10-K 1 f10k.htm Converted by EDGARwiz



 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

 

 

 

FORM 10-K

 

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended June 30, 2017

Commission File Number 1-7233

 

 

 

STANDEX INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its Charter)

 

 

 

DELAWARE

31-0596149

(State of incorporation)

(I.R.S. Employer Identification No.)

 

 

11 KEEWAYDIN DRIVE, SALEM, NEW HAMPSHIRE

03079

(Address of principal executive offices)

(Zip Code)

 

 

 

(603) 893-9701

(Registrant’s telephone number, including area code)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE

SECURITIES EXCHANGE ACT OF 1934:

 

 

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, Par Value $1.50 Per Share

 

New York Stock Exchange

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES [X]     NO [  ]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES [   ]     NO [X]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES [X]     NO [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES [X]     NO [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

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

Large accelerated filer  X                    Accelerated filer                         Non-accelerated filer __                  Smaller Reporting Company __

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 aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant at the close of business on December 30, 2016 was approximately $1,108,193,137.  Registrant’s closing price as reported on the New York Stock Exchange for December 30, 2016 was $87.85 per share.

The number of shares of Registrant's Common Stock outstanding on August 22, 2017 was 12,775,165.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant’s 2017 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III of this report.



Forward Looking Statement


Statements contained in this Annual Report on Form 10-K that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms or variations of those terms or the negative of those terms.  There are many factors that affect the Company’s business and the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated.  These factors include, but are not limited to: materially adverse or unanticipated legal judgments, fines, penalties or settlements; conditions in the financial and banking markets, including fluctuations in exchange rates and the inability to repatriate foreign cash; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the food service equipment, automotive, construction, aerospace, energy, oil and gas, transportation, consumer appliance and general industrial markets; lower-cost competition; the relative mix of products which impact margins and operating efficiencies in certain of our businesses; the impact of higher raw material and component costs, particularly steel, petroleum based products and refrigeration components; an inability to realize the expected cost savings from restructuring activities including effective completion of plant consolidations; cost reduction efforts including procurement savings and productivity enhancements, capital management improvements, strategic capital expenditures, and the implementation of lean enterprise manufacturing techniques; the inability to achieve the savings expected from global sourcing of raw materials and diversification efforts in emerging markets; the inability to attain expected benefits from strategic alliances or acquisitions and the inability to effectively consummate and integrate such acquisitions and achieve synergies envisioned by the Company; market acceptance of our products; our ability to design, introduce and sell new products and related product components; the ability to redesign certain of our products to continue meeting evolving regulatory requirements; the impact of delays initiated by our customers; and our ability to increase manufacturing production to meet demand.  Another factor that could impact the Company is potential changes to future pension funding requirements.  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 Company may elect to update forward-looking statements at some point in the future, the Company and management specifically disclaim any obligation to do so, even if management's estimates change.


PART I


Item 1.  Business


Standex International Corporation was incorporated in 1975 and is the successor of a corporation organized in 1955.  As used in this report, the terms “we,” “us,” “our,” the “Company” and “Standex” mean Standex International Corporation and its subsidiaries.  We have paid dividends each quarter since Standex became a public corporation in November 1964.  


Unless otherwise noted, references to years are to fiscal years.


We are a leading manufacturer of a variety of products and services for diverse commercial and industrial markets.  We have 12 operating segments, aggregated and organized for reporting purposes into five segments:  Food Service Equipment, Engraving, Engineering Technologies, Electronics and Hydraulics.  Overall management, strategic development and financial control are maintained by the executive staff from our corporate headquarters located in Salem, New Hampshire.


Our long-term strategy is to build larger industrial platforms through a value creation system that assists management in meeting specific corporate and business unit financial and strategic performance goals in order to create, improve, and enhance shareholder value.  The Standex Value Creation System is a standard methodology which provides consistent tools used throughout the company in order to achieve our organization’s goals.  The Standex Value Creation System employs four components: Balanced Performance Plan, Standex Growth Disciplines, Standex Operational Excellence, and Standex Talent Management.  The Balanced Performance Plan process aligns annual goals throughout the business and provides a standard reporting, management and review process.  It is focused on setting and meeting annual and quarterly targets that support our short and long term goals.  The Standex Growth Disciplines use a set of tools and processes including market maps, growth lane ways, and market tests to identify opportunities to expand the business organically and through acquisitions.  Standex Operational Excellence employs a standard playbook and processes, including LEAN, to eliminate waste and improve profitability, cash flow and customer satisfaction.  Finally, the Standex Talent Management process is an organizational development process that provides training, development, and succession planning for our employees throughout our worldwide organization.  The Standex Value Creation System ties all disciplines in the organization together under a common umbrella by providing standard tools and processes to deliver our business objectives.


·

It is our objective to grow larger and more profitable business units through both organic initiatives and acquisitions.  We seek to identify and implement organic growth initiatives such as new product development, geographic expansion, introduction of products and technologies into new markets and applications, key accounts and strategic sales channel partners.  Also, we have a long-term objective to create sizable business platforms by adding strategically aligned or “bolt on” acquisitions to strengthen the individual businesses, create both sales and cost synergies with our core business platforms, and accelerate their growth and margin improvement.  We look to create both sales and cost synergies within our core business platforms, accelerate growth and improve margins.  We have a particular focus on identifying and investing in opportunities that complement our products and will increase the global presence and capabilities of our businesses.  From time to time, we have divested, and likely will continue to divest, businesses that we feel are not strategic or do not meet our growth and return expectations.


·

We create “Customer Intimacy” by utilizing the Standex Growth Disciplines to partner with our customers in order to develop and deliver custom solutions or engineered components that solve problems for our customers or otherwise meet their needs.  This relationship generally provides us with the ability to identify new sales opportunities with our customers, increase profit over time and provide operating margins that enhance shareholder returns.  Further, we have made a priority of developing new sales channels and leveraging strategic customer relationships.


·

Standex Operational Excellence drives continuous improvement in the efficiency of our businesses.  We recognize that our businesses are competing in a global economy that requires us to improve our competitive position.  We have deployed a number of management competencies to drive improvements in cost structure of our business units including operational excellence through lean enterprise, the use of low cost manufacturing facilities in countries such as Mexico and China, the consolidation of manufacturing facilities to achieve economies of scale and leveraging of fixed infrastructure costs, alternate sourcing to achieve procurement cost reductions, and capital improvements to increase productivity in both the shop floor and back-office.


·

The Company’s strong historical cash flow has been a cornerstone for funding our capital allocation strategy.  We use cash flow generated from operations to fund the strategic growth programs described above, including acquisitions and investments for organic growth, maintenance of our capital assets and to return cash to our shareholders through payment of dividends and stock buybacks.


Please visit our website at www.standex.com to learn more about us or to review our most recent SEC filings.  The information on our website is for informational purposes only and is not incorporated into this Annual Report on Form 10-K.


Description of Segments


Food Service Equipment


The Food Service Equipment business is comprised of three groups.  The Refrigeration Solutions group consists of two businesses that manufacture walk-in and cabinet coolers and freezers, one for commercial food facilities and one for industrial, life science and scientific applications.  The Cooking Solutions group manufacturers cooking equipment such as ovens, fryers, warmers and grills used in commercial food preparation and service.  The Specialty Solutions group consists of a manufacturer of specialty pumps used in beverage applications and a custom display merchandising manufacturer.  


Our products are used throughout the entire commercial food service process – from storage, to preparation, to cooking and to display.  The equipment that we design and manufacture is utilized in restaurants, convenience stores, quick-service restaurants, supermarkets, drug stores and institutions such as hotels, hospitals, and both corporate and school cafeterias to meet the challenges of providing food and beverages that are fresh and appealing while at the same time providing for food safety, and energy efficiency.  In the scientific markets, our product portfolio is used for research, testing and storage of pharmaceuticals, reagents, enzymes, plasma, whole blood, bone marrow, viruses, stem cells DNA and plant samples.


Food Service Equipment and Scientific products are manufactured in Hudson, WI; New Albany, MS; Summerville, SC; Nogales, Mexico; Simpsonville, SC; San Antonio, TX; Belleville, WI; and Mountmellick, Ireland.  In addition, we have our culinary demonstration center in Allen, TX.  Our products are sold predominantly in North America directly, through dealers, and through industry representatives in the Americas, Europe, Asia and Middle East.


Our product brands include:  

-

NorLake® walk-in coolers and freezers and reach-in and under counter refrigerated cabinets to meet food service needs;

-

Master-Bilt® refrigerated reach-in and under counter refrigerated cabinets, cases, display units, and walk-in coolers and freezers;

-

Lab Research products (LRP), American BioTech Supply (ABS), Cryosafe, CryoGuard and NorLake Scientific® cold storage equipment and protective apparel to meet pharmacy and scientific needs;

-

APW Wyott®, Bakers Pride®, and Tri-Star commercial ovens, char broilers, ranges, griddles, toasters, warmers, roller grills and countertop merchandisers used in cooking, toasting, warming and merchandising food;

-

BKI® and Barbecue King commercial cook and hold units, rotisseries, pressure fryers, ovens and baking equipment;

-

Ultrafryer® commercial deep fryers for restaurant and commercial installations;

-

Federal merchandizing display cases for bakery, deli and confectionary products; and

-

Procon® pump systems used in beverage and industrial fluid handling applications.


Engraving


The Engraving segment consists of services and products.  Mold-Tech is a world-wide leader in applying textures to molds on which manufacturers produce a final product with the desired surface textures on molded plastic parts, slush-molded and in-mold grained parts.  Mold-Tech serves the global auto industry as well as consumer goods.  


We simplify the supply chain for global Original Equipment Manufacturers, “OEM”, as a single source texture solutions supplier.  We provide texturizing services for the production of automotive components, particularly for interior dashboards and upholstery, textiles for paper towels and hygiene products, consumer products and cosmetic appearances, and surfaces in electronics such as computers, cell phones and printers.


Our worldwide Mold-Tech locations enable us to better serve our customers within key geographic areas including in the United States, Canada, Europe, China, India, Southeast Asia, Korea, Australia, South Africa, and South America.  Our products are primarily sold directly through our global sales network.  The Engraving segment serves a number of industries including automotive, plastics, building products, synthetic materials, converting, textile and paper, computer, housewares, hygiene product tooling and aerospace industries.  


Innovent is a specialized supplier of tools and machines used to produce diapers and products which contain absorbent materials between layers of non-woven fabric.  


The Engraving segment brands include:


-

Mold-Tech® which provides design and program management services texturizes molds used in the production of plastic parts and manufactures nickel shell slush mold tooling.

-

Mullen® Burst Testers used worldwide to measure the burst strength of paper, textiles, and board fibers

-

Innovent is an engineering and manufacturing company delivering innovative product and service solutions to hygiene, aerospace and other industrial clients around the world.


Our extensive worldwide network of 38 manufacturing and design centers provide uniform engravings to satisfy the needs of our global customers.  We expect to continue to strengthen our market leadership position through continuously expanding the breadth of products and services we provide customers such as development of patterns by proprietary digital based process technology, engraving of molds with chemical and laser technology, welding and polishing and production of nickel shells.


Engineering Technologies


The Engineering Technologies segment, “ETG”, provides critical engineered parts in all workable metal alloys using various forming processes combined with the essential value added processes for innovative cost effective solutions.  Our competitive advantage is to deliver components or assemblies that can be inserted directly into the production line with no or little surface finishing required.  Our precision manufacturing capabilities include metal spinning, metal forming, press forming, stretch forming, hydroforming, heat treating and brazing, computer numerical control and electrical discharge machining, high speed milling, and other fabrication services in all thickness and size ranges for all workable metal alloys.


ETG solutions are in a wide variety of advanced applications, where the utilization of our broad metal forming capabilities with vertically integrated operations are used to reduce part count, decrease input material, and/or optimize the manufacturing process.  These solutions are found in the aviation, defense, energy, industrial, medical, marine, oil and gas, and manned and unmanned space markets.  Our components and assemblies have been present on major commercial aviation aircraft engines and nacelles as well as defense and navy nuclear programs.  We provide complex assemblies and formed solutions for the energy and oil and gas OEM’s, MRI machine formed components, and single piece formed and machined fuel and liquid oxygen tanks and tank domes for commercial and government space programs.


The segment includes our Spincraft units, with locations in North Billerica, MA, New Berlin, WI, and Newcastle upon Tyne in the U.K, along with, Enginetics, which has a plant in Huber Heights, OH.  Our sales are direct with the OEM’s and the Tier One’s in the particular markets, throughout the world, with the majority of our sales in North America and Europe.


Electronics


The Electronics segment is a manufacturer of custom magnetic sensing and power conversion components and assemblies.  The magnetic sensing products employ technologies such as reed switches, hall effect, and magneto-resistive to produce reed relays, fluid level sensors, flow, pressure differential, proximity, as well as custom electronics assemblies containing these devices.  The power conversion products include custom wound transformers and inductors for low and high frequency applications, value added assemblies and mechanical packaging and advanced planar transformers technology.


The Electronics segment is a global components solutions provider which designs and manufactures innovative engineered components and assemblies to solve our customers’ application needs with a Partner/Solve/Deliver® approach.  The products are vital to a diverse array of markets to provide safe and efficient power transformation, monitoring and isolation, as well as critical feedback to control systems for function and safety.  The end user is typically an OEM industrial equipment manufacturer.  End-user markets include, but are not limited to transportation, smart-grid, alternative energy, appliances, HVAC, security, military, medical, aerospace, test and measurement, power distribution, and general industrial applications.


Components are manufactured in plants located in the USA, Mexico, the U.K., Germany, Japan and China.  The business sells globally through a direct sales force, regional sales managers, field applications engineers, commissioned agents, representative groups, and distribution channels.  With the most recent acquisition of the OKI Sensor Device corporation’s reed switch business (now called Standex Electronics Japan), product sales are evenly split among North America, EMEA and APAC.


