |
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Treasury shares | (262,177) |
| (262,451) |
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Total stockholders' equity | 221,856 |
| 204,431 |
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Total liabilities and stockholders' equity | $ 548,455 |
| $ 539,900 |
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See notes to unaudited condensed consolidated financial statements. |
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2
STANDEX INTERNATIONAL CORPORATION | |||
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Unaudited Condensed Consolidated Statements of Income | |||
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| Three Months Ended September 30, | ||
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(In thousands, except per share data) | 2007 |
| 2006 |
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Net sales | $ 175,520 |
| $ 149,490 |
Cost of sales | 125,925 |
| 106,433 |
Gross profit | 49,595 |
| 43,057 |
Selling, general and administrative expenses | 38,829 |
| 33,878 |
Other operating income | (80) |
| (1,113) |
Restructuring costs | - |
| 106 |
Total operating expenses | 38,749 |
| 32,871 |
Income from operations | 10,846 |
| 10,186 |
Interest expense | (2,675) |
| (1,822) |
Other non-operating income | 153 |
| 781 |
Income from continuing operations before income taxes | 8,324 |
| 9,145 |
Provision for income taxes | 3,008 |
| 3,156 |
Income from continuing operations | 5,316 |
| 5,989 |
Income from discontinued operations, net of income taxes | 605 |
| 6,142 |
Net income | $ 5,921 |
| $ 12,131 |
Basic earnings per share: |
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Continuing operations | $ 0.43 |
| $ 0.49 |
Discontinued operations | 0.05 |
| 0.50 |
Total | $ 0.48 |
| $ 0.99 |
Diluted earnings per share: |
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Continuing operations | $ 0.43 |
| $ 0.48 |
Discontinued operations | 0.05 |
| 0.50 |
Total | $ 0.48 |
| $ 0.98 |
Cash dividends per share | $ 0.21 |
| $ 0.21 |
See notes to unaudited condensed consolidated financial statements. |
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STANDEX INTERNATIONAL CORPORATION | ||
Condensed Statements of Consolidated Cash Flows | ||
(In thousands) | ||
(Unaudited) | ||
| Six Months Ended | |
| December 31, | |
| 2006 | 2005 |
Cash flows from operating activities |
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Net income | $ 16,949 | $ 10,791 |
Income from discontinued operations | 6,190 | 502 |
Income from continuing operations | 10,759 | 10,289 |
Adjustments to reconcile net income to net cash provided by/(used for) operating activities net of assets and liabilities acquired: |
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Gain from sale of assets | (1,071) | (662) |
Equity based compensation | 1,025 | 1,050 |
Depreciation and amortization | 6,320 | 4,995 |
Contributions to defined benefit plans | (3,444) | (3,441) |
Non-cash portion of restructuring charge | 130 | 212 |
Net changes in operating assets and liabilities | (1,418) | (4,982) |
Net cash provided by operating activities from continuing operations | 12,301 | 7,461 |
Net cash provided by/(used for) operating activities from discontinued operations | (7,129) | 1,198 |
Net cash provided by operating activities | 5,172 | 8,659 |
Cash flows from investing activities |
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Expenditures for property and equipment | (4,242) | (9,620) |
Expenditures for acquisitions | -- | (17,075) |
Proceeds from sale of assets | 1,327 | 3,484 |
Net cash (used for) investing activities from continuing operations | (2,915) | (23,211) |
Net cash provided by/(used for) investing activities from discontinued operations | 31,064 | (601) |
Net cash provided by/(used for) investing activities | 28,149 | (23,812) |
Cash flows from financing activities |
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Proceeds from additional borrowings | -- | 99,499 |
Repayments of debt | (28,216) | (79,143) |
Debt issuance costs | -- | (450) |
Cash dividends paid | (5,133) | (5,186) |
Stock repurchased under employee stock option & purchase plans | (2,770) | (604) |
Stock issued under employee stock option & purchase plans | 972 | 441 |
Other, net | -- | 138 |
Net cash provided by/(used for) financing activities from continuing operations | (35,147) | 14,695 |
Net cash provided by/(used for) financing activities from discontinued operations | -- | -- |
Net cash provided by/(used for) financing activities | (35,147) | 14,695 |
Effect of exchange rate changes on cash | 344 | (112) |
Net change in cash and cash equivalents | (1,482) | (570) |
Cash and cash equivalents at beginning of year | 32,590 | 23,691 |
Cash and cash equivalents at end of period | $ 31,108 | $ 23,121 |
Supplemental disclosure of cash flow information: |
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Cash paid during the six months for: |
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Interest | $3,428 | $3,622 |
Income taxes | $7,229 | $4,122 |
See notes to condensed consolidated financial statements. |
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3
STANDEX INTERNATIONAL CORPORATION | |||
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Unaudited Condensed Consolidated Statements of Cash Flows | |||
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| Three Months Ended September 30, | ||
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(In thousands) | 2007 |
| 2006 |
Cash flows from operating activities |
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Net income | $ 5,921 |
| $ 12,131 |
Income from discontinued operations | 605 |
| 6,142 |
Income from continuing operations | 5,316 |
| 5,989 |
Adjustments to reconcile net income to net cash provided by |
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operating activities: |
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Depreciation and amortization | 4,248 |
| 3,255 |
Stock-based compensation | 405 |
| 701 |
Gain from sale of investments, real estate and equipment | (80) |
| (1,113) |
Net changes in operating assets and liabilities | 3,358 |
| (8,981) |
Net cash provided by (used in) operating activities - |
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continuing operations | 13,247 |
| (149) |
Net cash (used in) operating activities - |
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discontinued operations | (2) |
| (5,801) |
Net cash provided by (used in) operating activities | 13,245 |
| (5,950) |
Cash flows from investing activities |
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Expenditures for property, plant and equipment | (2,730) |
| (2,170) |
Proceeds from sale-leaseback transaction | 7,239 |
| - |
Proceeds from sale of investments, real estate and equipment | 142 |
| 1,315 |
Net cash provided by (used in) investing activities - |
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continuing operations | 4,651 |
| (855) |
Net cash provided by investing activities - |
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discontinued operations | 1,574 |
| 29,864 |
Net cash provided by investing activities | 6,225 |
| 29,009 |
Cash flows from financing activities |
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Payments of debt | (13,498) |
| (22,083) |
Stock issued under employee stock option and purchase plans | 527 |
| 1,776 |
Stock repurchased under employee stock option and purchase plans | (252) |
| (1,862) |
Debt issuance costs | (281) |
| - |
Cash dividend paid | (2,573) |
| (2,562) |
Net cash (used in) financing activities - |
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continuing operations | (16,077) |
| (24,731) |
Net cash (used in) financing activities | (16,077) |
| (24,731) |
Effect of exchange rate changes on cash and cash equivalents | (1,191) |
| (70) |
Net change in cash and cash equivalents | 2,202 |
| (1,742) |
Cash and cash equivalents at beginning of year | 24,057 |
| 32,590 |
Cash and cash equivalents at end of period | $ 26,259 |
| $ 30,848 |
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Cash paid during the period for: |
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Interest | $ 2,402 |
| $ 916 |
Income taxes | $ 592 |
| $ 3,505 |
See notes to unaudited condensed consolidated financial statements. |
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STANDEX INTERNATIONAL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1)
(Unaudited)
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 and comprehensive income for the three months ended September 30, 2007 and six months ended December 31, 2006, and 2005, the cash flows for the sixthree months ended December 31,September 30, 2007 and 2006 and 2005 and the financial position of the Company at December 31, 2006.September 30, 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 gene rallygenerally 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 the balance sheet 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
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. During the second quarter of fiscal 2007, we were able to complete the sale of the under-sink food disposals product line resulting in a gain on the sale of a portion of USECO business of approximately $541,000 offset by losses from the USECO operations. We continue to actively market the remaining business of USECO.
In addition to the gain recognized on the sale of the under-sink food disposals product line the results from discontinued operations during the six months ended December 31, 2006 include the gains recognized upon the completion of the sales of the Standard Publishing and the Berean Christian Stores. Standard Publishing and Berean Christian Stores were formerly part of the Consumer Products Group. As discussed in our 10-K for the year ended June 30, 2006, during the quarter ended March 31, 2006, we announced our plan to sell the businesses in our Consumer Products Group. The businesses within the Consumer Products Group were determined not to fit strategically with our other operating segments as these businesses have few synergies to leverage across the other segments. We also determined that our capital resources could be better allocated among those businesses in our other operating segments th at 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 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. We recognized a liability of $285,000 representing the difference between the expected sub-lease rental income and the rental costs for the store closed in connection with this sale.