The brand names are Standex Electronics, Standex-Meder Electronics, Northlake Engineering, Standex Electronics Japan, and their top three reed switch product brands of MEDER, KENT, and KOFU switches.  The Company continues to expand the business through organic growth with current customers, new customers, developing new products and technologies, geographic expansion, and strategic acquisitions.


Hydraulics


The Hydraulics segment is a global manufacturer of mobile hydraulic cylinders including single or double acting telescopic and piston rod hydraulic cylinders.  Additionally, we manufacture a specialty pneumatic cylinder and promote complete wet line kits, which are complete hydraulic systems that include a pump, valves, hoses and fittings.  The wet line kits are utilized on dump truck OEM applications that include the single acting telescopic cylinder.  The pumps used on these applications have several different options in terms of controls and performance.  These pumps are also sold into the aftermarket for competitive replacement.  


Industries that use our products are construction equipment, refuse, airline support, mining, oil and gas, and other material handling applications.  Our products are utilized by OEMs on vehicles such as dump trucks, dump trailers, bottom dumps, garbage trucks, container roll off vehicles, hook lift trucks, liquid waste handlers, compactors, balers, airport catering vehicles, container handling equipment for airlines, lift trucks, yard tractors, and underground mining vehicles.


We manufacture our cylinders in Hayesville, OH and Tianjin, China.  Our products are sold directly to OEMs, as well as distributors, dealers, and aftermarket repair outlets primarily in North America with some sales in South America and Asia.  


We provide Custom Hoists® branded single and double acting telescopic hydraulic cylinders and single stage, welded type piston rod hydraulic cylinders for use in the mobile hydraulics industry.


Responsiveness to new opportunities drives continuous top line growth.  We leverage our full line of products for the dump truck and trailer market and deep expertise in their application to expand into new markets, targeting challenging custom applications.  Our flexible design capability and global supply chain enable us to be successful in our expansion efforts.  Our team is dedicated to superior customer service through our technical engineering support and on-time delivery.


Raw Materials


Raw materials and components necessary for the manufacture of our products are generally available from numerous sources.  Generally, we are not dependent on a single source of raw materials and supplies.  We do not foresee unavailability of materials or supplies which would have a significant adverse effect on any of our businesses, nor any of our segments, in the near term.


Seasonality


We are a diversified business with generally low levels of seasonality; however, our fiscal third quarter is typically the period with the lowest level of sales volume.


Patents and Trademarks


We hold approximately 42 United States patents and patents pending covering processes, methods and devices and approximately 41 United States trademarks with six additional trademark applications filed.  Many counterparts of these patents have also been registered in various foreign countries.  In addition, we have various foreign registered and common law trademarks.  


Due to the diversity of our businesses and the markets served, the loss of any single patent or trademark would not, in our opinion, materially affect any individual segment.  


While we believe that many of our patents are important, we credit our competitive position in our niche markets to customer intimacy, engineering capabilities, manufacturing techniques and skills, marketing and sales promotions, service and the delivery of quality products.  


Customers


Our business is not dependent upon a single customer or a few large customers, the loss of any one of which would not have a material adverse effect on our operations.  No customer accounted for more than 5% of our consolidated revenue in fiscal 2017 or any of the years presented.  


Working Capital


Our primary source of working capital is the cash generated from continuing operations.  No segments require any special working capital needs outside of the normal course of business.  


Backlog


Backlog includes all active or open orders for goods and services that have a firm fixed customer purchase order with defined delivery dates.  Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules.  Backlog is not generally a significant factor in the Company’s businesses because of our relatively short delivery periods and rapid inventory turnover with the exception of Engineering Technologies.  Due to the nature of long term agreements in the Engineering Technologies segment, the timing of orders and delivery dates can vary considerably resulting in significant backlog changes from one period to another.


Backlog orders in place at June 30, 2017 and 2016 are as follows (in thousands):  


 

 

As of June 30, 2017

 

 

As of June 30, 2016

 

 

Total Backlog

 

Backlog under 1 year

 

 

Total Backlog

 

Backlog under 1 year

Food Service Equipment

$

49,660

$

47,039

 

$

37,202

$

35,395

Engraving

 

21,584

 

21,584

 

 

          19,046

 

19,046

Engineering Technologies

 

92,154

 

61,329

 

 

          90,241

 

60,520

Electronics

 

60,092

 

56,741

 

 

          44,713

 

42,983

Hydraulics

 

            6,846

 

6,846

 

 

            4,951

 

4,951

          Total

$

230,336

$

193,539

 

$

196,153

$

162,895


Backlog realizable within one year increased $30.6 million, or 18.8%, to $193.5 million at June 30, 2017 from $162.9 million at June 30, 2016. Backlog realizable under a year increased for each of our segments with Food Service Equipment Electronics, and Hydraulics each increasing over 30% year over year.  Food Service Equipment backlog realizable within one year increased $11.7 million, or 32.9%.  Without the impact of the newly acquired Horizon business, Food Service Equipment backlog realizable within one year increased 28.9%.  Higher demand for Refrigeration, Federal Industries, and Procon products drove the majority of the Food Service Equipment increase.  Engraving backlog realizable within one year increased $2.5 million, or 13.3%.  Adjusting for the impact of the divestiture of the roll plate engraving business, Engraving backlog realizable within one year increased 39.0%.  The increase is a result of increased demand and the effect of some automotive projects that were delayed to fiscal year 2018.  Electronics backlog realizable under a year increased $13.8 million, or 32.0%.  Without the impact of the Standex Electronics Japan acquisition, Electronics backlog realizable within one year decreased 4.9%.  


Competition


Standex manufactures and markets products many of which have achieved a unique or leadership position in their market.  However, we encounter competition in varying degrees in all product groups and for each product line.  Competitors include domestic and foreign producers of the same and similar products.  The principal methods of competition are product performance and technology, price, delivery schedule, quality of services, and other terms and conditions.


International Operations


We have international operations in all of our business segments.  International operations are conducted at 58 locations, in Europe, Canada, China, India, Southeast Asia, Korea, Australia, Mexico, Brazil, and South Africa.  See the Notes to Consolidated Financial Statements for international operations financial data.  Our net sales from international operations increased from 27% in 2016 to 31% in 2017.  International operations are subject to certain inherent risks in connection with the conduct of business in foreign countries including, exchange controls, price controls, limitations on participation in local enterprises, nationalizations, expropriation and other governmental action, restrictions of repatriation of earnings, and changes in currency exchange rates.


Research and Development


Developing new and improved products, broadening the application of established products, continuing efforts to improve our methods, processes, and equipment continues to drive our success.  However, due to the nature of our manufacturing operations and the types of products manufactured, expenditures for research and development are not significant to any individual segment or in the aggregate.  Research and development costs are quantified in the Notes to Consolidated Financial Statements.  We develop and design new products to meet customer needs in order to offer enhanced products or to provide customized solutions for customers.


Environmental Matters


Based on our knowledge and current known facts, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position.  


Financial Information about Geographic Areas


Information regarding revenues from external customers attributed to the United States, all foreign countries and any individual foreign country, if material, is contained in the Notes to Consolidated Financial Statements for “Industry Segment Information.”  


Number of Employees


As of June 30, 2017, we employed approximately 5,500 employees of which approximately 2,900 were in the United States.  About 350 of our U.S. employees were represented by unions.  Approximately 26% of our production workforce is situated in low-cost manufacturing regions such as Mexico, Brazil and Asia.  


Executive Officers of Standex


The executive officers of the Company as of June 30, 2017 were as follows:


Name

Age

Principal Occupation During the Past Five Years

David Dunbar

55

President and Chief Executive Officer of the Company since January 2014.  President of the Valves and Controls global business unit of Pentair Ltd from 2009 through 2013.

Thomas D. DeByle

57

Vice President and Chief Financial Officer of the Company since March 2008.

Alan J. Glass

53

Vice President, Chief Legal Officer and Secretary of the Company since April 2016.  Vice President, General Counsel and Secretary of CIRCOR International, Inc. from 2000 through 2016.

Ross McGovern

39

Vice President of Human Resources of the Company since August 2015.  Director of Human Resources of Keurig Green Mountain 2015, Vice President of Human Resources of Datacolor from 2012 through 2015, and Global Human Resources Manager of R&D GE Healthcare, Medical Diagnostics, a subsidiary of General Electric from 2009 through 2011.

Sean Valashinas

45

Chief Accounting Officer and Assistant Treasurer of the Company since October 2007.

Anne De Greef-Safft

55

Segment President of Food Service Equipment since January 2015; President of Danaher’s Gems, Setra, Sonix and Anderson Companies, where she directed the worldwide operations, marketing and sales, engineering, accounting and human resources functions of these businesses from 2009 through 2014.

Paul Burns

44

Vice President of Strategy and Business Development since July 2015, Director of Corporate Development and Global Mergers & Acquisitions at General Motors from 2013 through 2015, Director of Strategy and Business Development at Tyco Flow Control from 2011 through 2013.


The executive officers are elected each year at the first meeting of the Board of Directors subsequent to the annual meeting of stockholders, to serve for one-year terms of office.  There are no family relationships among any of the directors or executive officers of the Company.


Long-Lived Assets


Long-lived assets are described and discussed in the Notes to Consolidated Financial Statements under the caption “Long-Lived Assets.”  


Available Information


Standex’s corporate headquarters are at 11 Keewaydin Drive, Salem, New Hampshire 03079, and our telephone number at that location is (603) 893-9701.


The U.S. Securities and Exchange Commission (the “SEC”) maintains an internet website at www.sec.gov that contains our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto.  All reports that we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549.  Information about the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.  Standex’s internet website address is www.standex.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto, are available free of charge on our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.  In addition, our code of business conduct, our code of ethics for senior financial management, our corporate governance guidelines, and the charters of each of the committees of our Board of Directors (which are not deemed filed by this reference), are available on our website and are available in print to any Standex shareholder, without charge, upon request in writing to “Chief Legal Officer, Standex International Corporation, 11 Keewaydin Drive, Salem, New Hampshire, 03079.”


The certifications of Standex’s Chief Executive Officer and Chief Financial Officer, as required by the rules adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, are filed as exhibits to this Form 10-K.  


Item 1A.  Risk Factors


An investment in the Company involves various risks, including those mentioned below and those that are discussed from time to time in our other periodic filings with the Securities and Exchange Commission.  Investors should carefully consider these risks, along with the other information filed in this report, before making an investment decision regarding the Company.  Any of these risks could have a material adverse effect on our financial condition, results of operations and/or value of an investment in the Company.


A deterioration in the domestic and international economic environment could adversely affect our operating results, cashflow and financial condition.


Recessionary economic conditions, with or without a tightening of credit, could adversely impact major markets served by our businesses, including cyclical markets such as automotive, aviation, energy and power, heavy construction vehicle, general industrial, consumer appliances and food service.  An economic recession could adversely affect our business by:


reducing demand for our products and services, particularly in markets where demand for our products and services is cyclical;

causing delays or cancellations of orders for our products or services;

reducing capital spending by our customers;

increasing price competition in our markets;

increasing difficulty in collecting accounts receivable;

increasing the risk of excess or obsolete inventories;

increasing the risk of impairment to long-lived assets due to reduced use of manufacturing facilities;

increasing the risk of supply interruptions that would be disruptive to our manufacturing processes; and

reducing the availability of credit and spending power for our customers.


We rely on our credit facility to provide us with sufficient capital to operate our businesses.


We rely on our revolving credit facility, in part along with operating cash flow, to provide us with sufficient capital to operate our businesses.  The availability of borrowings under our revolving credit facility is dependent upon our compliance with the covenants set forth in the facility, including the maintenance of certain financial ratios.  Our ability to comply with these covenants is dependent upon our future performance, which is subject to economic conditions in our markets along with factors that are beyond our control.  Violation of those covenants could result in our lenders restricting or terminating our borrowing ability under our credit facility, cause us to be liable for covenant waiver fees or other obligations, or trigger an event of default under the terms of our credit facility, which could result in acceleration of the debt under the facility and require prepayment of the debt before its due date.  Even if new financing is available in the event of a default under our current credit facility, the interest rate charged on any new borrowing could be substantially higher than under the current credit facility, thus adversely affecting our overall financial condition.  If our lenders reduce or terminate our access to amounts under our credit facility, we may not have sufficient capital to fund our working capital needs or we may need to secure additional capital or financing to fund our working capital requirements or to repay outstanding debt under our credit facility.


Our credit facility contains covenants that restrict our activities.


Our revolving credit facility contains covenants that restrict our activities, including our ability to:


incur additional indebtedness;

make investments, including acquisitions;

create liens;

pay cash dividends to shareholders unless we are compliant with the financial covenants set forth in the credit facility; and

sell material assets.


Our global operations subject us to international business risks.


We operate in 58 locations outside of the United States in Europe, Canada, China, Japan, India, Singapore, Korea, Australia, Mexico, Brazil, Turkey, Malaysia, and South Africa.  If we are unable to successfully manage the risks inherent to the operation and expansion of our global businesses, those risks could have a material adverse effect on our results of operations, cashflow or financial condition.  These international business risks include:


fluctuations in currency exchange rates;

changes in government regulations;

restrictions on repatriation of earnings;

import and export controls;

political, social and economic instability;

potential adverse tax consequences;

difficulties in staffing and managing multi-national operations;

unexpected changes in zoning or other land-use requirements;

difficulties in our ability to enforce legal rights and remedies; and

changes in regulatory requirements.


Failure to achieve expected savings and synergies could adversely impact our operating profits and cash flows.


We focus on improving profitability through LEAN enterprise, low cost sourcing and manufacturing initiatives, improving working capital management, developing new and enhanced products, consolidating factories where appropriate, automating manufacturing processes, diversification efforts and completing acquisitions which deliver synergies to stimulate sales and growth.  If we are unable to successfully execute these programs, such failure could adversely affect our operating profits and cash flows.  In addition, actions we may take to consolidate manufacturing operations to achieve cost savings or adjust to market developments may result in restructuring charges that adversely affect our profits.


Violation of anti-bribery or similar laws by our employees, business partners or agents could result in fines, penalties, damage to our reputation or other adverse consequences.


We cannot assure that our internal controls, code of conduct and training of our employees will provide complete protection from reckless or criminal acts of our employees, business partners or agents that might violate United States or international laws relating to anti-bribery or similar topics.  A violation of these laws could subject us to civil or criminal investigations that could result in substantial civil or criminal fines and penalties and which could damage our reputation.


We face significant competition in our markets and, if we are not able to respond to competition in our markets, our net sales, profits and cash flows could decline.


Our businesses operate in highly competitive markets.  To compete effectively, we must retain long standing relationships with significant customers, offer attractive pricing, maintain product quality, develop enhancements to products that offer performance features that are superior to our competitors and which maintain our brand recognition, continue to automate our manufacturing capabilities, continue to grow our business by establishing relationships with new customers, diversify into emerging markets and penetrate new markets.  If we are unable to compete effectively, our net sales, profitability and cash flows could decline.  Pricing pressures resulting from competition may adversely affect our net sales and profitability.


If we are unable to successfully introduce new products and product enhancements, our future growth could be impaired.


Our ability to develop new products and innovations to satisfy customer needs or demands in the markets we serve can affect our competitive position and often requires significant investment of resources.  Difficulties or delays in research, development or production of new products and services or failure to gain market acceptance of new products and technologies may significantly reduce future net sales and adversely affect our competitive position.


Increased prices or significant shortages of the commodities that we use in our businesses could result in lower net sales, profits and cash flows.


We purchase large quantities of steel, aluminum, refrigeration components, freight services, foam insulation and other metal commodities for the manufacture of our products.  Historically, prices for commodities have fluctuated, and we are unable to enter into long term contracts or other arrangements to hedge the risk of price increases in many of these commodities.  Significant price increases for these commodities could adversely affect our operating profits if we cannot timely mitigate the price increases by successfully sourcing lower cost commodities or by passing the increased costs on to customers.  Shortages or other disruptions in the supply of these commodities could delay sales or increase costs.


An inability to identify or complete future acquisitions could adversely affect our future growth.


As part of our growth strategy, we intend to pursue acquisitions that provide opportunities for profitable growth for our businesses and enable us to leverage our competitive strengths.  While we continue to evaluate potential acquisitions, we may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, obtain regulatory approval for certain acquisitions or otherwise complete acquisitions in the future.  An inability to identify or complete future acquisitions could limit our future growth.


We may experience difficulties in integrating acquisitions.


Integration of acquired companies involves several risks, including:


inability to operate acquired businesses profitably;

failure to accomplish strategic objectives for those acquisitions;

unanticipated costs relating to acquisitions or to the integration of the acquired businesses;

difficulties in achieving planned cost savings synergies and growth opportunities; and

possible future impairment charges for goodwill and non-amortizable intangible assets that are recorded due to acquisitions.


Additionally, our level of indebtedness may increase in the future if we finance acquisitions with debt, which would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing.  We cannot assure that future acquisitions will not have a material adverse effect on our financial condition, results of operations and cash flows.


Impairment charges could reduce our profitability.


We test goodwill and our other intangible assets with indefinite useful lives for impairment on an annual basis or on an interim basis if a potential impairment factor arises that indicates the fair value of the reporting unit may fall below its carrying value.  Various uncertainties, including continued adverse conditions in the capital markets or changes in general economic conditions, could impact the future operating performance at one or more of our businesses which could significantly affect our valuations and could result in additional future impairments.  The recognition of an impairment of a significant portion of goodwill would negatively affect our results of operations.   


Materially adverse or unforeseen legal judgments, fines, penalties or settlements could have an adverse impact on our profits and cash flows.


We are and may, from time to time, become a party to legal proceedings incidental to our businesses, including, but not limited to, alleged claims relating to product liability, environmental compliance, patent infringement, commercial disputes and employment and regulatory matters.  In accordance with United States generally accepted accounting principles, we establish reserves based on our assessment of contingent liabilities.  Subsequent developments in legal proceedings may affect our assessment and estimates of loss contingencies, recorded as reserves, which could require us to record additional reserves or make material payments which could adversely affect our profits and cash flows.  Even the successful defense of legal proceedings may cause us to incur substantial legal costs and may divert management's time and resources away from our businesses.


The costs of complying with existing or future environmental regulations, and of correcting any violations of these regulations, could impact our profitability.


We are subject to a variety of environmental laws relating to the storage, discharge, handling, emission, generation, use and disposal of chemicals, hazardous waste and other toxic and hazardous materials used to manufacture, or resulting from the process of manufacturing, our products.  We cannot predict the nature, scope or effect of regulatory requirements to which our operations might be subject or the manner in which existing or future laws will be administered or interpreted.  We are also exposed to potential legacy environmental risks relating to businesses we no longer own or operate.  Future regulations could be applied to materials, products or activities that have not been subject to regulation previously.  The costs of complying with new or more stringent regulations, or with more vigorous enforcement of these or existing regulations, could be significant.


In addition, properly permitted waste disposal facilities used by us as a legal and legitimate repository for hazardous waste may in the future become mismanaged or abandoned without our knowledge or involvement.  In such event, legacy landfill liability could attach to or be imposed upon us in proportion to the waste deposited at any disposal facility.


Environmental laws require us to maintain and comply with a number of permits, authorizations and approvals and to maintain and update training programs and safety data regarding materials used in our processes.  Violations of these requirements could result in financial penalties and other enforcement actions.  We could be required to halt one or more portions of our operations until a violation is cured.  Although we attempt to operate in compliance with these environmental laws, we may not succeed in this effort at all times.  The costs of curing violations or resolving enforcement actions that might be initiated by government authorities could be substantial.


The costs of complying with existing or future regulations applicable to our products, and of correcting any violations of such regulations, could impact our profitability.


Certain of our products are subject to regulations promulgated by administrative agencies such as the Department of Energy, Occupations Health and Safety Administration and the Food and Drug Administration.  Such regulations, among other matters, specify requirements regarding energy efficiency and product safety.  Regulatory violations could result in financial penalties and other enforcement actions.  We could be required to halt production of one or more products until a violation is cured.  Although we attempt to produce our products in compliance with these requirements, the costs of curing violations or resolving enforcement actions that might be initiated by administrative agencies could be substantial.


Strategic divestitures and contingent liabilities from businesses that we sell could adversely affect our results of operations and financial condition.


From time to time, we have sold and may continue to sell business that we consider to be either underperforming or no longer part of our strategic vision.  The sale of any such business could result in a financial loss and/or write-down of goodwill which could have a material adverse effect on our results for the financial reporting period during which such sale occurs.  In addition, in connection with such divestitures, we have retained, and may in the future retain responsibility for some of the known and unknown contingent liabilities related to certain divestitures such as lawsuits, tax liabilities, product liability claims, and environmental matters.  


The trading price of our common stock has been volatile, and investors in our common stock may experience substantial losses.


The trading price of our common stock has been volatile and may become volatile again in the future.  The trading price of our common stock could decline or fluctuate in response to a variety of factors, including:


our failure to meet the performance estimates of securities analysts;

changes in financial estimates of our net sales and operating results or buy/sell recommendations by securities analysts;

fluctuations in our quarterly operating results;

substantial sales of our common stock;

changes in the amount or frequency of our payment of dividends or repurchases of our common stock;

general stock market conditions; or

other economic or external factors.


Decreases in discount rates and actual rates of return could require future pension contributions to our pension plans which could limit our flexibility in managing our Company.


The discount rate and the expected rate of return on plan assets represent key assumptions inherent in our actuarially calculated pension plan obligations and pension plan expense.  If discount rates and actual rates of return on invested plan assets were to decrease significantly, our pension plan obligations could increase materially.  Although our pension plans have been frozen, the size of future required pension contributions could require us to dedicate a greater portion of our cash flow from operations to making contributions, which could negatively impact our financial flexibility.


Our business could be negatively impacted by cybersecurity threats, information systems and network interruptions, and other security threats or disruptions.


Our information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations.  Cybersecurity threats are persistent, evolve quickly, and include, but are not limited to, computer viruses, ransomware, attempts to access information, denial of service and other electronic security breaches.  These events could disrupt our operations or customers and other third party IT systems in which we are involved and could negatively impact our reputation among our customers and the public which could have a negative impact on our financial conditions, results of operations, or liquidity.


Various restrictions in our charter documents, Delaware law and our credit agreement could prevent or delay a change in control that is not supported by our board of directors.


We are subject to several provisions in our charter documents, Delaware law and our credit facility that may discourage, delay or prevent a merger, acquisition or change of control that a stockholder may consider favorable.  These anti-takeover provisions include:


maintaining a classified board and imposing advance notice procedures for nominations of candidates for election as directors and for stockholder proposals to be considered at stockholders' meetings;

a provision in our certificate of incorporation that requires the approval of the holders of 80% of the outstanding shares of our common stock to adopt any agreement of merger, the sale of substantially all of the assets of the Company to a third party or the issuance or transfer by the Company of voting securities having a fair market value of $1 million or more to a third party, if in any such case such third party is the beneficial owner of 10% or more of the outstanding shares of our common stock, unless the transaction has been approved prior to its consummation by all of our directors;

requiring the affirmative vote of the holders of at least 80% of the outstanding shares of our common stock for stockholders to amend our amended and restated by-laws;

covenants in our credit facility restricting mergers, asset sales and similar transactions; and

the Delaware anti-takeover statute contained in Section 203 of the Delaware General Corporation Law.




Section 203 of the Delaware General Corporation Law prohibits a merger, consolidation, asset sale or other similar business combination between the Company and any stockholder of 15% or more of our voting stock for a period of three years after the stockholder acquires 15% or more of our voting stock, unless (1) the transaction is approved by our board of directors before the stockholder acquires 15% or more of our voting stock, (2) upon completing the transaction the stockholder owns at least 85% of our voting stock outstanding at the commencement of the transaction, or (3) the transaction is approved by our board of directors and the holders of 66 2/3% of our voting stock, excluding shares of our voting stock owned by the stockholder.


Item 1B.  Unresolved Staff Comments


None.


Item 2.  Properties


We have a total of 98 facilities, of which we operate 84 manufacturing plants and warehouses located throughout the United States, Europe, Canada, Australia, Southeast Asia, Korea, Japan, China, India, Brazil, South Africa, and Mexico.  The Company owns 21 of the facilities and the balance are leased.  For the year ended June 30, 2017 the approximate building space utilized by each segment is as follows:  


 

 

Area in Square Feet (in thousands)

Segment location

Number of Facilities

Leased

Owned

Total

EMEA(1)

2

20

-

20

Other Americas

4

32

185

217

United States

15

386

790

1,176

Food Service Equipment

21

438

975

1,413

Asia Pacific

16

165

-

165

EMEA(1)

15

302

36

338

Other Americas

2

43

-

43

United States

6

17

224

241

Engraving

39

527

260

787

EMEA(1)

3

80

-

80

United States

7

273

171

444

Engineering Technologies

10

353

171

524

Asia Pacific

6

76

-

76

EMEA(1)

5

8

89

97

Other Americas

2

61

-

61

United States

4

29

61

90

Electronics

17

174

150

324

Asia Pacific

2

75

-

75

Other Americas

1

1

-

1

United States

5

15

101

116

Hydraulics

8

91

101

192

United States

3

150

22

172

Corporate & Other

3

150

22

172

Total

98

1,733

1,679

3,412


(1)   EMEA consists primarily of Europe, Middle East and S. Africa.


In general, the buildings are in sound operating condition and are considered to be adequate for their intended purposes and current uses.


We own substantially all of the machinery and equipment utilized in our businesses.


Item 3.  Legal Proceedings


Discussion of legal matters is incorporated by reference to Part II, Item 8, Note 12, “CONTINGENCIES,” in the Notes to the Consolidated Financial Statements.




Item 4.  Mine Safety Disclosures


Not Applicable


PART II


Item 5.  Market for Standex Common Stock


Related Stockholder Matters and Issuer Purchases of Equity Securities


The principal market in which the Common Stock of Standex is traded is the New York Stock Exchange under the ticker symbol “SXI”.  The high and low sales prices for the Common Stock on the New York Stock Exchange and the dividends paid per Common Share for each quarter in the last two fiscal years are as follows:


 

Common Stock Price Range

 

Dividends Per Share

 

2017

 

2016

 

 

 

Year Ended June 30

High

Low

 

High

Low

 

2017

2016

First quarter

$   93.29

 $  80.90

 

$   83.20

$  66.98

 

$        0.14

$        0.12

Second quarter

     97.55

    74.35

 

     93.10

    72.94

 

0.16

0.14

Third quarter

     101.24

    85.80

 

     82.45

    65.53

 

0.16

0.14

Fourth quarter

100.30

    84.30

 

     89.29

    75.59

 

0.16

0.14


The approximate number of stockholders of record on July 31, 2017 was 1,663.  


Additional information regarding our equity compensation plans is presented in the Notes to Consolidated Financial Statements under the caption “Stock-Based Compensation and Purchase Plans” and Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”


Issuer Purchases of Equity Securities (1)

 

 

 

 

 

Quarter Ended June 30, 2017

 

 

 

 

 

 





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

April 1 - April 30, 2017

 

-

 

$              -

 

       -

 

$               90,126,230

May 1 - May 31, 2017

 

         2,655

 

       91.72

 

         2,655

 

 $               89,882,702

June 1 - June 30, 2017

 

1,370

 

      90.06

 

1,370

 

      $               89,759,320

     TOTAL

 

        4,025

 

$       91.16

 

4,025

 

$               89,759,320


(1)  The Company has a Stock Buyback Program (the “Program”) which was originally announced on January 30, 1985 and most recently amended on April 26, 2016.  Under the Program, the Company was authorized to repurchase up to an aggregate of $100 million of its shares.  Under the program, purchases may be made from time to time on the open market, including through 10b5-1 trading plans, or through privately negotiated transactions, block transactions, or other techniques in accordance with prevailing market conditions and the requirements of the Securities and Exchange Commission.  The Board’s authorization is open-ended and does not establish a timeframe for the purchases.  The Company is not obligated to acquire a particular number of shares, and the program may be discontinued at any time at the Company’s discretion.


