The following summarizes the activities associated with discontinued operations (in thousands):
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Net sales | $ 468 | $29,181 | $ 4,516 | $49,680 |
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Loss from discontinued operations | (758) | 1,819 | (1,167) | 968 |
Provision for income taxes | 265 | (773) | 422 | (466) |
Gain on disposal, net of tax of $(17) and $0 three months and $3,935 and $0 six months | 541 | -- | 6,935 | -- |
Income from discontinued operations, net of taxes | $ 48 | $ 1,046 | $ 6,190 | $ 502 |
The major classes of discontinued assets and liabilities included in the Consolidated Balance Sheets are as follows (in thousands):
| December 31, | June 30, |
| 2006 | 2006 |
Assets: |
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Accounts receivable, net | $ 369 | $ 6,512 |
Inventories, net | 26 | 15,968 |
Prepaid expenses and other current assets | -- | 1,559 |
Total current assets | 395 | 24,039 |
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Property, plant and equipment, net | 68 | 3,593 |
Other non-current assets | -- | 495 |
Goodwill | -- | 1,571 |
Total non-current assets | 68 | 5,659 |
Total assets of discontinued operations | $ 463 | $29,698 |
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Liabilities: |
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Accounts payable | $ 268 | $ 8,208 |
Accrued payroll and benefits | 373 | 2,523 |
Total current liabilities | 641 | 10,731 |
Non-current liabilities | -- | 506 |
Total liabilities of discontinued operations | $ 641 | $11,237 |
4.
Goodwill
Changes to goodwill during the six months ended December 31, 2006 were as follows (in thousands):
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During the six months ended December 31, 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.
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 December 31, 2006 and June 30, 2006 are comprised of the following (in thousands):
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| December 31, | June 30, |
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| 2006 | 2006 |
| Raw materials | $42,581 | $35,184 |
| Work in process | 21,166 | 20,352 |
| Finished goods | 21,701 | 20,215 |
| Total | $85,448 | $75,751 |
| September 30, |
| June 30, |
| 2007 |
| 2007 |
Raw materials | $ 44,974 |
| $ 44,073 |
Work in process | 24,512 |
| 23,112 |
Finished goods | 24,499 |
| 24,116 |
Total | $ 93,985 |
| $ 91,301 |
|
|
|
|
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-three months ended September 30, 2007 and six-month periods2006, respectively.
3)
Goodwill
Changes to goodwill during the three months ended December 31, 2006 and 2005:
| 2006 | 2005 |
Quarter | $6,158 | $6,456 |
Year-to-date | $13,016 | $13,360 |
6.
Debt
Debt is comprised of the following (in thousands):
|
| December 31, | June 30, |
|
| 2006 | 2006 |
| Bank credit agreements | $39,000 | $ 64,000 |
| Institutional investors – note purchase agreements |
|
|
| 5.94% to 6.80% (due 2007-2013) | 46,429 | 50,000 |
| Other 3.62% to 7.25% (due 2007-2019) | 3,958 | 3,602 |
| Total | 89,387 | 117,602 |
| Less current portion | (4,229) | (3,873) |
| Total long-term debt | $85,158 | $113,729 |
The Company has a five 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 at December 31, 2006 was 6.075%. Borrowings under the agreement are not collateralized. As of December 31, 2006, the Company had the ability to borrow an additional $110.0 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 December 31, 2006, the Company was in compliance with all debt covenants.
Debt is due as follows (in thousands):
2007 | $ 658 |
2008 | 3,571 |
2009 | 28,571 |
2010 | 42,571 |
2011 | 3,571 |
Thereafter | 10,445 |
7.
Retirement Benefits
In the fiscal year ended JuneSeptember 30, 2006, 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- and six-month periods ending December 31, 2006 and 20052007 were as follows (in thousands):
U.S. Plans:
| Pension Benefits | Other Post Retirement Benefits | ||||||
| Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | ||||
| December 31, | December 31, | December 31, | December 31, | ||||
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 |
Service cost | $ 1,101 | $ 1,347 | $ 2,202 | $ 2,694 | $ 5 | $ 5 | $ 11 | $ 10 |
Interest cost | 3,065 | 2,962 | 6,130 | 5,924 | 32 | 34 | 64 | 68 |
Expected return on plan assets | (4,067) | (4,050) | (8,134) | (8,100) | -- | -- | -- | -- |
Amortization of prior service costs | 43 | 1 | 86 | 122 | -- | -- | -- | -- |
Curtailment | -- | -- | 334 | -- | -- | -- | -- | -- |
Recognized actuarial loss | 1,011 | 61 | 2,022 | 2,292 | (14) | (11) | (28) | (22) |
Amortization of transition (asset)/obligation | 1 | 1,146 | 2 | 2 | 56 | 56 | 113 | 112 |
Net periodic benefit cost | $ 1,154 | $ 1,467 | $ 2,642 | $ 2,934 | $ 79 | $ 84 | $160 | $168 |
| Food Service Equipment Group |
| Air Distribution Products Group |
| Engraving Group |
| Engineered Products Group |
| Total |
Balance at June 30, 2007 | $ 63,235 |
| $ 14,934 |
| $ 18,987 |
| $ 21,755 |
| $ 118,911 |
Translation adjustment | 2 |
| - |
| 113 |
| 1,078 |
| 1,193 |
Balance at September 30, 2007 | $ 63,237 |
| $ 14,934 |
| $ 19,100 |
| $ 22,833 |
| $ 120,104 |
|
|
|
|
|
|
|
|
|
|
Foreign Plans:
| Pension Benefits | |||
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Service cost | $ 45 | $ 218 | $90 | $ 436 |
Interest cost | 458 | 406 | 916 | 812 |
Expected return on plan assets | (375) | (313) | (750) | (626) |
Amortization of prior service costs | 217 | (13) | 434 | (26) |
Recognized actuarial loss | 7 | 166 | 14 | 332 |
Net periodic benefit cost | $ 352 | $ 464 | $ 704 | $ 928 |
4)
Intangible Assets
Changes to intangible assets during the three months ended September 30, 2007 were as follows (in thousands):
| Customer Relationships |
| Trademarks |
| Other |
| Total |
Balance at June 30, 2007 | $ 17,224 |
| $ 12,095 |
| $ 1,909 |
| $ 31,228 |
Amortization expense | (943) |
| - |
| (264) |
| (1,207) |
Translation adjustment | 3 |
| - |
| - |
| 3 |
Balance at September 30, 2007 | $ 16,284 |
| $ 12,095 |
| $ 1,645 |
| $ 30,024 |
|
|
|
|
|
|
|
|
Accumulated Amortization Expense | $ 4,104 |
| $ - |
| $ 4,522 |
| $ 8,626 |
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):
Fiscal Year |
|
|
2008 |
| $ 3,665 |
2009 |
| 28,571 |
2010 |
| 3,571 |
2011 |
| 3,571 |
2012 |
| 3,571 |
Thereafter |
| 111,873 |
|
| $154,822 |
|
|
|
The sixCompany 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:
| Before Application |
|
|
| After Application |
| of SFAS 158 |
|
|
| of SFAS 158 |
| Measurment |
| Effect of |
| Measurment |
(In thousands) | Date Provision |
| Adoption |
| Date Provision |
|
|
|
|
|
|
Prepaid pensions asset | $ 8,256 |
| $ 5,041 |
| $ 13,297 |
Non-current liability for post-retirement |
|
|
|
| - |
benefits | 19,463 |
| (10,926) |
| 8,537 |
Deferred tax assets | 23,694 |
| (5,838) |
| 17,856 |
Accumulated other comprehensive income |
|
|
|
| - |
(loss) | 41,218 |
| (11,056) |
| 30,162 |
Retained earnings | 426,171 |
| (927) |
| 425,244 |
Total stockholders' equity | 204,431 |
| 10,129 |
| 214,560 |
Net Periodic Benefit Cost for the three months includesended September 30, 2007 and 2006 included the following components:
| Pension Benefits | ||||||
| U.S. Plans |
| Non-U.S. Plans | ||||
| Three Months Ended |
| Three Months Ended | ||||
| September 30, |
| September 30, | ||||
(In thousands) | 2007 |
| 2006 |
| 2007 |
| 2006 |
|
|
|
|
|
|
|
|
Service cost | $ 788 |
| $ 1,101 |
| $ 41 |
| $ 45 |
Interest cost | 3,076 |
| 3,065 |
| 506 |
| 458 |
Expected return on plan assets | (4,193) |
| (4,067) |
| (508) |
| (375) |
Recognized net actuarial loss | 549 |
| 1,011 |
| 163 |
| 7 |
Amortization of prior service cost | 49 |
| 43 |
| (15) |
| 217 |
Amortization of transition |
|
|
|
|
|
|
|
obligation (asset) | 1 |
| 1 |
| - |
| - |
Curtailment | - |
| 334 |
| - |
| - |
Net periodic benefit cost | $ 270 |
| $ 1,488 |
| $ 187 |
| $ 352 |
|
|
|
|
|
|
|
|
| Other Post-Retirement Benefits |
| ||
| U.S. Plans |
| ||
| Three Months Ended |
| ||
| September 30, |
| ||
(In thousands) | 2007 |
| 2006 |
|
|
|
|
|
|
Service cost | $ 3 |
| $ 6 |
|
Interest cost | 31 |
| 32 |
|
Expected return on plan assets | - |
| - |
|
Recognized net actuarial loss | (23) |
| (14) |
|
Amortization of prior service cost | - |
| - |
|
Amortization of transition obligation (asset) | 56 |
| 56 |
|
Curtailment | - |
| - |
|
Net periodic benefit cost | $ 67 |
| $ 80 |
|
|
|
|
|
|
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 curtailment chargedecrease 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 $334,000 recordedJuly 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 year.
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 six months of fiscal 2007 were approximately $3.4 million. 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:
Years Ending | |
Country | June 30, |
United States | 2004 to 2007 |
Canada | 2003 to 2007 |
Ireland | 2003 to 2007 |
Portugal | 2003 to 2007 |
United Kingdom | 2006 to 2007 |
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)
8.
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:
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Basic – Average shares outstanding | 12,219 | 12,258 | 12,219 | 12,246 |
Effect of dilutive securities – Stock options and unvested stock awards | 179 | 328 | 198 | 319 |
Diluted – Average shares outstanding | 12,398 | 12,586 | 12,417 | 12,565 |
| Three Months Ended September 30, | ||
|
|
|
|
| 2007 |
| 2006 |
Basic - Average shares outstanding | 12,256 |
| 12,217 |
Effect of dilutive securities - Stock options and |
|
|
|
unvested stock awards | 183 |
| 219 |
Diluted - Average shares outstanding | 12,439 |
| 12,436 |
|
|
|
|
Income available to common stockholders is the same for computing both basic and diluted earnings per share. Options to purchase 3,19012,400 and 72,4703,470 shares of common stock were not included in the computation of diluted earnings per share for the three months ended December 31,September 30, 2007 and 2006, and 2005, respectively. Options to purchase 3,190 and 77,470 shares of common stock were not included in the computation of diluted earnings per share for the six months ended December 31, 2006 and 2005, 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 when a liability has been 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):
| Six Months Ended December 31, | ||
| Involuntary |
|
|
| Employee |
|
|
| Severance |
|
|
| and Benefit | Shutdown |
|
| Costs | Costs | Total |
Expense – Fiscal 2007 |
|
|
|
Cash expended | $100 | $ 60 | $160 |
Accrual/non-cash | 25 | 105 | 130 |
Total expense | $125 | $165 | $290 |
|
|
|
|
Expense – Fiscal 2006 |
|
|
|
Cash expended | $208 | $368 | $576 |
Accrual/non-cash | 73 | 139 | 212 |
Total expense | $281 | $507 | $788 |
| Six Months Ended December 31, | |
| 2006 | 2005 |
Accrued Balances |
| |
Balance, beginning of period | $ 105 | $ 301 |
Payments | (265) | (912) |
Additional accrual | 290 | 788 |
Balance, end of period | $ 130 | $ 177 |
| Three Months Ended September 30, | ||
|
|
|
|
| 2007 |
| 2006 |
Net income: | $ 5,921 |
| $ 12,131 |
Other comprehensive gains: |
|
|
|
Change in fair value of pension assets and liabilities | 413 |
| - |
Foreign currency translation adjustment | 2,844 |
| 376 |
Comprehensive income | $ 9,178 |
| $ 12,507 |
|
|
|
|
The restructuring costs related to the following segments:components of accumulated other comprehensive income (loss) are as follows (in thousands):
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Food Service Equipment Group | $ -- | $ 418 | $ -- | $ 470 |
Air Distribution Products Group | -- | 119 | -- | 233 |
Hydraulics Products Group | -- | -- | -- | -- |
Engraving Group | -- | 77 | -- | 85 |
Engineered Products | 184 | -- | 290 | -- |
Total expense | $ 184 | $ 614 | $ 290 | $ 788 |
| September 30, |
| June 30, |
| 2007 |
| 2007 |
Foreign currency translation adjustment | $ 17,528 |
| $ 14,684 |
Unrealized pension losses (net of tax benefit of $17,197) | (29,747) |
| (41,217) |
Accumulated other comprehensive loss | $ (12,219) |
| $ (26,533) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. We are currently party to a contract dispute relating to a technology licensing agreement. The dispute arose over whether the Company had the right to terminate the licensing agreement. This dispute is currently in discovery and will be heard by an arbitrator in the near future. We expect that the outcome will be favorable and the ultimate resolution will not be material to the Company, however, we expect the matter will increase legal costs over the next six months.
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 and six months ended December 31, 2006 and 2005 were as follows (in thousands):12)
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Net income: | $4,818 | $5,362 | $16,949 | $10,791 |
Other comprehensive gains (losses): |
|
|
|
|
Foreign currency translation adjustment | (18) | 1,797 | 358 | 3,317 |
Comprehensive income | $4,800 | $7,159 | $17,307 | $14,108 |
The components of accumulated other comprehensive losses are as follows (in thousands):
| December 31, | June 30, |
| 2006 | 2006 |
Foreign currency translation adjustment | $ 10,852 | $ 10,494 |
Additional minimum liability (net of $17.8 million tax) | (31,494) | (31,494) |
Accumulated other comprehensive loss | $(20,642) | $(21,000) |
12.
Income Taxes
The provision for income taxes for continuing operations differs from that computed using Federal income tax rates for the following reasons:
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Statutory tax rate | 35.0% | 35.0% | 35.0% | 35.0% |
Non-U.S. | (3.0) | (1.8) | (1.6) | (1.5) |
State taxes | 0.7 | 2.5 | 1.2 | 2.5 |
Other including change in contingency | (7.6) | (1.5) | (4.0) | (1.5) |
|
|
|
|
|
Effective income tax rate | 25.1% | 34.2% | 30.6% | 34.5% |
The retroactive extension of the R&D Tax Credit from January 1, 2006 through December 31, 2007 was signed into law on December 20, 2006. The annual estimated tax rate was re-measured during the current quarter because the tax law was changed to reinstate the credit. The impact, $238,000, was recognized in the current quarter, representing a 370 basis point reduction in the effective income tax rate for the three months ended December 31, 2006.