The following graph compares the cumulative total stockholder return on the Company’s Common Stock as of the end of each of the last five fiscal years, with the cumulative total stockholder return on the Standard & Poor’s Small Cap 600 (Industrial Segment) Index and on the Russell 2000 Index, assuming an investment of $100 in each at their closing prices on June 30, 2012 and the reinvestment of all dividends.





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Item 6.  Selected Consolidated Financial Data


Selected financial data for the five years ended June 30, is as follows:


See Item 7 for discussions on comparability of the below.


 

 

2017

 

2016

 

2015

 

2014

 

2013

SUMMARY OF OPERATIONS (in thousands)

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

     Food Service Equipment

 

$     380,970

 

  $    381,867

 

$     408,706

 

 $   377,848

 

 $   367,008

     Engraving

 

105,943

 

    124,120

 

110,781

 

109,271

 

93,380

     Engineering Technologies

 

90,506

 

      82,235

 

97,018

 

79,642

 

74,838

     Electronics

 

136,689

 

   118,319

 

114,196

 

114,881

 

108,085

     Hydraulics

 

41,150

 

     45,045

 

41,441

 

34,538

 

30,079

          Total

 

$     755,258

 

 $    751,586

 

$     772,142

 

 $   716,180

 

 $   673,390

Gross profit

 

$     252,754

 

 $    252,253

 

$     247,486

 

 $   238,269

 

 $   218,191

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

     Food Service Equipment

 

$       33,436

 

 $       40,142

 

$      37,456

 

 $    38,203

 

 $    37,533

     Engraving

 

25,584

 

         29,579

 

24,250

 

22,145

 

15,596

     Engineering Technologies

 

9,662

 

          8,258

 

13,097

 

12,676

 

13,241

     Electronics

 

27,663

 

         21,104

 

20,884

 

19,732

 

16,147

     Hydraulics

 

6,712

 

           7,947

 

7,013

 

5,781

 

4,968

     Restructuring (1)

 

(5,825)

 

         (4,232)

 

(3,443)

 

(10,077)

 

(2,666)

     Gain on sale of real estate

 

652

 

                   -   

 

         -   

 

             -   

 

               -   

Acquisition related expenses

 

(7,843)

 

                   -   

 

                -   

 

-   

 

           -   

     Other operating income (expense), net

 

                   -   

 

          (7,458)

 


438

 

        3,462

 

               -   

     Corporate and Other

 

(25,015)

 

(24,996)

 

(21,051)

 

(26,054)

 

(22,924)

          Total

 

65,026

 

 $       70,344

 

 $     78,644

 

 $    65,868

 

 $    61,895

Interest expense

 

(4,043)

 

(2,871)

 

(3,161)

 

(2,249)

 

(2,469)

Other non-operating (loss) income

 

949

 

1,052

 

634

 

4,184

 

(128)

Provision for income taxes

 

(15,355)

 

(16,295)

 

(20,874)

 

(18,054)

 

(15,244)

Income from continuing operations

 

46,577

 

52,230

 

55,243

 

49,749

 

44,054

Income/(loss) from discontinued operations

 

(32)

 

(174)

 

(500)

 

(6,883)

 

794

Net income

 

$       46,545

 

$       52,056

 

 $    54,743

 

 $    42,866

 

 $    44,848


(1) See discussion of restructuring activities in Note 16 of the consolidated financial statements.




 

 

2017

 

2016

 

2015

 

2014

 

2013

PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 $        3.68

 

 $        4.12

 

$          4.37

 

 $       3.94

 

 $        3.51

Income/(loss) from discontinued operations

-

 

(0.01)

 

(0.04)

 

(0.55)

 

0.06

          Total

 

 $        3.68

 

 $        4.11

 

$          4.33

 

 $       3.39

 

 $        3.57

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 $        3.65

 

 $        4.09

 

 $         4.31

 

 $       3.89

 

 $        3.45

Income/(loss) from discontinued operations

-

 

(0.01)

 

(0.04)

 

(0.54)

 

0.06

          Total

 

 $        3.65

 

 $        4.08

 

$          4.27

 

 $       3.35

 

 $        3.51

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 $        0.62

 

 $        0.54

 

$          0.46

 

 $       0.38

 

 $        0.31





 

 

2017

 

2016

 

2015

 

2014

 

2013

BALANCE SHEET (in thousands)

 

 

 

 

 

 

 

 

 

Total assets

 

 $   867,676

 

 $   690,457

 

$    659,063

 

 $   577,785

 

$   509,947

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

127,060

 

103,974

 

110,478

 

107,674

 

97,995

Inventories

 

119,401

 

105,402

 

108,305

 

97,065

 

81,811

Accounts payable

 

96,487

 

77,099

 

80,764

 

85,206

 

67,552

Goodwill

 

242,690

 

157,354

 

154,732

 

125,965

 

111,905

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 $     191,976

 

 $     92,114

 

$    101,753

 

$      44,681

 

$      49,446

Total debt

 

191,976

 

92,114

 

     101,753

 

      44,681

 

       49,446

Less cash

 

88,566

 

121,988

 

96,128

 

74,260

 

51,064

Net debt (cash)

 

$     103,410

 

$   (29,874)

 

$        5,625

 

$    (29,579)

 

$     (1,618)

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

$     408,664

 

$    369,959

 

$    348,570

 

$     340,726

 

$    290,988

 

 

 

 

 

 

 

 

 

 

 

KEY STATISTICS

 

2017

 

2016

 

2015

 

2014

 

2013

Gross profit margin

 

33.5%

 

33.6%

 

32.1%

 

33.3%

 

32.4%

Operating income margin

 

8.6%

 

9.4%

 

10.2%

 

9.2%

 

9.2%



Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations


Overview


We are a leading manufacturer of a variety of products and services for diverse commercial and industrial markets.  We have twelve operating segments, aggregated and organized for reporting purposes into five reportable segments:  Food Service Equipment, Engraving, Engineering Technologies, Electronics and Hydraulics.  Overall management, strategic development and financial control are maintained by the executive staff from our corporate headquarters located in Salem, New Hampshire.


Our long-term strategy is to build larger industrial platforms through a value creation system that assists management in meeting specific corporate and business unit financial and strategic performance goals in order to create, improve, and enhance shareholder value.  The Standex Value Creation System is a standard methodology which provides consistent tools used throughout the company in order to achieve our organization’s goal of transforming from its historic roots as a holding company to an efficient operating company.  The Standex Value Creation System employs four components: Balanced Performance Plan, Standex Growth Disciplines, Standex Operational Excellence, and Standex Talent Management.  The Balanced Performance Plan process aligns annual goals throughout the business and provides a standard reporting, management and review process.  It is focused on setting and meeting annual and quarterly targets that support our short and long term goals.  The Standex Growth Disciplines use a set of tools and processes including market maps, growth lane ways, and market tests to identify opportunities to expand the business organically and through acquisitions.  Standex Operational Excellence employs a standard playbook and processes, including LEAN, to eliminate waste and improve profitability, cash flow and customer satisfaction.  Finally, the Standex Talent Management process is an organizational development process that provides training, development, and succession planning for our employees throughout our worldwide organization.  The Standex Value Creation System ties all disciplines in the organization together under a common umbrella by providing standard tools and processes to deliver our business objectives.


·

It is our objective to grow larger and more profitable business units through both organic initiatives and acquisitions.  We seek to identify and implement organic growth initiatives such as new product development, geographic expansion, introduction of products and technologies into new markets and applications, key accounts and strategic sales channel partners.  Also, we have a long-term objective to create sizable business platforms by adding strategically aligned or “bolt on” acquisitions to strengthen the individual businesses, create both sales and cost synergies with our core business platforms, and accelerate their growth and margin improvement.  We look to create both sales and cost synergies within our core business platforms, accelerate growth and improve margins.  We have a particular focus on identifying and investing in opportunities that complement our products and will increase the global presence and capabilities of our businesses.  From time to time, we have divested, and likely will continue to divest, businesses that we feel are not strategic or do not meet our growth and return expectations.

o

As part of our ongoing strategy, we acquired all of the outstanding shares of Oki Sensor Device Corporation from OKI Electric Industry Co., Ltd. during the third quarter of fiscal year 2017.  Located in Kofu City, Japan, OKI Sensor Device Corporation is the world’s leading designer and supplier of magnetic reed switches.  Now named Standex Electronics Japan Corporation, (“Standex Electronics Japan”) the acquisition enhances the Company’s access to important Asian markets and enables the Company to offer a world class suite of reed switches and related magnetic solutions while continuing to serve Standex Electronics Japan’s diverse distribution channels.  Standex Electronics Japan’s results are reported within our Electronics segment.  

o

During our second quarter of 2017, we acquired Horizon Scientific, Inc., (“Horizon Scientific”) a South Carolina-based supplier of laboratory refrigerators and freezers, as well as cryogenic equipment for the scientific, bio-medical and pharmaceutical markets.  We have included the operating results of Horizon Scientific in our Food Service Equipment segment in our Condensed Consolidated Financial Statements.  Horizon Scientific expands our access to higher-margin refrigeration markets in the growing scientific sector that provides solutions for exacting temperature storage requirements.  Horizon Scientific’s products complement the scientific offerings in our Nor-Lake division.  

o

During the first quarter of fiscal year 2017, we sold our U.S. Roll Plate and Machinery (“RPM”) business, as it was not strategic, and did not meet our growth and return expectations.  This divestiture also allows our Engraving management to focus on higher growth and better return businesses within the segment.  In preparation for this sale during the fourth quarter of 2016, we adjusted the net assets of the business to their net realizable value.

·

We create “Customer Intimacy” by utilizing the Standex Growth Disciplines to partner with our customers in order to develop and deliver custom solutions or engineered components.  By partnering with our customers during long-term product development cycles, we become an extension of their development teams.  Through this Partner, Solve, Deliver ® methodology, we are able to secure our position as a preferred long-term solution provider for our products and components.  This strategy results in increased sales and operating margins that enhance shareholder returns.  


·

Standex Operational Excellence drives continuous improvement in the efficiency of our businesses, both on the shop floor and in the office environment.  We recognize that our businesses are competing in a global economy that requires us to improve our competitive position.  We have deployed a number of management competencies to drive improvements in the cost structure of our business units including operational excellence through lean enterprise, the use of low cost manufacturing facilities in countries such as Mexico and China, the consolidation of manufacturing facilities to achieve economies of scale and leveraging of fixed infrastructure costs, alternate sourcing to achieve procurement cost reductions, and capital improvements to increase productivity.


·

The Company’s strong historical cash flow has been a cornerstone for funding our capital allocation strategy.  We use cash flow generated from operations to fund the strategic growth programs described above, including acquisitions and investments for organic growth, investments in capital assets to improve productivity and lower costs and to return cash to our shareholders through payment of dividends and stock buybacks.

Restructuring expenses reflect costs associated with the Company’s efforts of continuously improving operational efficiency and expanding globally in order to remain competitive in the end-user markets we serve.  The Company incurs costs for actions to size its businesses to a level appropriate for current economic conditions, improve its cost structure, enhance our competitive position and increase operating margins.  Such expenses include costs for moving facilities to locations that allow for lower fixed and variable costs, starting up plants after relocation, downsizing operations because of changing economic conditions, and other costs resulting from asset redeployment decisions.  Shutdown costs include severance, benefits, stay bonuses, lease and contract terminations, asset write-downs, costs of moving fixed assets, and moving and relocation costs. Vacant facility costs include maintenance, utilities, property taxes and other costs.

Because of the diversity of the Company’s businesses, end user markets and geographic locations, management does not use specific external indices to predict the future performance of the Company, other than general information about broad macroeconomic trends.  Each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to its business and which could impact their performance.  Those units report pertinent information to senior management, which uses it to the extent relevant to assess the future performance of the Company.  A description of any such material trends is described below in the applicable segment analysis.


We monitor a number of key performance indicators (“KPIs”) including net sales, income from operations, backlog, effective income tax rate, gross profit margin, and operating cash flow.  A discussion of these KPIs is included below.  We may also supplement the discussion of these KPIs by identifying the impact of foreign exchange rates, acquisitions, and other significant items when they have a material impact on a specific KPI.  

We believe the discussion of these items provides enhanced information to investors by disclosing their impact on the overall trend which provides a clearer comparative view of the KPI, as applicable.  For discussion of the impact of foreign exchange rates on KPIs, the Company calculates the impact as the difference between the current period KPI calculated at the current period exchange rate as compared to the KPI calculated at the historical exchange rate for the prior period.  For discussion of the impact of acquisitions, we isolate the effect on the KPI amount that would have existed regardless of our acquisition.  Sales resulting from synergies between the acquisition and existing operations of the Company are considered organic growth for the purposes of our discussion.


Unless otherwise noted, references to years are to fiscal years.


Consolidated Results from Continuing Operations (in thousands):


 

 

2017

 

2016

 

2015

Net sales

$

755,258

$

     751,586

$

     772,142

Gross profit margin

 

33.5%

 

33.6%

 

32.1%

Restructuring costs

 

         5,825

 

         4,232

 

       3,443

Other income/(expense) operating

 

          (7,843)

 

          (7,458)

 

         438

Income from operations

 

65,026

 

       70,344

 

       78,644

 

 

 

 

 

 

 

Backlog (realizable within 1 year)

$

     193,539

$

162,895

$

     168,157

 

 

 

 

 

 

 

 

 

2017

 

2016

 

2015

Net sales

$

755,258

$

     751,586

$

     772,142

Components of change in sales:

 

 

 

 

 

 

   Effect of acquisitions

 

       38,498

 

       11,672

 

38,155

   Effect of exchange rates

 

     (6,195)

 

     (15,011)

 

(16,423)

   Effect of business divestitures

 

(17,446)

 

2,791

 

9,096

   Organic sales growth

 

     (11,185)

 

     (20,008)

 

25,134


Net sales for the fiscal year 2017 increased by $3.7 million, or 0.5%, when compared to the prior year.  Incremental sales increases of $38.5 million from our recent acquisitions were partially offset by organic sales declines of $11.2 million, or 1.5%, the impact of $17.4 million, or 2.3%, from the divestiture of the RPM business, and an unfavorable impact of $6.2 million, or 0.8%, due to the effect of exchanges rates.  The organic sales decrease was primarily driven by lower sales in Food Service, Refrigeration and Cooking Solutions.  