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 |
| Income from Operations | ||||
| 2007 |
| 2006 |
| 2007 |
| 2006 |
Segment: |
|
|
|
|
|
|
|
Food Service Equipment Group | $ 96,961 |
| $ 65,619 |
| $ 9,648 |
| $ 4,957 |
Air Distribution Products Group | 27,350 |
| 29,801 |
| 397 |
| 2,184 |
Hydraulics Products Group | 9,002 |
| 10,250 |
| 1,219 |
| 1,748 |
Engraving Group | 20,403 |
| 21,417 |
| 1,271 |
| 2,805 |
Engineered Products Group | 21,804 |
| 22,403 |
| 2,914 |
| 2,001 |
Restructuring costs |
|
| - |
| - |
| (106) |
Corporate and other |
|
| - |
| (4,603) |
| (3,403) |
Sub-total | $175,520 |
| $149,490 |
| $10,846 |
| $10,186 |
Interest expense |
|
|
|
| (2,675) |
| (1,822) |
Other non-operating income |
|
|
|
| 153 |
| 781 |
Pre-tax income from continuing operations |
|
|
| $ 8,324 |
| $ 9,145 | |
|
|
|
|
|
|
|
|
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).:
| Three Months Ended December 31, | Six Months Ended December 31, | ||||||
|
| Income from |
| Income from | ||||
| Net Sales | Operations | Net Sales | Operations | ||||
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 |
Segment: |
|
|
|
|
|
|
|
|
Food Service Equipment Group | $59,606 | $58,40 | $ 3,296 | $ 3,274 | $125,221 | $124,131 | $ 8,253 | $10,899 |
Air Distribution Products Group | 28,011 | 32,215 | 1,665 | 3,064 | 57,812 | 67,661 | 3,849 | 6,080 |
Hydraulics Products Group | 8,025 | 10,077 | 955 | 1,682 | 18,275 | 20,033 | 2,703 | 3,157 |
Engraving Group | 21,731 | 19,094 | 1,879 | 1,892 | 43,148 | 38,163 | 4,684 | 3,829 |
Engineered Products Group | 21,895 | 18,381 | 2,652 | 1,699 | 44,302 | 38,063 | 4,653 | 3,622 |
Restructuring |
|
| (184) | (614) |
|
| (290) | (788) |
Corporate and other |
|
| (2,354) | (2,665) |
|
| (5,757) | (8,045) |
Total | $139,268 | $138,170 | $ 7,909 | $ 8,332 | $288,758 | $288,051 | $18,095 | $18,754 |
| Three Months Ended September 30, | ||
|
|
|
|
| 2007 |
| 2006 |
Net sales | $ - |
| $ 4,048 |
(Loss) from discontinued operations | - |
| (409) |
Income tax benefit | - |
| 157 |
Gain on disposal, net of taxes of $302 and $3,952 | 605 |
| 6,394 |
Net earnings from discontinued operations | $ 605 |
| $ 6,142 |
|
|
|
|
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.
14.ITEM 2.
Subsequent EventsMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Subsequent to the end of the second quarter in fiscal 2007, we completed two acquisitions in furtherance of our strategy of growth in profitable businesses. In January 2007, we acquired substantially all the assets of American Foodservice Company (“AFS”), a leading manufacturer with expertise in stainless steel fabrication, millwork and solid surface stonework. With annual sales of approximately $21 million, AFS will enable us to capture demand for high-end, custom-fabricated foodservice equipment across a spectrum of new cafeteria and commissary applications in markets including corporate headquarters, healthcare facilities and hospitals, colleges and universities, and casinos and hotels.
Also in January 2007, we completed the purchase of all the outstanding stock of Associated American Industries, Inc. (“AAI”). With annual sales of $72 million, AAI is a leader in “hot side” food service equipment and has brands with global recognition and a stellar reputation among customers in the food service market. AAI’s APW Wyott brand manufactures primarily counter top products used in cooking, toasting, warming and merchandising food for applications in quick service restaurants, convenience stores, small restaurants and concession areas. In addition to APW Wyott, AAI’s brands include Bakers Pride, which provides a wide selection of quality deck ovens, pizza ovens, conveyor ovens and counter top ranges, griddles and char broilers to meet the needs of the restaurant, pizza, supermarket and convenience store market segments, and BevLes, which produces strong, dur able heated proofer and holding cabinets for the restaurant and baking market segments. The addition of AAI will compliment our existing hot side business, BKI, while providing us with opportunities to cross market to new customers our existing portfolio of products. This acquisition will also provide us a sizeable presence in the hot food preparation, storage and merchandising equipment market.
The total purchase price for the acquisitions was approximately $94 million and was funded primarily through borrowings under our facility. Both acquisitions will be integrated into the Food Service Equipment segment. We have not yet completed the valuations of these businesses and anticipate completing the valuations during the third quarter of fiscal 2007.
ITEM 2
STANDEX INTERNATIONAL CORPORATION
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 int ernationalinternational economic 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 ma terialsmaterials from and implementation 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 of our strategy, we are focusing our resources onacquisition initiatives in those businesses where synergies can be leveraged to enhance the performance of the individual businesses. Consistent with this strategy, we committed to a plan in fiscal 2006 to divest the businesses within the Consumer Products Group. We completed this divestiture process 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.
Subsequent to the end of the second quarter inbu sinesses. In fiscal 2007, we completedmade two significant acquisitions in furtherance ofthe Food Service Equipment Group which have broadened our strategy of growthpresence in profitable businesses. In January 2007, we acquired substantially all the assets of American Foodservice Company (“AFS”), a leading manufacturer with expertise in stainless steel fabrication, millwork and
solid surface stonework. AFS will enable us to capture demand for high-end, custom-fabricated foodservice equipment across a spectrum of new cafeteria and commissary applications in markets including corporate headquarters, healthcare facilities and hospitals, colleges and universities, and casinos and hotels. Also in January 2007, we completed the purchase of all the outstanding stock of Associated American Industries, Inc. (“AAI”). AAI is a leader in “hot side”diverse food service equipment and has brands with global recognition and a stellar reputation among customers in the food service market. AAI’s APW Wyott brand manufactures primarily counter top products used in cooking, toasting, warming and merchandising food for applications in quick service restaurants, convenience stores, small restaurants and concession areas.sector. In addition, we are seeking to APW Wyott, AAI ’s brands include Bakers Pride, which providesexpand our markets to growth locations where we have not previously had a wide selection of quality deck ovens, pizza ovens, conveyor ovenspresence, for example in Turkey, where we are establishing a mold texturing operation, and counter top ranges, griddlesin China, where our Electronics division is manufacturing and char broilersselling to meet the needs of the restaurant, pizza, supermarket and convenience store market segments, and BevLes, which produces strong, durable heated proofer and holding cabinets for the restaurant and baking market segments. The total purchase price for the acquisitions was approximately $94 million and was funded primarily through additional borrowings under our $150 million revolving credit facility.
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 our performance information between the periods discussed in this report. These items include the acquisitions in fiscal 2006. Upon completion2007 and the impact of the facility, we relocated manufacturing activities to that facility from two locations, one in Tennessee and the other in Colorado. Both properties were sold during fiscal year 2006. The Company also relocated the manufacturing ac tivities of Kool Star immediately following the close of that acquisition to our facility in Mexico. divestitures.
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, above the breakeven mark after operating for only one quarter.
A detailed discussion by segment is set forth below. 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:
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Net sales | $139,268 | $138,170 | $288,758 | $288,051 |
Gross profit margin | 27.6% | 28.8% | 28.2% | 28.7% |
Other operating income/(expense) | (42) | 669 | 1,071 | 662 |
Restructuring expense | (184) | (614) | (290) | (788) |
Income from operations | 7,909 | 8,332 | 18,095 | 18,754 |
Backlog as of December 31 | 89,624 | 94,713 | 89,624 | 94,713 |
| Three Months Ended September 30, | ||
|
|
|
|
(Dollar amounts in thousands) | 2007 |
| 2006 |
Net sales | $ 175,520 |
| $ 149,490 |
Gross profit margin | 0.3% |
| 0.3% |
Income from operations | 10,846 |
| 10,186 |
Backlog as of September 30 | 118,728 |
| 100,229 |
Net Sales
| Three Months Ended | Six Months Ended |
| December 31, | December 31, |
| 2006 | 2006 |
Net sales, prior period | $138,170 | $288,051 |
Components of change in sales: |
|
|
Effect of acquisitions | 3,000 | 7,300 |
Effect of exchange rates | 1,600 | 2,400 |
Organic sales change | (3,502) | (8,993) |
Net sales, current period | $139,268 | $288,758 |
Net Sales | ||
Three Months Ended | ||
(In thousands) | September 30, 2007 | |
Net sales, prior period | $149,490 | |
Components of change in sales: | ||
Effect of acquisitions | 25,900 | |
Effect of exchange rates | 1,700 | |
Organic sales change | (1,570) | |
Net sales, current period | $175,520 | |
Net sales for the first quarter of fiscal 2008 increased $1.1$26.0 million, or 17%, when compared to the same period of fiscal 2006, a less than 1% increase.2007. The increase in net sales is due to the strong sales across our Food Service Equipment Group. The recent food service acquisitions added approximately $25.9 million in revenues. Sales were negatively impacted in 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 decreased to 28%28.3% for the first quarter ended December 31, 2006,of fiscal 2008 versus 29%28.8% in the same quarter of last year. With the exception of the Food Service Equipment Group and Engineered Products Group, margins declined across all of our segments when compared to the same period one year earlier.last year. The largest declinedeclines occurred in the ADP, Group, where margins were pressured due to volume declines and material cost increases, discussedand the Engraving Group, where continuing delays of several new platform projects reduced volumes. The declines were substantially offset by improved margins in the Food Service Equipment 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):
| Three Months Ended September 30, | ||
|
|
|
|
| 2007 |
| 2006 |
Food Service Equipment Group | $ 96,961 |
| $ 65,619 |
Air Distribution Products Group | 27,350 |
| 29,801 |
Hydraulics Products Group | 9,002 |
| 10,250 |
Engraving Group | 20,403 |
| 21,417 |
Engineered Products Group | 21,804 |
| 22,403 |
Total | $ 175,520 |
| $ 149,490 |
|
|
|
|
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):
| Three Months Ended September 30, | ||
|
|
|
|
| 2007 |
| 2006 |
Food Service Equipment Group | $ 9,648 |
| $ 4,957 |
Air Distribution Products Group | 397 |
| 2,184 |
Engraving Group | 1,271 |
| 2,805 |
Hydraulic Products Group | 1,219 |
| 1,748 |
Engineered Products Group | 2,914 |
| 2,001 |
Corporate and Other | (4,603) |
| (3,403) |
Restructuring | - |
| (106) |
Total | $ 10,846 |
| $ 10,186 |
|
|
|
|
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 $184,000 and $290,000 in the three and six months ended December 31, 2006, respectively,$106,000, largely in connection with the consolidation of manufacturing activities into Ohio for our Engineered Products Group.
Income from Operations
For the three months ended December 31, 2006, income from operations decreased 5.1%, or $423,000 when compared to the same period one year earlier. ImprovementsNo charges were recorded in income from operations occurred in the Engineered Products Groups, but this was offset by decreases in all but the Food Service Equipment Group.
For the six months ended December 31, 2006, income from operations decreased $659,000 when compared to the same period one year earlier, a 3.5% change. Improvements in the Engraving Products and Engineered Products Groups were offset by declines in the remaining segments. A detailed explanation by segment follows.
Income Taxes
Our effective income tax rate for the three months ended December 31, 2006 was 25.1%, a decrease from 34.2% in the same period in fiscal 2006. For the six-month period, our effective income tax rate was 30.6%, a decrease from 34.5% in the same period in fiscal 2006. This change is more fully explained in the Notes to Condensed Consolidated Financial Statements.
Backlog
For the three months ended December 31, 2006, backlog decreased $5.1 million, a 5.4% decrease from the same period one year earlier. All segments except the Engraving Products and Engineered Products Groups reported lower backlog for the current year second quarter. Sales declines resulting from quality and service issues with our Master-Bilt branded products, the housing market declines affecting the ADP Group and the truck market declines impacting our Hydraulics Products Group have all contributed to the lower backlog in the current period.
Segment Analysis
Net Sales
The following table presents net sales by business segment (in thousands):
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Food Service Equipment Group | $ 59,606 | $ 58,403 | $125,221 | $124,131 |
Air Distribution Products Group | 28,011 | 32,215 | 57,812 | 67,661 |
Hydraulics Products Group | 8,025 | 10,077 | 18,275 | 20,033 |
Engraving Group | 21,731 | 19,094 | 43,148 | 38,163 |
Engineered Products Group | 21,895 | 18,381 | 44,302 | 38,063 |
Total | $139,268 | $138,170 | $288,758 | $288,051 |
Food Service Equipment Group
Net sales for the Group for the three months increased 2.1%, or $1.2 million from the same period one year earlier. Acquisitions accounted for substantially all of the increase, adding $1.1 million, while the effects of foreign exchange rates on sales added an additional $600,000. When removing the effect of acquisitions and foreign exchange, sales decreased $500,000 when compared to the same period one year earlier. The sales decline is entirely attributable to lower sales of our Master-Bilt refrigerated cabinets and walk-in business, the sales of which were impacted by quality and service issues. Aggressive measures have been taken to address these issues, and sales are expected to rebound during the fourth quarter. In addition to the quality and service issues, Master-Bilt implemented a new ERP system that led to the loss of approximately eight shipping days. This lower performance offset strong sales performances in our other walk-in and cabinet business, our display case and pump businesses. These businesses all posted double digit sales increases when compared to the same period one year earlier. In the case of the pump business, sales were lower than normal in last year’s second quarter, due to the negative impact of the closure and relocation of that business to Mexico from Tennessee.
Net sales for the Group for the first half of fiscal 2007 increased $1.1 million, or less than 1.0% over the same period one year earlier. Acquisitions added $3.0 million while the effects of foreign exchange rates added an additional $900,000 in the six month period. Organic sales for the six months ended December 31, 2006 decreased $2.7 million, or 2.2%. Similar to the factors which led to the decrease in sales for the current quarter, sales of our Master-Bilt refrigerated cases and walk-in units have decreased largely due to service and quality issues. Further, in the first six months 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 fre ezers across our other brands remained strong, especially cabinets in our scientific line of products. In addition, the sales performance in our pump business improved as noted above.
Air Distribution Products Group
Net sales decreased $4.2 million, or 13.0%, from the second quarter of fiscal 2006. The decrease is attributable to the continued slowdown in new home construction in the principal markets served by ADP. ADP is pursuing opportunities to capture market share in areas not principally served by us in the past. These include 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 housing starts in the third quarter will continue to be lower than those in the prior year.
Net sales for the Group for the first half of fiscal 2007 decreased $9.9 million, or 14.6%, from the first half of fiscal 2006. As noted in the quarter, the slowdown in new home construction is the driving factor to the sales decline.
Hydraulics Products Group
Net sales decreased $2.1 million, or 20.4%, from the second quarter of fiscal 2006. The decrease was primarily attributable to sales declines in the domestic market. Effective January 1, 2007, new Federal regulations requiring the reduction in emissions of Class VIII heavy trucks were enacted. These regulations require changes to existing diesel engine technology used in heavy trucks that will result in higher fuel consumption and a higher purchase cost for the trucks. This impacted the purchasing behavior of trucks, in particular the demand for long-haul trucks. During the quarter, we experienced a drop in demand for our cylinders as truck chassis manufacturers shifted output to the long-haul trucks, limiting the number of chassis available to the dump trailer and truck manufacturers that represent the Group’s principal customer base. The new regulations are expected to impact sales into the remainder of fiscal 2007.
Net sales for the six months ended December 31, 2006 decreased $1.8 million, or 8.8%, from the first six months of fiscal 2006. The decline is entirely attributable to the performance in the current quarter discussed above.
Engraving Group
Net sales of the Engraving Group increased by $2.6 million, or 13.8%, when compared to the second quarter of fiscal 2006. This increase is attributable to several factors, the largest of which is the effect of the acquisition of Innovent, which added $1.9 million of sales in the second quarter of fiscal 2007. The improvement is also attributable to the increased sales performance in the United States and Chinese markets. These positive performances were offset by several of the mold texturization businesses in the European market, which were impacted by a delay in the delay in the awarding of automotive work. Net sales across many of the Group’s core product offerings, including rolls and plate engraving, and embossing equipment businesses continued to perform stronger when compared to the same period in fiscal 2007, benefiting from a large equipment order being completed in the quarter.
Net sales for the six months ended December 31, 2006 increased $5.0 million, a 13.1% increase from the first six months of fiscal 2006. Acquisitions added $4.3 million while the remaining increase is attributable to the performance of all the businesses for the reasons noted in the above quarter.
Engineered Products Group
Net sales of the Engineered Products Group increased $3.5 million, or 19.1%, when compared to the same period one year earlier. Our metal spinning businesses accounted for $2.8 million of the sales growth, benefiting from strong demand in the aviation and energy industries, the two principal markets served by that business unit. Our electronics businesses accounted for the remainder of the increased sales, attributable to strong demand in sensors for the automotive sector, the effect of foreign exchange rates and the effect of price increases implemented to offset the cost of raw materials.
Net sales for the six months ended December 31, 2006 increased $6.2 million, or 16.4%, over the same period one year earlier. Strong performances within the metal spinning businesses as discussed above were the primary factors leading to the increased sales.