Net sales for the fiscal year 2016 decreased slightly by $20.6 million, or 2.7%, when compared to the prior year.  The decrease is driven by $20.0 million, or 2.7% of organic sales declines and $15.0 million, or 1.9%, of unfavorable foreign exchange partially offset by $11.7 million, or 1.5% from the Northlake and Enginetics acquisitions.  The organic sales decrease was primarily driven by lower sales to the refrigeration and oil and gas markets, partially offset by higher sales to the automotive and other markets.  


Gross Profit Margin


During 2017, gross margin remained essentially flat at 33.5% as compared to 33.6% in 2016.  Excluding the effects of purchase accounting in both years, our gross margins increased 29 basis points compared to prior year.  During fiscal year 2017, we incurred $3.1 million of purchase accounting charges related to the Standex Electronics Japan and Horizon Scientific acquisitions as compared to charges of $0.4 million in the prior year for the Northlake acquisition.  


During 2016, gross margin increased to 33.6% as compared to 32.1% in 2015.  The increase was the result of higher sales in the Engraving segment, which typically carry higher margins than sales in our other segments and operational improvements in our Food Service Equipment segment as our Operational Excellence initiatives generated positive gross margin results.  We also experienced gross margin improvements due to reduced purchase accounting charges of $1.3 million.  During fiscal year 2016 we incurred $0.4 million of purchase accounting charges related to the Northlake acquisition as compared to charges of $1.7 million in the prior year for the Enginetics and Ultrafryer acquisitions.


Restructuring Charges and Acquisition Related Expenses


For fiscal year 2017, we incurred restructuring costs of $5.8 million which were spent in three primary areas.  First, Engineering Technologies incurred $3.6 million of expense related to manufacturing footprint optimization at the Enginetics, Huber Heights, Ohio facility which allowed us to close its East Lake, Ohio facility.  We vacated and sublet the East Lake facility for approximately the same aggregate lease costs for which we are obligated under the lease.  Second, we spent $1.2 million to gain organizational efficiencies within the Food Service Equipment segment.  Finally, we spent $0.5 million in order to move our Electronics facility in China due to government directives related to all businesses in the area where our facility was located.


Also during fiscal year 2017, we incurred acquisition related expenses of $7.8 million comprised of three items.  First, we recognized $2.1 million for deferred compensation earned by the Horizon Scientific seller during the year.  The payments are contingent on the seller remaining an employee of the Company and are therefore treated as compensation expense.  Second, we spent $2.7 million on investment banker fees for services provided in connection with the Standex Electronics Japan transaction.  Third, we incurred $3.0 million for third party due diligence and legal expenses related to Standex Electronics Japan and other acquisition activity.


Selling, General, and Administrative Expenses


Selling, general, and administrative expenses, (“SG&A”) for the fiscal year 2017 were $174.1 million, or 23.0%, of sales compared to $170.2 million, or 22.6%, of sales during the prior year.  The increase in SG&A is primarily due to $5.6 million and $2.6 million of on-going SG&A expenses related to the Horizon Scientific and Standex Electronics Japan businesses, respectively, which were not in prior year.  These increases were partially offset by declines of $2.5 million from the divestiture of the RPM business, lower administrative compensation costs of $2.0 million, and lower variable expenses including commission and distribution costs.


Selling, general, and administrative expenses, (“SG&A”) for the fiscal year 2016 were $170.2 million or 22.6% of sales compared to $165.8 million or 21.5% of sales during the prior year.  The increase in SG&A was due to higher health care expenses, compensation, along with SG&A embedded in the Northlake business partially offset by declines in distribution expense.


Income from Operations


Income from operations for the fiscal year 2017 was $65.0 million, compared to $70.3 million during the prior year.  The decrease of $5.5 million is primarily to due acquisition related costs of $7.8 million, an increase in restructuring costs of $1.6 million, and overall organic sales volume declines.  These decreases were partially offset by the positive performance of our Horizon Scientific and Standex Electronic Japan acquisitions.  Discussion of the performance of each of our reportable segments is more fully explained in the segment analysis that follows.    


Income from operations for the fiscal year 2016 decreased by $8.3 million or 10.6%, when compared to the prior year.  The decrease was a result of a $7.3 million non-cash loss incurred to adjust the net realizable value of the Roll Plate and Machinery business, increases in health care and compensation expenses, partially offset by gross profit improvements due to business segment mix.  Discussion of the performance of each of our reportable segments is more fully explained in the segment analysis that follows.  


Interest Expense


Interest expense for the fiscal year 2017 was $4.0 million, an increase of $1.2 million as compared to the prior year.  Interest expense increases were due to higher borrowing costs and an increase in outstanding borrowings, primarily to fund acquisition activity.


Interest expense for the fiscal year 2016 was $2.9 million, a decrease of $0.3 million as compared to the prior year.  The decrease was primarily due to lower average borrowings outstanding during the year.


Income Taxes


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2017 was $15.4 million, or an effective rate of 24.8%, compared to $16.3 million, or an effective rate of 23.8% for the year ended June 30, 2016, and $20.9 million, or an effective rate of 27.4% for the year ended June 30, 2015.  Changes in the effective tax rates from period to period may be significant as they depend on many factors including, but not limited to, the amount of the Company's income or loss, the mix of income earned in the US versus outside the US, the effective tax rate in each of the countries in which we earn income, and any one-time tax issues which occur during the period.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2017 was impacted by the following items: (i) a provision of $0.4 million related to non-deductible transaction costs, (ii) a benefit of $0.6 million related to the R&D tax credit, and (iii) a benefit of $5.3 million due to the mix of income earned in jurisdictions with beneficial tax rates.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2016 was impacted by the following items: (i) a net benefit of $0.9 million related to a bargain-sale of idle property to a charitable organization, and (ii) a benefit of $0.7 million related to the R&D tax credit, and (iii) a benefit of $4.9 million due to the mix of income earned in jurisdictions with beneficial tax rates.


The Company's income tax provision from continuing operations for the fiscal year ended June 30, 2015 was impacted by the following items: (i) a benefit of $0.5 million related to the R&D tax credit that expired during the fiscal year on December 31, (ii) a benefit of $4.0 million due to the mix of income earned in jurisdictions with beneficial tax rates.


Capital Expenditures


During 2017, capital expenditures increased to $25.8 million or 3.4% of net sales, as compared to $17.9 million, or 2.4%, of net sales in the prior year.  Capital spending is focused on growth initiatives, cost reduction, and upgrades to extend the capabilities of our capital assets.  In general, we anticipate our capital expenditures over the long term will be approximately 2% to 3% of net sales.  We expect 2018 capital spending to be between $27.0 and $29.0 million which includes amounts not spent in 2017 and an incremental $2.8 million for Standex Electronics Japan.


Backlog


Backlog includes all active or open orders for goods and services that have a firm fixed customer purchase order with defined delivery dates.  Backlog also includes any future deliveries based on executed customer contracts, so long as such deliveries are based on agreed upon delivery schedules.  Backlog is not generally a significant factor in the Company’s businesses because of our relatively short delivery periods and rapid inventory turnover with the exception of Engineering Technologies.  Due to the nature of long term agreements in the Engineering Technologies segment, the timing of orders and delivery dates can vary considerably resulting in significant backlog changes from one period to another.


Backlog orders in place at June 30, 2017 and 2016 are as follows (in thousands):  


 

 

As of June 30, 2017

 

 

As of June 30, 2016

 

 

Total Backlog

 

Backlog under 1 year

 

 

Total Backlog

 

Backlog under 1 year

Food Service Equipment

$

49,660

$

47,039

 

$

37,202

$

35,395

Engraving

 

21,584

 

21,584

 

 

          19,046

 

19,046

Engineering Technologies

 

92,154

 

61,329

 

 

          90,241

 

60,520

Electronics

 

60,092

 

56,741

 

 

          44,713

 

42,983

Hydraulics

 

            6,846

 

6,846

 

 

            4,951

 

4,951

          Total

$

230,336

$

193,539

 

$

196,153

$

162,895


Backlog realizable within one year increased $30.6 million, or 18.8%, to $193.5 million at June 30, 2017 from $162.9 million at June 30, 2016.  Backlog realizable under a year increased for each of our segments with Food Service Equipment, Electronics, and Hydraulics each increasing over 30% year over year.  Food Service Equipment backlog realizable within one year increased $11.7 million, or 32.9%.  Without the impact of the newly acquired Horizon Scientific business, Food Service Equipment backlog realizable within one year increased 28.9%.  Higher demand for Refrigeration and Specialty Solutions drove the majority of the Food Service Equipment increase.  Engraving backlog realizable within one year increased $2.5 million, or 13.3%. Adjusting for the impact of the divestiture of the Standex Engraving business, Engraving backlog realizable within one year increased 39.0%.  The increase is a result of increased demand and the effect of some automotive projects that were delayed to fiscal year 2018.  Electronics backlog realizable under a year increased $13.8 million, or 32.0%. Without the impact of the Standex Electronics Japan acquisition, Electronics backlog realizable within one year decreased 4.9%


Segment Analysis (in thousands)


Food Service Equipment

 

2017 compared to 2016

 

2016 compared to 2015

(in thousands except

 

 

 

 

%

 

 

 

 

 

%

percentages)

2017

 

2016

 

Change

 

2016

 

2015

 

Change

Net sales

 $   380,970

 

 $   381,867

 

(0.2%)

 

 $   381,867

 

 $   408,706

 

(6.6%)

Income from operations

        33,436

 

        40,142

 

(16.7%)

 

        40,142

 

        37,456

 

7.2%

Operating income margin

8.8%

 

10.5%

 

 

 

10.5%

 

9.2%

 

 


Net sales for fiscal year 2017 decreased $0.9 million, or 0.2% when compared to the prior year.  The Horizon Scientific acquisition added $23.4 million or 6.1%, while organic sales declined by $24.2 million or 6.3%.  The organic sales decline was driven by a 7.4% decrease in Refrigeration and a 9.9% decrease in Cooking Solutions, partially offset by a 2.7% increase in Specialty Solutions.  Four factors contributed to the organic Refrigeration sales decline: (i) continued loss of market share into the dollar store market, (ii) delayed growth in the pharmacy sector due to merger delays, and (iii) second half manufacturing issues which, in the short term, lengthened our delivery lead-times and (iv) increasing importance of buying groups as a sales channel and their resultant lower margins.  Sales from the Cooking Solutions group decreased due to non-recurring rollouts in the supermarket channel, lower sales on rationalized low-margin products and lower sales to a few major dealers.  Specialty Solutions sales increased due to strong volume in our beverage segment and modest growth in merchandising.  Looking forward, we anticipate continued momentum in our Specialty Solutions group while we focus on enhancing profitability through product rationalization and tighter customer focus.   


Net sales for fiscal year 2016 decreased $26.8 million, or 6.6% when compared to the prior year.  The reduction was primarily in the Refrigeration Solutions group where sales decreased by 12.2%.  Three factors contributed to the Refrigeration sales decline: (i) loss of market share into the dollar store market, (ii) reduced sales to major chains due to reduced capital spending, and (iii) reduced sales in Canada due to the strength of the U.S. dollar.  Sales from the Cooking Solutions group increased, by 0.5% year over year due to growth in sales to retail supermarkets.  Specialty Solutions sales decreased 1.1% as our European pump business was impacted by a weak Euro early in the year.  


Income from operations for fiscal year 2017 decreased $6.7 million, or 16.7%, when compared to the prior year, and operating income margin decreased from 10.5% to 8.8%.  Fiscal year results were primarily impacted by sales declines in the Refrigeration Solutions group due to the factors discussed above.  We are currently evaluating our options to realign our Refrigeration and Cooking Solutions plant operations to improve efficiencies and reduce costs of standard products in these businesses.  In addition, we are restructuring the Food Service Equipment group to streamline reporting and further reduce costs and improve operating margins.  Details of the costs and expected savings related to these initiatives will be available in the first quarter of fiscal year 2018.  Finally, our focus in fiscal year 2018 is to continue driving growth in the differentiated products within cooking, scientific, pump and merchandising businesses.  


Income from operations for fiscal year 2016 increased $2.7 million, or 7.2%, when compared to the prior year, and operating income margin grew from 9.2% to 10.5%, up 130 basis points.  Operating efficiencies, portfolio focus, paring of low-margin products and expense controls have increased our leverage and have positively impacted income from operations for the segment.  


Engraving

 

2017 compared to 2016

 

2016 compared to 2015

(in thousands except

 

 

 

 

%

 

 

 

 

 

%

percentages)

2017

 

2016

 

Change

 

2016

 

2015

 

Change

Net sales

$  105,943

 

$  124,120

 

-14.6%

 

$  124,120

 

$  110,781

 

12.0%

Income from operations

      25,584

 

      29,579

 

-13.5%

 

      29,579

 

      24,250

 

22.0%

Operating income margin

24.1%

 

23.8%

 

 

 

23.8%

 

21.9%

 

 


Net sales for fiscal year 2017 decreased by $18.2 million or 14.6%, compared to the prior year.  Excluding the impact of the prior year divesture of the Roll Plate and machinery business and foreign exchange, net sales grew $2.0 million or 1.6%.  Overall, Mold Tech increased its global market share for new automotive model introductions.  Asia Pacific and Europe sales grew $4.2 million in fiscal year 2017, partially offset by lower sales volume in North America which was due to delayed new automotive launches.  Sales at our Innovent business declined by $3.0 million due to the prior year completion of a key customer product roll-out which did not repeat in 2017.  We expect Mold-Tech sales growth in all regions in fiscal year 2018 including the recovery of the delayed new automotive model launches in North America.