Income from Operations
The following table presents income from continuing operations by business segment (in thousands):
| Three Months Ended | Six Months Ended | ||
| December 31, | December 31, | ||
| 2006 | 2005 | 2006 | 2005 |
Food Service Equipment Group | $ 3,296 | $ 3,274 | $ 8,253 | $10,899 |
Air Distribution Products Group | 1,665 | 3,064 | 3,849 | 6,080 |
Engraving Group | 1,879 | 1,892 | 4,684 | 3,829 |
Hydraulic Products Group | 955 | 1,682 | 2,703 | 3,157 |
Engineered Products Group | 2,652 | 1,699 | 4,653 | 3,622 |
Restructuring | (184) | (614) | (290) | (788) |
Corporate and Other Operating Expenses | (2,354) | (2,665) | (5,757) | (8,045) |
Total | $ 7,909 | $ 8,332 | $18,095 | $18,754 |
Food Service Equipment Group
Income from operations for the quarter ended December 31, 2006 were flat with that noted in the same period one year earlier, increasing only $22,000, or less than 1.0%. Our Master-Bilt branded refrigerated cabinets and walk-in coolers experienced sales declines during the quarter as discussed above. In response to the decreased sales, we continued to take steps to control costs while maintaining an appropriate utilization of the facility. We believe that the reduction in sales volume is short term and sales will improve over the next several quarters. This decrease was offset by the positive performance of our other businesses in the Group with the increased sales volume discussed above as well as the benefit of cost improvements and price increases during the quarter.
Income from operations for the six months ended December 31, 2006 decreased $2.6 million, a 24.3% decrease over the same period one year earlier. The combination of decreased sales volumes discussed above, higher material costs and the increased costs associated with the quality and service issues within Master-Bilt all contributed to the decline in income from operations. The decrease is also attributable to our BKI brand’s operating income during the first quarter of fiscal 2007, which declined with the decrease2008.
Discontinued Operations
As more fully discussed in sales volume, a change in sales mix to lower margin items and one-time costs associated with several management position transitions.
Air Distribution Products Group
Income from operations of the ADP Group decreased $1.4 million, or 45.7% when compared with the same quarter of last year. With sales declines discussed above of $4.2 million and margin deteriorations due to material price increases, ADP took several cost saving steps including headcount reductions to offset the decline in sales. In response to the continued outlook and the inability to pass the material price increases fully through to customers, ADP is evaluating other cost savings strategies including the use of different materials that will provide the same reliability to our customers but reduce costs. ADP is also evaluating the use of different steels among the various classifications of customers to better meet the need of those customers going forward.
Income from operations of the ADP Group decreased $2.2 million, or 36.7% when compared with the same period of last year. The lower sales volume and material price changes accountedAnnual Report on Form 10-K for the decreases during the first half of fiscal 2007. year ended June 30, 2007, we are accounting for three former businesses (USECO, Standard Publishing and Berean Christian Stores) as discontinued operations.
Engraving Group
Income from operations was essentially unchanged from the prior year, decreasing slightly by $13,000, or less than 1.0%, when compared to the same quarter in the prior year. The positive performance of our Innovent acquisition was completely offset by decreases in our mold texturization businesses. Due to sales delays discussed above in the mold texturization businesses and the high amount of fixed costs associated with these business, income from operations were depressed during the quarter. We expect these delays to be temporary and they are not expected to cause any additional pressure in the remaining quarters of fiscal 2007.
Income from operations for the six months ended December 31, 2006 increased $855,000, or 22.3%, when compared to the same period one year earlier. A combination of the Innovent acquisition for the first half of fiscal 2007 and the use of technologies in the manufacturing process in our mold texturization businesses duringIn the first quarter of fiscal 2007, contributedwe recorded operating losses related to this improved performancethese businesses of $252,000 (net of $157,000 in the first half.
Hydraulics Products Group
Income from operations decreased $727,000, or 43.2% when compared to the same period one year earlier. The sales declines of $2.1 million during the quarter drove the income from operations down.
Income from operations for the six months ended December 31, 2006 decreased $454,000, or 14.4%, when compared to the same period one year earlier. The factors noted above in the quarter were also largely responsible for the decrease in income from operations for the six-month period.
Engineered Products Group
Income from operations increased $953,000, or 56.1% when compared to the same period one year earlier. The improved performance is largely attributable to the performance of our metal spinning businesses, the sales increase of which was discussed above. Our electronics business experienced improvements during the quarter as well, resulting from a combination of sales growth, price increasestaxes) and cost improvement initiatives as well. During the quarter, the electronics business completed the consolidation of its New York facility into its Ohio facility which will reduce overhead costs and will provide for better control of the operation of the business. In addition, our new manufacturing facility in China continues to perform ahead of our plan in terms of cost recovery. We expected the facility to break even after approximately six months of operation, but it reached breakeven in half that time.
Income from operations for the six months ended December 31, 2006 increased $1.0 million, or 28.5%, when compared to the same period one year earlier. The factors noted above in the quarter were also largely responsible for the increase in income from operations for the six-month period.
Corporate and Other Operating Expenses
Corporate and other operating expenses decreased $311,000, or 11.7%, when compared to the same period one year earlier. Included in the prior year quarter performance is a gaingains on the disposition of properties of $670,000. Excluding the gain, expenses decreased $981,000. The decrease is attributable largely to an adjustment made in the current year associated with performance based equity awards. We issue executives and key members of management performance based awards that are based upon three year growth targets. With the downturn in several of the segments in the current year, we determined that the goals for the performance periods ended June 30, 2007 would no longer be achieved, resulting in the reversal of the expense recorded associated with the awards to date. We evaluate these awards each quarter.
Corporate and other operating expenses for the first half of fiscal 2007 decreased $2.3 million, or 28.4%, when compared to the first half of fiscal 2006. Gains on the sale of assets increased approximately $400,000 due in large part to the gain of $1.1 million on the sale of excess corporate land. Excluding this change, corporate expenses decreased $1.9 million. The decrease is largely due to the adjustment made in the current year associated with performance based equity awards discussed above. In addition, decreased pension costs, decreases in other stock-based compensation and a decrease in professional fees all contributed to the decline.
Discontinued Operations
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. During the second quarter of fiscal 2007, discontinued operations included the gain on the sale of a portion of USECO business of approximately $541,000 offset by losses from the USECO operations.
The results from discontinued operations during the six months include the gains recognized upon the completion of the salesdisposals of the Standard Publishing theand Berean Christian Stores and a componentbusinesses totaling $6.4 million (net of the USECO 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$3.9 million in our other operating segments that offered us opportunities for growth. In July 2006, we sold substantiallytaxes). Substantially all of 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 theand Berean Christian Stores businessbusinesses were sold in an all cash deal resultingJuly 2006 and August 2006, respectively. Accordingly, we reported income from discontinued operations of approximately $6.1 million (net of taxes) in the recognitionfirst quarter of a pre-tax gainfiscal 2007.
In the first quarter of $200,000. In connection with Berean,2008, we were party under a number of operating leases for existing storessold certain land, buildings and one closed store. The store leases in this transaction were assignedimprovements related to the purchaser of theStandard Publishing business for the remaining initial terms$1.7 million cash and realized a gain on disposal of the lease at the stated lease costs. For the one closed location, we recognized a liabilityapproximately $605,000 (net of $285,000 representing the difference between the expected sub-lease rental incometaxes of $302,000). The gain on disposal was reported in discontinued operations.
Liquidity and the rental costs. Capital Resources
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash Flows
Six – Three Months Ended December 31, 2006September 30, 2007
For the six months ended December 31, 2006, operatingOperating activities from continuing operations during the three months ended September 30, 2007 generated $12.3$13.2 million in cash, as compared to the generationuse of $7.5 million$149,000 in cash for the same period one year earlier.last year. The source 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 $3.4 million when compared period over period, taxes paid increased more than $3 million when compared period over period and accrued expenses decreased over $2.4$2.1 million in the six month period,three 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. These usescertain land and improvements by Standex Air Distribution Products, Inc. (ADP), one of our subsidiaries. &n bsp;Investing activities from discontinued operations generated net cash were offset by the higher earnings and higher depreciation and amortization when compared to the same period one year earlier. Discontinued operations used $7.1of $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 G rouppositive cash flows from our operating and a portion of USECO provided $31.1investing 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 $4.2$2.7 million and pay dividends of $5.1$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 $28.2 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 $110.0 million as of December 31, 2006 under the revolving credit facility. In January 2007, we acquired substantially all the assets of American Foodservice Company (“AFS”)liens and purchased all the outstanding stock of Associated American Industries, Inc. (“AAI”). The total purchase price for the acquisitions was approximately $94 million and was funded primarily through borrowings under our facility.