Net sales for fiscal year 2016 increased by $13.3 million or 12.0%, compared to the prior year.  Sales growth excluding foreign exchange losses of $8.7 million was driven by sales gains at Mold-Tech for new automotive model introductions along with market share gains throughout the world.  The Engraving segment also experienced sales gains in its Roll Plate and Machinery business and core forming tooling business.  


In fiscal 2017, we completed the sale of our U.S. Roll Plate and Machinery business as it was not strategic and did not meet our growth and return expectations.  This divestiture allows the Company’s management to focus on higher growth and better return businesses within the Engraving segment.  In preparation of this sale, during the fourth quarter of 2016, we recorded a $7.3 million non-cash loss to adjust the net assets of this business to their net realizable value.  This expense is recorded as a component of Other Operating Income (Expense), net.


Income from operations in fiscal year 2017 decreased by $4.0 million, or 13.5%, when compared to the prior year.  Net of the Roll Plate and Machinery business, income from operations decreased by $2.8 million, or 9.8%.  The operating income decline is driven by decreased automotive volume in North America, the impact of the sales decline at Innovent, increased investments in growth laneways and new technologies to fuel future opportunities.


Income from operations in fiscal year 2016 increased by $5.3 million, or 22%, when compared to the prior year.  The operating income improvement was driven by increased volume in all regions, partially offset by unfavorable foreign exchange and market declines in South America.   


Engineering Technologies

 

2017 compared to 2016

 

2016 compared to 2015

(in thousands except

 

 

 

 

%

 

 

 

 

 

%

percentages)

2017

 

2016

 

Change

 

2016

 

2015

 

Change

Net sales

$     90,506

 

 $      82,235

 

10.1%

 

 $      82,235

 

 $     97,018

 

(15.2%)

Income from operations

9,662

 

          8,258

 

17.0%

 

          8,258

 

        13,097

 

(36.9%)

Operating income margin

10.7%

 

10.0%

 

 

 

10.0%

 

13.5%

 

 



Net sales in the fiscal year 2017 increased $8.3 million or 10.1% when compared to the prior year. Sales distribution by market in 2017 was as follows: 43% aviation, 29% space, 14% oil and gas, 5% medical, and 9% other markets. Although energy sales rebounded from historical lows, we continued our conversion of this business to an aviation focused business.  Aviation sales increased 2.8% from the prior year, despite delays experienced by key customers on new engine platforms. Space market sales increased 15.8% from the prior year driven by higher sales in both the satellite launch and vehicle markets.  Defense related sales improved 11.6% from the prior year.  Sales in the energy markets were up $4.6 million primarily due to contract awards in the land based energy market.  We expect continued strong growth in the aviation market from the various platforms with nacelle lipskin & inlet duct products, along with aircraft engine components with the various OEM’s and Tier One customers.


Net sales in the fiscal year 2016 decreased $14.8 million or 15.2% when compared to the prior year.  Sales distribution by market in 2016 was as follows: 46% aviation, 27% space, 10% oil and gas, 8% medical, and 9% other markets.  Sales in the land based gas turbine and oil and gas markets were down over 60% from the prior year level.  The decline was a result of reduced demand in the oil and gas industry due to lower oil prices.  Total space sales decreased by 20.5% due to the completion of project based contracts in the manned space market. Sales in the unmanned space market were up 18.0% compared to the prior year.  Aviation sales increased 29.7% from the prior year due to strong customer demand and recent contract awards.  


Income from operations in the fiscal year 2017 increased $1.4 million or 17.0% when compared to the prior year.  The increase in operating income was due to higher sales volume, and a favorable product mix in the energy and space markets compared to the prior year period.


Income from operations in the fiscal year 2016 decreased $4.8 million, or 36.9%, when compared to the prior year. Operating income results were negatively impacted by the significant sales declines in both the energy and oil and gas related markets. This impact was partially offset by improved margins in the aviation market along with cost reduction programs implemented as a result of lower volume.  







Electronics

 

2017 compared to 2016

 

2016 compared to 2015

(in thousands except

 

 

 

 

%

 

 

 

 

 

%

percentages)

2017

 

2016

 

Change

 

2016

 

2015

 

Change

Net sales

 $        136,689

 

$        118,319

 

15.5%

 

 $    118,319

 

 $    114,196

 

3.6%

Income from operations

        27,663

 

        21,104

 

31.1%

 

        21,104

 

        20,884

 

1.1%

Operating income margin

20.2%

 

17.8%

 

 

 

17.8%

 

18.3%

 

 


Net sales in the fiscal year 2017 increased $18.4 million, 15.5%, when compared to the prior year.  Organic sales growth was $5.2 million, or 4.3%, and acquisitions contributed $15.1 million or 12.7%.  Organic sales growth was primarily driven by increases in expanding sensor applications in Europe, while North America and Asia remained relatively flat.  Northlake, acquired October 1, 2015, added $2.7 million of incremental sales in fiscal year 2017.  Standex Electronics Japan, acquired March 31, 2017, added $12.4 million. Foreign exchange rates adversely affected sales by $1.9 million.  We expect continued momentum in fiscal year 2018 as our investments in organic growth laneways mature and as we realize the synergies from our Standex Electronics Japan acquisition.     


Net sales in the fiscal year 2016 increased $4.1 million, 3.6%, when compared to the prior year.  Organic sales growth was $0.7 million, or 0.6%, while the Northlake acquisition contributed $7.5 million.  Foreign exchange rates adversely affected sales by $4.1 million.  Sales growth in local currency was particularly strong in Europe driven by volume increases in the sensor components.  We experienced sales declines in both Asia and North America due to general market softness, particularly earlier in the fiscal year.  


Income from operations in the fiscal year 2017 increased $6.6 million, or 31.1%, when compared to the prior year.  The operating improvements were a result of operating efficiencies, acquisitions, and product mix as well as higher organic sales growth.  Purchase accounting related to acquisitions had a negative impact of $1.6 million.


Income from operations in the fiscal year 2016 increased $0.2 million, or 1.1%, when compared to the prior year.  The operating improvements were a result of a facility consolidation into our Northlake site partially offset by $0.4 million of purchase accounting charges associated with the Northlake acquisition.


Hydraulics

 

2017 compared to 2016

 

2016 compared to 2015

(in thousands except

 

 

 

 

%

 

 

 

 

 

%

percentages)

2017

 

2016

 

Change

 

2016

 

2015

 

Change

Net sales

$   41,150

 

$   45,045

 

(8.6%)

 

$   45,045

 

$   41,441

 

8.7%

Income from operations

6,712       

 

      7,947

 

(15.5%)

 

      7,947

 

       7,013

 

13.3%

Operating income margin

16.3%

 

17.6%

 

 

 

17.6%

 

16.9%

 

 


Net sales in fiscal year 2017 decreased $3.9 million, or 8.6% compared to the prior year. Sales distribution by channel in 2017 was as follows: 37% dump trailer and truck, 22% refuse, 24% after-market, 6% export, and 11% other markets.  The decrease in sales primarily resulted from a significant reduction in demand from the traditional North American dump trailer and truck markets.  In the last quarter of the year, however, we did see an increase in the order rate for the dump truck and trailer market from several of our OEM’s. In addition, we see positive trends in the Hydraulics segment due to the introduction of several new applications in the refuse and construction space.  


Net sales in fiscal year 2016 increased $3.6 million, or 8.7% compared to the prior year.  Sales distribution by market in 2016 was as follows: 40% dump trailer and truck, 22% refuse, 22% after market, 6% export, and 10% other markets.  Strong demand in the traditional North American dump trailer and truck markets was the largest contributor for the net sales increase in addition to market share gains experienced in the refuse market.    


Income from operations in the fiscal year 2017 decreased $1.2 million or 15.5% when compared to the prior year due mostly to the reduction of volume requirements for cylinders in the North American dump trailer and truck markets.


Income from operations in the fiscal year 2016 increased $0.9 million or 13.3% when compared to the prior year due to market growth, increased sales volume and cost containment efforts.





Corporate, Restructuring and Other

 

2017 compared to 2016

 

2016 compared to 2015

(in thousands except

 

 

 

 

%

 

 

 

 

 

%

percentages)

2017

 

2016

 

Change

 

2016

 

2015

 

Change

 

Corporate

 $ (25,015)

 

 $ (24,996)

 

0.1%

 

 $ (24,996)

 

$ (21,051)

 

18.7%

 

Restructuring

         (5,825)

 

       (4,232)

 

37.6%

 

       (4,232)

 

     (3,443)

 

22.9%

 

Acquisition-related costs

 (7,843)

 

     (7,458)

 

5.2%

 

    (7,458)

 

        438

 

 -1,802.7%


Corporate expenses in fiscal year 2017 were flat when compared to the prior year.  


Corporate expenses in fiscal year 2016 increased $3.9 million or 18.7% when compared to the prior year.  The increase is due to increased health care expenses, compensation, and professional services.


The restructuring and acquisition-related costs have been discussed above in the Company Overview.


Discontinued Operations


In pursuing our business strategy, we have divested certain businesses and recorded activities of these businesses as discontinued operations.


On March 30, 2012, the Air Distribution Products Group, (“ADP”) was sold to a private equity buyer for consideration of $16.1 million consisting of $13.1 million in cash and a $3.0 million promissory note from the buyer.  The note was secured by a mortgage on the ADP real estate sold in the transaction in Detroit Lakes, MN, Medina, NY, and Powder Springs, GA.  During the first quarter 2016, the private equity buyer of ADP sold one of the facilities securing the note.  The Company released all mortgages on the properties and accepted an advanced payment of $2.8 million during October 2015 in order to reduce repayment risk and settle all obligations under the note.  The Company recorded a $0.2 million loss in discontinued operations during the first quarter 2016 related to this transaction.


During 2014, the Company received notice that its obligations under a guarantee provided to the buyers of ADP were triggered as a result of its withdrawal from both of the multi-employer pension plans in which ADP previously participated.   The last of these obligations were settled in July of fiscal year 2016 by a $0.5 million payment to the final multi-employer plan.


The following table summarizes the Company’s discontinued operations activity, by operation, for the years ended June 30, (in thousands):

 

Year Disposed

2017

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes:

 

 

 

 

 

 

 

 

 

 

American Foodservice Company

2014

 

$

(8)

 

$

3

 

$

(492)

Air Distribution Products Group

2012

 

 

(38)  

 

 

(225)  

 

 

(137)

Other loss from discontinued operations

 

 

 

(13)

 

 

(7)

 

 

(130)

Income (loss) before taxes from discontinued operations

 

 

(59)

 

 

(229)

 

 

     (759)

(Provision) benefit for tax

 

 

 

27

 

 

55

 

 

        259

Net income (loss) from discontinued operations

 

$

(32)

 

$

(174)

 

$

      (500)


Liquidity and Capital Resources


At June 30, 2017, our total cash balance was $88.6 million, of which $76.6 million was held by foreign subsidiaries.  The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences or be subject to capital controls; however, those balances are generally available without legal restrictions to fund ordinary business operations.  Our current plans are not expected to require a repatriation of cash to fund our U.S. operations and, as a result, we intend to indefinitely reinvest our foreign earnings to fund our overseas growth.  If the undistributed earnings of our foreign subsidiaries are needed for operations in the United States, we would be required to accrue and pay U.S. taxes upon repatriation.  


Cash Flow


Net cash provided by operating activities from continuing operations for the year ended June 30, 2017 was $64.0 million, compared to $81.2 million for the same period in 2016.  The decrease is primarily due to increases in accounts receivable and inventory as well as a decrease in net income from continuing operations of $5.7 million.  Net cash used for investing activities from continuing operations for the year ended June 30, 2017 was $179.1 million, consisting primarily of $26.4 million for capital expenditure and $153.8 million to acquire the Horizon Scientific and Standex Electronics Japan businesses.  Net cash used by financing activities for continuing operations for the year ended June 30, 2017, was $84.7 million consisting of debt borrowings of $99.5 million, cash dividends of $7.9 million, and repurchased treasury stock of $7.8 million.


Net cash provided by operating activities from continuing operations for the year ended June 30, 2016 was $81.2 million, compared to $66.2 million for the same period in 2015.  Changes to net cash provided by operating activities of $15.1 million primarily related to net working capital changes of $17.8 million between periods.  Net cash used in investing activities from continuing operations for the year ended June 30, 2016 was $31.6 million, consisting primarily of $17.9 million for capital expenditure and $13.7 million to acquire Northlake Engineering, Inc.  Net cash used by financing activities for continuing operations for the year ended June 30, 2016, was $20.7 million consisting of debt repayments of $10.0 million, cash dividends of $6.8 million, and repurchased treasury stock of $5.6 million.


Capital Structure


During fiscal year 2015, the Company entered into an Amended and Restated Credit Agreement (“Credit Facility”, or “facility”).  This five-year Credit Facility expires in December 2019 and has a borrowing limit of $400 million, which can be increased by an amount of up to $100 million, in accordance with specified conditions contained in the agreement.  The facility also includes a $10 million sublimit for swing line loans and a $30 million sublimit for letters of credit.


Under the terms of the Credit Facility, we will pay a variable rate of interest and a commitment fee on borrowed amounts as well as a commitment fee on unused amounts under the facility.  The amount of the commitment fee will depend upon both the undrawn amount remaining available under the facility and the Company’s funded debt to EBITDA (as defined in the agreement) ratio at the last day of each quarter.  As our funded debt to EBITDA ratio increases, the commitment fee will increase.  