The Company sponsors a number of defined benefit and defined contribution retirement plans. We have evaluated the current and long-term cash requirements of these plans. As noted above, the operating cash flows from continuing operations are expected to be sufficient to cover required contributions under ERISA and other governing regulations.
sell major assets.
Borrowings under the revolving credit facility bear interest at a rate equal to the sum of a base rate or a Eurodollar rate plus an applicable margin, which is based on our consolidated total leverage ratio, as defined in the revolving credit facility. The effective rate interest rates for borrowings outstanding were 6.075%6.99% and 6.24%6.36%, respectively, at December 31, 2006September 30, 2007 and June 30, 2006. The annual2007. At September 30, 2007, the revolving credit facility carried a commitment fee of 0.20% per annum.
In September 2007, we executed an amendment to the revolving credit facility which (i) extended the maturity date to September 11, 2012 and (ii) modified the interest coverage and leverage ratio tests to reflect the recent acquisitions. Accordingly, borrowings outstanding under this facility have been classified as long-term liabilities.
In September 2007, we also executed an amendment of the note purchase agreements with the institutional investors which conformed the interest coverage and leverage ratio tests to the revolving credit facility to reflect the recent acquisitions.
At September 30, 2007, we were in effect oncompliance with the financial covenants of our Revolving Credit Facility at December 31, 2006 was 0.175%.
debt agreements, and based upon our current plans and outlook, believe that we will continue to be in compliance with these covenants during the coming twelve-month period.
The following table sets forth the Company’sour capitalization at December 31, 2006September 30, 2007 and June 30, 2006:2007:
| December 31, | June 30, |
| 2006 | 2006 |
Short-term debt | $ 4,229 | $ 3,873 |
Long-term debt | 85,158 | 113,729 |
Total debt | 89,387 | 117,602 |
Less cash | 31,108 | 32,590 |
Total net debt | 58,279 | 85,012 |
Stockholders’ equity | 211,697 | 200,295 |
Total capitalization | $269,976 | $285,307 |
| September 30, |
| June 30, |
| 2007 |
| 2007 |
Short-term debt | $ 3,665 |
| $ 4,162 |
Long-term debt | 151,157 |
| 164,158 |
Total debt | 154,822 |
| 168,320 |
Less cash | 26,259 |
| 24,057 |
Net debt | 128,563 |
| 144,263 |
Stockholders' equity | 221,856 |
| 204,431 |
Total capitalization | $ 350,419 |
| $ 348,694 |
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The Company hasWe sponsor a number of defined benefit and defined contribution retirement plans. We have evaluated the current and long-term cash requirements of these plans. Our operating cash flows from continuing operations are expected to be sufficient to cover required contributions under ERISA and other governing regulations.
We have an insurance program in place for certain retired executives. Current executives and new hires are not eligible for this program. The underlying policies have a cash surrender value of $21.8$23.3 million at September 30, 2007 and are reported net of loans of $10.9$11.2 million for which the Company haswe have the legal right of offset. These policies have been purchased to fund supplemental retirement income benefits for certain retired executives. The aggregate present value of future obligations was approximately $2.5$2.1 million and $2.8$1.9 million at December 31, 2006September 30, 2007 and June 30, 2006,2007, respectively.
We are contractually obligated under various operating leases for real property. As noted above, in connection with the sale of certain land and improvements on September 24, 2007, ADP entered into a lease for a major portion of those assets, including its manufacturing facility. The lease includes an initial term of ten (10) years and provides ADP with two five-year renewal options.
The following table summarizes our estimated obligations and commitments as of September 30, 2007 to make future payments under certain contracts, aggregated by category of contractual obligation, for specified time periods (in thousands):
| Payments Due by Period | ||||||||
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| Less |
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| More |
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| than 1 |
| 1-3 |
| 3-5 |
| than 5 |
Contractual Obligations | Total |
| years |
| years |
| years |
| years |
Long- and short-term debt obligations | $ 154,822 |
| $ 3,665 |
| $ 32,142 |
| $ 7,142 |
| $ 111,873 |
Operating lease obligations | 15,600 |
| 3,200 |
| 6,200 |
| 2,900 |
| 3,300 |
Estimated interest payments1 | 42,508 |
| 8,375 |
| 17,674 |
| 14,852 |
| 1,607 |
Post-retirement benefit payments2 | 1,594 |
| 158 |
| 328 |
| 328 |
| 780 |
Purchase obligations | 4,500 |
| - |
| 4,500 |
| - |
| - |
Total | $ 219,024 |
| $ 15,398 |
| $ 60,844 |
| $ 25,222 |
| $ 117,560 |
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1 Estimated interest payments are based upon effective interest rates as of September 30, 2007. See Item 3 for further discussions surrounding interest rate exposure on our variable rate borrowings.
2 Post-retirement benefit payments are based upon current benefit payment levels plus estimated health care cost trends of 8% in the first year trending to 5% through fiscal 2016.
The Company hasis a guarantor of certain assigned leases to Berean Christian Bookstores, one of our discontinued operations. The total guarantee approximated $9.6 million at September 30, 2007 ($10.2 million at June 30, 2007). We do not expect to make any payments as a result of these guarantees.
Our primary cash requirements include working capital, interest and mandatory debt payments, capital expenditures, operating lease payments, pension plan contributions and dividends. Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under our revolving credit agreement with nine participating banks. The agreement providesfacility. We expect to spend between $10.0 million and $11.0 million on capital expenditures in fiscal 2008 and expect that depreciation in fiscal 2008 will approximate $16.0 million to $18.0 million. We anticipate that any cash needed for future acquisition opportunities would be obtained from borrowings under the Company with the abilityrevolving credit facility or other sources of liquidity available to borrow up to $150us. At September 30, 2007, we have $45.0 million at competitive interest rates, with an option to the Company to increase the facility up to $225 million. The agreement will expire in December 2010. As such, borrowings outstandingof available borrowing capacity under this facility have been classified as long-term liabilities. The Company believesour revolving credit facility. We believe that these resources, along with the cashc ash flow generated from operations, will be sufficient to meet itsour anticipated cash funding needs for the foreseeable future.
The revolving credit facility contains customary affirmative and negative covenants. Among other restrictions, they require that the Company meet specified financial tests, including minimum levels of earnings from operations before interest, taxes, depreciation, and amortization (EBITDA), and various debt to EBITDA ratios. The covenants also limit, but do not preclude, the Company’s ability to incur additional debt, merge with other entities, create or become subject to liens and sell major assets. At December 31, 2006, the Company was in compliance with the applicable financial covenants, and based upon its current plans and outlook, believes that it will continue to be in compliance with these covenants during the coming twelve-month period.
The Company is contractually obligated under various operating leases for real property. No significant leases were consummated in the first six months of fiscal 2007.
Other Matters
Inflation–- Certain of the Company’sour expenses, such as wages and benefits, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures. Inflation for medical costs can impact both our reserves for self-insured medical plans as well as our reserves for workers' compensation claims. The Company monitorsWe monitor the inflation rate and makesmake adjustments to reserves whenever it is deemed necessary. Our ability to manage medical costscost inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit theour maximum exposure for the Company.
exposure.
Foreign Currency Translation –- The Company’s primary functional currencies used by itsour non-U.S. subsidiaries are the Canadian dollar, Euro and the British Pound Sterling. During the last six-monthtwelve-month period, bothall of these currencies have experienced increasesappreciated relative to the U.S. dollar.
Environmental Matters – The Company is- We are party to various claims and legal proceedings, generally incidental to itsour business. The Company doesWe do not expect the ultimate disposition of these matters will have a material adverse effect on itsour financial statements.
Seasonality –- Historically, the fourth quarter of the fiscal year has been the best quarter for our consolidated financial results. The fourth quarter performance of the Food Service Equipment and ADP Groups have historically been enhanced by increased activity in the construction of food retail outlets and the home
building industry, respectively. However, ADP’s historical pattern is being impacted by the recessionary conditions in the residential construction market.
Critical Accounting Policies
The Condensed Consolidated Financial Statementscondensed consolidated financial statements include the accounts of the CompanyStandex International Corporation and all of its subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying Condensed Consolidated Financial Statements,condensed consolidated financial statements, giving due consideration to materiality. Although we believe that materially different amounts would not be reported due to the accounting policies adopted, the application of certain accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We have listed in ourOur Annual Report on Form 10-K for the year ended June 30, 2006200 7 lists a number of accounting policies which we believe to be the most critical. Nothing has changed in respect to those disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management
We are exposed to market risks from changes in interest rates, commodity prices and changes in foreignnon-U.S. currency exchange. To reduce these risks, we selectively use, from time to time, financial instruments and other proactive management techniques. We have internal policies and procedures that place financial instruments under the direction of the Chief Financial Officer and restrict all derivative transactions to those intended for hedging purposes only. The use of financial instruments for trading purposes (except for certain investments in connection with the KEYSOP plan) or speculation is strictly prohibited. The Company hasWe have no majority ownedmajority-owned subsidiaries that are excluded from the consolidated financial statements. Further, the Company haswe have no interests in or relationships with any special purpose entities.
Exchange Rate Risk
Exchange Risk
The Company isWe are exposed to both transactional risk and translation risk associated with exchange rates. Regarding transactional risk, the Company mitigateswe mitigate certain of itsour foreign currency exchange rate risk by entering into forward foreign currency contracts from time to time. TheseThe contracts are used as a hedge against anticipated foreign cash flows, such as dividend and loan payments, and are not used for trading or speculative purposes. The fair value of the forward foreign currency exchange contracts is sensitive to changes in foreign currency exchange rates, as an adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts. However, any such losses or gains would generally be offset by corresponding gains and losses, respectively, on the related hedged asset or liability.
Our primary translation risk wasis with the Euro and the British Pound Sterling. We do not hedge our translation risk. As a result, fluctuations in currency exchange rates can affect our stockholders’ equity.
Interest Rate
The Company'sOur interest rate exposure is limited primarily to interest rate changes on itsour variable rate borrowings. From time to time, the Company willwe use interest rate swap agreements to modify our exposure to interest rate movements. At December 31, 2006, the Company hasSeptember 30, 2007, we had no outstanding interest rate swap agreements. A hypothetical 1%100 basis point increase in interest rates would cost the Company approximately $117,000$1.1 million in additional interest expense on an annual basis.basis at current debt levels.
The CompanyWe also hashad $46.4 million of long-term debt at fixed interest rates as of December 31, 2006.September 30, 2007. There would be no immediate impact on the Company'sour interest expense associated with itsthe long-term debt due to fluctuations in market interest rates.
There has been no significant change in the exposure to changes in interest ratesrate fluctuations from June 30, 20062007 to December 31, 2006.September 30, 2007.
Concentration of Credit Risk
The Company hasWe have a diversified customer base. As such, the risk associated with concentration of credit risk is inherently minimized. As of December 31, 2006,September 30, 2007, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.
Commodity Prices
The Company isWe are exposed to fluctuating market prices for commodities, primarily steel. Each of our segments is subject to the effects of changing raw material costs caused by the underlying commodity price movements. In general, we do not enter into purchase contracts that extend beyond one operating cycle. Standex considers itsWe consider our relationship with itsour suppliers to be excellent and we have not been impacted by any allocations or shortages of materials that may have affected other companies. There can be no assurances that we will not experience any supply shortage.
In recent periods, theOur ADP, Engineered Products, Hydraulics Products and Food Service Equipment Groups experiencedhave been experiencing price increases for steel products, other metal commodities and petroleum based products. Among thosethe items impacted were the prices of galvanized steel strip, stainless steel and carbon steel sheet material, copper wire, refrigeration components and foam insulation. TheseThose materials are key elements in the products manufactured in these segments. Wherever possible, the affected divisions implement price increases to offset the increases to material costs. The implemented price increases in the ADP and Food Service Equipment GroupGroups did not fully offset the higher material costs. As a result, additional price increases are being implemented or planned to be implemented. While these higher prices are expected to be accepted by our customers there can be no certainty that the price increases implemented will in fact be accepted by our customers. ADP has been unable to implement additional price increases sufficient to cover current and expected increases in costs. The ultimate acceptance of these price increases is impactedimpa cted by our affected divisions’ respective competitors and the timing of their price increases.
ITEM 4. CONTROLS AND PROCEDURES
TheOur management, of the Company including Roger L. Fix as Chief Executive Officer and Christian Storch as Chief Financial Officer, havehas evaluated the effectiveness of the Company’sour disclosure controls and procedures. Under the rules promulgated by the Securities and Exchange Commission, disclosure controls and procedures are defined as those “controls or other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in the reports issued or submitted by it under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.” Based on the evaluation of the Company’sour disclosure controls and procedures, it was determined that such controls and procedures were effective as of the end of the period covered by this report.
Further, there were no significant changes in the internal controls or in other factors that could significantly affect these controls during the quarterly period ended December 31, 2006September 30, 2007 that have materially affected or are reasonably likely to materially affect the Company’sour internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(e)
The following table provides information about purchases by the Company during the quarter ended December 31, 2006 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:
Issuer Purchases of Equity Securities1 | ||||||||
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Quarter Ended September 30, 2007 | ||||||||
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Period |
| (a) Total number of shares (or units) purchased |
| (b) Average price paid per share (or unit) |
| (c) Total number of shares (or units) purchased as part of publicly announced plans or programs |
| (d) Maximum number (or appropriate dollar value) of shares (or units) that may yet be purchased under the plans or programs |
July 1, 2007 - July 31, 2007 |
| 3,944 |
| $ 29.18 |
| 3,944 |
| 787,723 |
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August 1, 2007 - August 31, 2007 |
| 666 |
| 24.62 |
| 666 |
| 787,057 |
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September 1, 2007 - September 30, 2007 |
| 5,578 |
| 21.63 |
| 5,578 |
| 781,479 |
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Total |
| 10,188 |
| $ 24.75 |
| 10,188 |
| 781,479 |
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1The Company has a Stock Buyback Program (the *Program*) which was originally announced on January 30, 1985. Under the Program, the Company may repurchase its shares from time to time, either in the open market or through private transactions, whenever it appears prudent to do so. On December 15, 2003, the Company authorized an additional 1 million shares for repurchase pursuant to its Program. The Program has no expiration date, and the Company from time to time may authorize additional increases of 1 million share increments for buyback authority so as to maintain the Program. | ||||||||
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ITEM 4. Submission of Matters to a Vote of Security Holders
(a)
The Company held its Annual Meeting of Stockholders on October 31, 2006. Two matters were voted upon at the meeting: the election of one director to hold office for a one-year term ending on the date of the Annual Meeting of Stockholders in 2007 and three directors to serve for three-year terms ending at the Annual Meeting to be held in 2009; and to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2007.
The name of each director elected at the meeting and the number of votes cast as to each matter are as follows:
Proposal I (Election of Directors)
Nominee
For
Withheld
H Nicholas Muller III
9,948,409
410,913
Charles H. Cannon, Jr.
9,997,576
361,746
Christian Storch
9,865,950
493,372
Edward J. Trainor
9,732,146
627,176
Proposal II (Ratification of Deloitte & Touche LLP as Independent Public Accountants)
For
Against
Abstain
No Vote
10,248,061
95,518
15,743
-0-
ITEM 6. EXHIBITS
(a)
Exhibits
4(iii) and 10
10.1
First Amendment No. 1 to Employmentthe Credit Agreement, betweenby and among Standex International Corporation, the Companylenders party to the Credit Agreement referred to herein, and Duane Stockburger dated December 31, 2006.
10.2
Employment Agreement betweenKeyBank National Association, as administrative agent for the Company and John Abbott dated December 11, 2006.
Lenders.
31.1
Principal Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Principal Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
Principal Executive Officer and Principal Financial Officer Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
ALL OTHER ITEMS ARE INAPPLICABLE
STANDEX INTERNATIONAL CORPORATION
S I G N A T U R E S
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| STANDEX INTERNATIONAL CORPORATION |
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Date: |
| /s/ CHRISTIAN STORCH |
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| Christian Storch |
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| Vice President/ |
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(Principal Financial & Accounting Officer) | ||
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Date: |
| /s/ |
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| Chief Accounting Officer |
23