Funds borrowed under the facility may be used for the repayment of debt, working capital, capital expenditures, acquisitions (so long as certain conditions, including a specified funded debt to EBITDA leverage ratio is maintained), and other general corporate purposes.  As of June 30, 2017, the Company has used $8.9 million against the letter of credit sub-facility and had the ability to borrow $193.4 million under the facility based on our current EBITDA.  The facility contains customary representations, warranties and restrictive covenants, as well as specific financial covenants.  The Company’s current financial covenants under the facility are as follows:


Interest Coverage Ratio - The Company is required to maintain a ratio of Earnings Before Interest and Taxes, as Adjusted (“Adjusted EBIT per the Credit Facility”), to interest expense for the trailing twelve months of at least 3.0:1.  Adjusted EBIT per the Credit Facility specifically excludes extraordinary and certain other defined items such as cash restructuring and acquisition-related charges up to $7.5 million, and unlimited non-cash charges including gains or losses on sale of property and goodwill adjustments.  At June 30, 2017, the Company’s Interest Coverage Ratio was 22.37:1.


Leverage Ratio - The Company’s ratio of funded debt to trailing twelve month Adjusted EBITDA per the facility, calculated as Adjusted EBIT per the Credit Facility plus depreciation and amortization, may not exceed 3.5:1.  At June 30, 2017, the Company’s Leverage Ratio was 1.79:1.


As of June 30, 2017, we had borrowings under our facility of $192.5 million and the effective rate of interest for outstanding borrowings under the facility was 2.41%.  Our primary cash requirements in addition to day-to-day operating needs include interest payments, capital expenditures, acquisitions, share repurchases, and dividends.  Our primary sources of cash for these requirements are cash flows from continuing operations and borrowings under the facility.  We expect 2018 capital spending to be between $27.0 and $29.0 million which includes amounts not spent in 2017, and expect that depreciation and amortization expense will be between $18.0 and $19.0 million and $8.0 and $9.0 million, respectively.


In order to manage our interest rate exposure, at June 30, 2017 we are party to $100.0 million of active floating to fixed rate swaps.  These swaps convert our interest payments from LIBOR to a weighted average rate of 1.60%.


The following table sets forth our capitalization at June 30, (in thousands):


 

 

2017

 

 

2016

Long-term debt, net of issuance cost

$

191,976

 

$

92,114

Less cash and cash equivalents

 

88,566

 

 

121,988

             Net (cash) debt

 

103,410

 

 

(29,874)

Stockholders’ equity

 

408,664

 

 

369,959

     Total capitalization

$

         512,074

 

$

         340,085


Stockholders’ equity increased year over year by $38.7 million, primarily as a result of current year net income of $46.5 million and a favorable change of $6.1 million in unrealized pension losses, partially offset by $7.9 million for dividends paid and an increase of $3.5 million in OCI fair value derivatives.  The Company's net (cash) debt to capital percentage changed to 20.2% net cash to capital for the year ended June 30, 2017 from (8.8%) net debt to capital for the year ended June 30, 2016.  The change in net debt to capital is primarily driven by increased borrowings and cash generated through operations.  


We participate in two multi-employer pension plans and sponsor five defined benefit plans including two in the U.S. and one in Germany, U.K. and Ireland.  The Company’s pension plan is frozen for U.S. employees and participants in the plan ceased accruing future benefits.  The fair value of the Company's U.S. pension plan assets was $195.3 million at June 30, 2017 and the projected benefit obligation in the U.S. was $260.0 million at that time.  As a result of past contributions, our primary U.S. defined benefit plan is not expected to be 100% funded under ERISA rules at June 30, 2017, but we do not expect to make mandatory contributions to the plan until 2020.  We expect to pay $1.4 million in prescribed contributions to our U.K. defined benefit plan and other unfunded defined benefit plans in both the U.S. and Europe during fiscal year 2018.


We have evaluated the current and long-term cash requirements of our defined benefit and defined contribution plans as of June 30, 2017 and determined our operating cash flows from continuing operations and available liquidity are expected to be sufficient to cover the required contributions under ERISA and other governing regulations.  


We have an insurance program in place to fund supplemental retirement income benefits for six retired executives.  Current executives and new hires are not eligible for this program.  At June 30, 2017, the underlying policies had a cash surrender value of $20.4 million and are reported net of loans of $10.4 million for which we have the legal right of offset.


Contractual obligations of the Company as of June 30, 2017 are as follows (in thousands):


 

 

Payments Due by Period

 

 

 

 

 

Less

 

 

 

 

 

 

 

 

More

 

 

 

 

 

than 1

 

 

1-3

 

 

3-5

 

 

than 5

Contractual Obligations

 

Total

 

 

Year

 

 

Years

 

 

Years

 

 

Years

Long-term debt obligations

$

192,506

 

$

6

 

$

192,500

 

$

             -   

 

$

             -   

Operating lease obligations

 

45,665

 

 

8,393

 

 

14,047

 

 

10,588

 

 

12,637

Estimated interest payments (1)

 

12,666

 

 

4,906

 

 

7,459

 

 

301

 

 

-

Post-retirement benefit payments (2)

37,993

 

 

1,336

 

 

17,235

 

 

17,146

 

 

2,276

     Total

$

288,830

 

$

14,641

 

$

231,241

 

$

28,035

 

$

14,913


(1)

Estimated interest payments are based upon effective interest rates as of June 30, 2017, and include the impact of interest rate swaps.  See Item 7A for further discussions surrounding interest rate exposure on our variable rate borrowings.  

(2)

Post-retirement benefits and pension plan contribution payments represents’ future pension payments to comply with local funding requirements.  Our policy is to fund domestic pension liabilities in accordance with the minimum and maximum limits imposed by the Employee Retirement Income Security Act of 1974 (“ERISA”), federal income tax laws and the funding requirements of the Pension Protection Act of 2006.


At June 30, 2017, we had $2.6 million of non-current liabilities for uncertain tax positions.  We are not able to provide a reasonable estimate of the timing of future payments related to these obligations.


Off Balance Sheet Items


At June 30, 2017, and 2016, the Company had standby letters of credit outstanding, primarily for insurance and trade financing purposes, of $8.9 million and $7.7 million, respectively.


We had no other material off balance sheet items at June 30, 2017, other than the operating leases summarized above in the “Contractual obligations” table.


Other Matters


Inflation – Certain of our 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.  We monitor the inflationary rate and make adjustments to reserves whenever it is deemed necessary.  Our ability to manage medical costs inflation is dependent upon our ability to manage claims and purchase insurance coverage to limit the maximum exposure for us.  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.  While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.


Foreign Currency Translation – Our primary functional currencies used by our non-U.S. subsidiaries are the Euro, British Pound Sterling (Pound), Mexican (Peso), Japanese (Yen), and Chinese (Yuan).  During the current year, the Pound, Euro, Peso and Yuan all decreased in value related to the U.S. Dollar, our reporting currency.  Since June 30, 2016 the Pound, Yen and Yuan have depreciated by 2.2%, 8.7%, and 2.1%, respectively (all relative to the U.S. Dollar), while the Euro, Peso appreciated by 2.9% and 5.7%, respectively.  These exchange values were used in translating the appropriate non-U.S. subsidiaries’ balance sheets into U.S. Dollars at the end of the current year.  


Defined Benefit Pension Plans – We record expenses related to these plans based upon various actuarial assumptions such as discount rates and assumed rates of returns.  The Company’s pension plan was frozen for substantially all remaining eligible U.S. employees in 2015 and participants in the plan ceased accruing future benefits.  


Environmental Matters To the best of our knowledge, we believe that we are presently in substantial compliance with all existing applicable environmental laws and regulations and do not anticipate any instances of non-compliance that will have a material effect on our future capital expenditures, earnings or competitive position.


Seasonality – We are a diversified business with generally low levels of seasonality, however our fiscal third quarter is typically the period with the lowest level of activity.


Employee Relations – The Company has labor agreements with several union locals in the United States and several European employees belong to European trade unions.  There were two union contracts in the U.S. scheduled to expire during fiscal year 2017, both of which have been successfully negotiated.  


Critical Accounting Policies


The Consolidated Financial Statements include accounts of the Company and all of our 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 Consolidated Financial Statements.  Although, we believe that materially different amounts would not be reported due to the accounting policies described below, the application of these 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 a number of accounting policies which we believe to be the most critical.  


The Company’s product sales are recorded when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectability is reasonably assured. For products that include installation, and if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and installation revenue is recognized when the installation is complete.  Revenues under certain fixed price contracts are generally recorded when deliveries are made.


Sales and estimated profits under certain long-term contracts are recognized under the percentage-of-completion methods of accounting, whereby profits are recorded pro rata, based upon current estimates of costs to complete such contracts.  Losses on contracts are provided for in the period in which the losses become determinable.  Revisions in profit estimates are reflected on a cumulative basis in the period in which the basis for such revision becomes known.  Any excess of the billings over cost and estimated earnings on long-term contracts is included in deferred revenue.


Collectability of Accounts Receivable – Accounts Receivable are reduced by an allowance for amounts that may become uncollectible in the future.  Our estimate for the allowance for doubtful accounts related to trade receivables includes evaluation of specific accounts where we have information that the customer may have an inability to meet its financial obligation together with a general provision for unknown but existing doubtful accounts.  


Realizability of Inventories – Inventories are valued at the lower of cost or market.  The Company regularly reviews inventory values on hand using specific aging categories, and records a provision for obsolete and excess inventory based on historical usage and estimated future usage.  As actual future demand or market conditions may vary from those projected by management, adjustments to inventory valuations may be required.


Realization of Goodwill - Goodwill and certain indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount of the asset.  The Company’s annual test for impairment is performed using a May 31st measurement date.


We have identified our reporting units for impairment testing as our twelve operating segments, which are aggregated into our five reporting segments as disclosed in Note 18 – Industry Segment Information.  


The test for impairment is a two-step process.  The first step compares the carrying amount of the reporting unit to its estimated fair value (Step 1).  To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value is compared to the implied fair value (Step 2).  To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.

 

As quoted market prices are not available for the Company’s reporting units, the fair value of the reporting units is determined using a discounted cash flow model (income approach).  This method uses various assumptions that are specific to each individual reporting unit in order to determine the fair value.  In addition, the Company compares the estimated aggregate fair value of its reporting units to its overall market capitalization.


Our annual impairment testing at each reporting unit relied on assumptions surrounding general market conditions, short-term growth rates, a terminal growth rate of 2.5%, and detailed management forecasts of future cash flows prepared by the relevant reporting unit.  Fair values were determined primarily by discounting estimated future cash flows at a weighted average cost of capital of 10.46%.  During our annual impairment testing, we evaluated the sensitivity of our most critical assumption, the discount rate, and determined that a 200 basis point change in the discount rate selected would not have impacted the test results.  Additionally, the Company could reduce the terminal growth rate from its current 2.5% to 1.0% and the fair value of all reporting units would still exceed their carrying value.


While we believe that our estimates of future cash flows are reasonable, changes in assumptions could significantly affect our valuations and result in impairments in the future.  The most significant assumption involved in the Company’s determination of fair value is the cash flow projections of each reporting unit.  


As a result of our annual assessment, the Company determined that the fair value of the reporting units exceeded their respective carrying values.  Therefore, no impairment charges were recorded in connection with our annual assessment during 2017.  Subsequent to our fiscal year 2016 annual impairment test, we disposed of $273 thousand of goodwill recorded in the Engraving segment in connection with our sale of the RPM business. 


Cost of Employee Benefit Plans – We provide a range of benefits to certain retirees, including pensions and some postretirement benefits.  We record expenses relating to these plans based upon various actuarial assumptions such as discount rates, assumed rates of return, compensation increases and turnover rates.  The expected return on plan assets assumption of 7.0% in the U.S. is based on our expectation of the long-term average rate of return on assets in the pension funds and is reflective of the current and projected asset mix of the funds and considers the historical returns earned on the funds.  We have analyzed the rates of return on assets used and determined that these rates are reasonable based on the plans’ historical performance relative to the overall markets as well as our current expectations for long-term rates of returns for our pension assets.  The U.S. discount rate of 4.0% reflects the current rate at which pension liabilities could be effectively settled at the end of the year.  The discount rate is determined by matching our expected benefit payments from a stream of AA- or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions.  We review our actuarial assumptions, including discount rate and expected long-term rate of return on plan assets, on at least an annual basis and make modifications to the assumptions based on current rates and trends when appropriate.  Based on information provided by our actuaries and other relevant sources, we believe that our assumptions are reasonable.


The cost of employee benefit plans includes the selection of assumptions noted above.  A twenty-five basis point change in the expected return on plan assets assumptions, holding our discount rate and other assumptions constant, would increase or decrease pension expense by approximately $0.5 million per year.  A twenty-five basis point change in our discount rate, holding all other assumptions constant, would have no impact on 2017 pension expense as changes to amortization of net losses would be offset by changes to interest cost.  In future years, the impact of discount rate changes could yield different sensitivities.  See the Notes to the Consolidated Financial Statements for further information regarding pension plans.


Business Combinations - The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair values for assets acquired and liabilities assumed.  The fair values assigned to tangible and intangible assets acquired and liabilities assumed, are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.  If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.


Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocation.  During this measurement period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date.  All changes that do not qualify as measurement period adjustments are included in current period earnings.


Recently Issued Accounting Pronouncements


See "Item 8. Financial Statements and Supplementary Data, Note 1. Summary of Accounting Policies” for information regarding the effect of recently issued accounting pronouncements on our consolidated statements of operations, comprehensive income, stockholders’ equity, cash flows, and notes for the year ended June 30, 2017.


Item 7A.  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 foreign 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 Treasurer 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 non-qualified defined contribution plan) or speculation is strictly prohibited.  The Company has no majority-owned subsidiaries that are excluded from the consolidated financial statements.  Further, we have no interests in or relationships with any special purpose entities.  


Exchange Risk


We are exposed to both transactional risk and translation risk associated with exchange rates.  The transactional risk is mitigated, in large part, by natural hedges developed with locally denominated debt service on intercompany accounts.  We also mitigate certain of our foreign currency exchange rate risks by entering into forward foreign currency contracts from time to time.  The contracts are used as a hedge against anticipated foreign cash flows, such as dividend payments, loan payments, and materials purchases, and are not used for trading or speculative purposes.  The fair values of the forward foreign currency exchange contracts are 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.  At June 30, 2017 and 2016, the fair value, in the aggregate, of the Company’s open foreign exchange contracts was a liability of $2.8 million and an asset of $0.1 million, respectively.  


Our primary translation risk is with the Euro, British Pound Sterling, Peso, Japanese Yen and Chinese Yuan.  A hypothetical 10% appreciation or depreciation of the value of any these foreign currencies to the U.S. Dollar at June 30, 2017, would not result in a material change in our operations, financial position, or cash flows.  We hedge our most significant foreign currency translation risks primarily through cross currency swaps and other instruments, as appropriate.


Interest Rate


The Company’s effective rate on variable-rate borrowings under the revolving credit agreement is 2.41% and 1.76% at June 30, 2017 and 2016, respectively.  Our interest rate exposure is limited primarily to interest rate changes on our variable rate borrowings.  From time to time, we will use interest rate swap agreements to modify our exposure to interest rate movements.  We currently have $100.0 million of active floating to fixed rate swaps with terms ranging from one to three years.  These swaps convert our interest payments from LIBOR to a weighted average rate of 1.60%.  At June 30, 2017 and 2016, the fair value, in the aggregate, of the Company’s interest rate swaps was $0.2 million and $1.0 million in a liability position, respectively. Due to the impact of the swaps, an increase in interest rates would not materially impact our annual interest expense at June 30, 2017.  


Concentration of Credit Risk


We have a diversified customer base.  As such, the risk associated with concentration of credit risk is inherently minimized.  As of June 30, 2017, no one customer accounted for more than 5% of our consolidated outstanding receivables or of our sales.


Commodity Prices


The Company is exposed to fluctuating market prices for all commodities used in its manufacturing processes.  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.  While Standex considers our relationship with our suppliers to be good, there can be no assurances that we will not experience any supply shortage.


The Engineering Technologies, Food Service Equipment, Electronics, and Hydraulics segments are all sensitive to price increases for steel products, other metal commodities and petroleum based products.  In the past year, we have experienced price fluctuations for a number of materials including steel, copper wire, other metal commodities, refrigeration components and foam insulation.  These materials are some of the key elements in the products manufactured in these segments.  Wherever possible, we will implement price increases to offset the impact of changing prices.  The ultimate acceptance of these price increases, if implemented, will be impacted by our affected divisions’ respective competitors and the timing of their price increases.















































Item 8.  Financial Statements and Supplementary Data


Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

As of June 30 (in thousands, except share data)

2017

 

 

2016

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

  Cash and cash equivalents

 

$

88,566

 

$

                 121,988

  Accounts receivable, net

 

 

                 127,060

 

 

                 103,974

  Inventories

 

 

                 119,401

 

 

                 105,402

  Prepaid expenses and other current assets

 

 

                     8,397

 

 

                     4,784

  Income taxes receivable

 

 

                     2,469

 

 

                     1,325

  Deferred tax asset

 

 

                   14,991

 

 

                   16,013

  Assets held for sale

 

 

-

 

 

                     2,363

    Total current assets

 

 

                 360,884

 

 

                 355,849

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

                 133,160

 

 

                 106,686

Intangible assets, net

 

 

102,503

 

 

                   40,412

Goodwill

 

 

                 242,690

 

 

                 157,354

Deferred tax asset

 

 

                   1,135

 

 

                   11,361

Other non-current assets

 

 

                   27,304

 

 

                   18,795

    Total non-current assets

 

 

506,792

 

 

                 334,608

 

 

 

 

 

 

 

Total assets

 

$

         867,676

 

$

         690,457

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

 

 

 

  Accounts payable

 

$

                   96,487

 

$

                   77,099

  Accrued liabilities

 

 

58,694

 

 

                   50,785

  Income taxes payable

 

 

                     4,783

 

 

                     4,695

  Liabilities held for sale

 

 

-

 

 

                     1,528

    Total current liabilities

 

 

                 159,964

 

 

                 134,107

 

 

 

 

 

 

 

Long-term debt

 

 

                   191,976

 

 

                   92,114

Deferred income taxes

 

 

                     24,986

 

 

                     5,941

Pension obligations

 

 

                   70,745

 

 

                   78,013

Other non-current liabilities

 

 

                   11,341

 

 

                   10,323

    Total non-current liabilities

 

 

                 299,048

 

 

                 186,391

 

 

 

 

 

 

 

Commitments and Contingencies (Notes 11 and 12)

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

  Common stock, par value $1.50 per share -

 

 

 

 

     60,000,000 shares authorized, 27,984,278

 

 

 

 

     issued, 12,662,661 and 12,674,458 shares

 

 

 

 

     outstanding in 2017 and 2016

 

 

                   41,976

 

 

                   41,976

  Additional paid-in capital

 

 

                   56,783

 

 

                   52,374

  Retained earnings

 

 

716,605

 

 

                 678,002

  Accumulated other comprehensive loss

 

 

          (115,938)

 

 

          (117,975)

  Treasury shares (15,321,617 shares in 2017

 

 

 

 

 

 

     and 15,309,820 shares in 2016)

 

 

           (290,762)

 

 

           (284,418)

  Total stockholders' equity

 

 

            408,664

 

 

            369,959

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

$

                 867,676

 

$

                 690,457

 

 

 

 

See notes to consolidated financial statements.

 

 

 




Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

 

 

 

For the Years Ended June 30

(in thousands, except per share data)

 

2017

 

 

2016

 

 

2015

Net sales

 

$

     755,258

 

$

     751,586

 

$

     772,142

Cost of sales

 

 

     (502,504)

 

 

     (499,333)

 

 

    (524,656)

Gross profit

 

 

     252,754

 

 

     252,253

 

 

    247,486

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

   174,060

 

 

   170,219

 

 

    165,837

Restructuring costs

 

 

         5,825

 

 

         4,232

 

 

        3,443

Acquisition related expenses

 

 

         7,843

 

 

-

 

 

-

Other operating (income) expense, net

 

 

         -

 

 

         7,458

 

 

         (438)

Income from operations

 

 

       65,026

 

 

       70,344

 

 

      78,644

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

      4,043

 

 

      2,871

 

 

        3,161

Other non-operating (income) expense, net

 

 

     (949)

 

 

     (1,052)

 

 

        (634)

Total

 

 

       3,094

 

 

       1,819

 

 

        2,527

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

 

61,932

 

 

      68,525

 

 

      76,117

Provision for income taxes

 

 

       (15,355)

 

 

       (16,295)

 

 

      (20,874)

Income from continuing operations

 

 

      46,577

 

 

      52,230

 

 

        55,243

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

 

 

         (32)

 

 

         (174)

 

 

        (500)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

      46,545

 

$

      52,056

 

$

        54,743

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

         3.68

 

$

         4.12

 

$

           4.37

Income (loss) from discontinued operations

 

 

-

 

 

       (0.01)

 

 

       (0.04)

Total

 

$

          3.68

 

$

          4.11

 

$

           4.33

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

          3.65

 

$

          4.09

 

$

           4.31

Income (loss) from discontinued operations

 

 

-

 

 

        (0.01)

 

 

       (0.04)

Total

 

$

          3.65

 

$

          4.08

 

$

           4.27

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 




















Consolidated Statements of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended June 30,  (in thousands)

 

2017

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Net income (loss)

$

      46,545

 

$

     52,056

 

$

54,743

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

   Defined benefit pension plans:

 

 

 

 

 

 

 

 

      Actuarial gains (losses) and other changes in unrecognized costs

$

3,689

 

$

 (26,619)

 

$

 (27,344)

      Amortization of unrecognized costs

 

5,729

 

 

      4,779

 

 

  4,690

   Derivative instruments:

 

 

 

 

 

 

 

 

      Change in unrealized gains and (losses)

 

     (2,896)

 

 

     (1,010)

 

 

  (687)

      Amortization of unrealized gains and (losses) into interest expense

 

(462)

 

 

          567

 

 

 1,034

      Amortization of unrealized gains and (losses) into cost of goods sold

 

75

 

 

           112

 

 

-

   Foreign currency translation gains (losses)

 

 (472)

 

 

 (11,303)

 

 

  (23,133)

Other comprehensive income (loss) before tax

$

 5,663

 

$

 (33,474)

 

$

(45,440)

 

 

 

 

 

 

 

 

 

Income tax (provision) benefit:

 

 

 

 

 

 

 

 

   Defined benefit pension plans:

 

 

 

 

 

 

 

 

      Actuarial gains (losses) and other changes in unrecognized costs

$

    (1,354)

 

$

    10,075

 

$

 10,045

      Amortization of unrecognized costs

 

   (2,012)

 

 

   (1,685)

 

 

 (1,671)

   Derivative instruments:

 

 

 

 

 

 

 

 

      Change in unrealized gains and (losses)

 

(80)

 

 

          384

 

 

     262

      Amortization of unrealized gains and (losses) into interest expense

 

       (152)

 

 

       (216)

 

 

    (394)

      Amortization of unrealized gains and (losses) into cost of goods sold

 

(28)

 

 

         (42)

 

 

-

Income tax (provision) benefit to other comprehensive income (loss)

$

(3,626)

 

$

       8,516

 

$

  8,242

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

2,037

 

 

 (24,958)

 

 

   (37,198)

Comprehensive income (loss)

$

48,582

 

$

    27,098

 

$

 17,545

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

























Consolidated Statements of Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

Treasury Stock

 

For the Years Ended June 30

(in thousands, except as specified)


Common Stock

 

Additional

Paid-in Capital

 


Retained

Earnings

 

Comprehensive

Income (Loss)



Shares

 



Amount

Total

Stockholders’

Equity

Balance, June 30, 2014

$

    41,976

$

      43,388

$

   584,014

$

         (55,819)

15,345

$

(272,833)

$

   340,726

Stock issued for employee stock option and purchase plans, including related income tax benefit and other

 

 

 




102

 

 

 

 




(150)

 




2,682

 




2,784

Stock-based compensation

 

 

 

        3,764

 

 

 

 

 

 

 

 

        3,764

Treasury stock acquired

 

 

 

 

 

 

 

 

138

 

 (10,356)

 

   (10,356)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

     54,743

 

 

 

 

 

 

      54,743

Foreign currency translation adjustment

 

 

 

 

 

 

 

         

  (23,133)

 

 

 

 


   (23,133)

Pension and OPEB adjustments, net of tax of $8.4 million

 

 

 

 

 

 

 

            (14,280)

 

 

 

 


 (14,280)

Change in fair value of derivatives, net of tax of ($0.2) million

 

 

 

 

 

 

 

                  


  215

 

 

 

 

                    


215

Dividends declared ($0.46 per share)

 

 

 

 

 


   (5,893)

 

 

 

 

 

 

   

(5,893)

Balance, June 30, 2015

$

    41,976

$

      47,254

$

   632,864

$

         (93,017)

15,333

$

(280,507)

$

  348,570

Stock issued for employee stock option and purchase plans, including related income tax benefit and other

 

 

 




31

 

 

 

 




(94)

 




1,725

 




1,756

Stock-based compensation

 

 

 

        5,089

 

 

 

 

 

 

 

 

        5,089

Treasury stock acquired

 

 

 

 

 

 

 

 

71

 

 (5,636)

 

   (5,636)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

     52,056

 

 

 

 

 

 

      52,056

Foreign currency translation adjustment

 

 

 

 

 

 

 

         

  (11,303)

 

 

 

 


   (11,303)

Pension and OPEB adjustments, net of tax of $8.4 million

 

 

 

 

 

 

 


        (13,450)

 

 

 

 


 (13,450)

Change in fair value of derivatives, net of tax of $0.2 million

 

 

 

 

 

 

 

                  


  (205)

 

 

 

 

                    


(205)

Dividends declared ($0.54 per share)

 

 

 

 

 

  

 (6,918)

 

 

 

 

 

 

  

 (6,918)

Balance, June 30, 2016

$

    41,976

$

      52,374

$

   678,002

$

       (117,975)

15,310

$

(284,418)

$

  369,959

Stock issued for employee stock option and purchase plans and other

 

 

 

(614)

 

 

 

 

(78)

 

1,462

 

848

Stock-based compensation

 

 

 

5,023

 

 

 

 

 

 

 

 

5,023

Treasury stock acquired

 

 

 

 

 

 

 

 

90

 

 (7,806)

 

   (7,806)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

     46,545

 

 

 

 

 

 

46,545

Foreign currency translation adjustment

 

 

 

 

 

 

 

         

  (472)

 

 

 

 


   (472)

Pension and OPEB adjustments, net of tax of $3.4 million

 

 

 

 

 

 

 


6,052

 

 

 

 


6,052

Change in fair value of derivatives, net of tax of $0.3 million

 

 

 

 

 

 

 

                  


  (3,543)

 

 

 

 

 


 (3,543)

Dividends declared ($0.62 per share)

 

 

 

 

 

  

 (7,942)

 

 

 

 

 

 

  

 (7,942)

Balance, June 30, 2017

$

    41,976

$

56,783

$

   716,605

$

       (115,938)

15,322

$

(290,762)

$

408,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standex International Corporation and Subsidiaries

 

 

 

 

 

 

 

 

 

 

For the Years Ended June 30 (in thousands)

 

 

2017

 

 

2016

 

 

2015

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

        46,545

 

$

    52,056

 

$

  54,743

 

Income (loss) from discontinued operations

 

 

              (32)

 

 

      (174)

 

 

    (500)

 

Income (loss) from continuing operations

 

 

        46,577

 

 

    52,230

 

 

  55,243

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

Depreciation and amortization

 

 

        20,315

 

 

   17,953

 

 

  16,684

 

Stock-based compensation

 

 

          5,023

 

 

     5,089

 

 

    3,764

 

Deferred income taxes

 

 

      (121)

 

 

   (6,756)

 

 

       (249)

 

Non-cash portion of restructuring charge

 

 

          1,414

 

 

     2,323

 

 

    (171)

 

Loss on assets held for sale

 

 

             -   

 

 

     7,267

 

 

             -

 

(Gain) loss on disposal of real estate and equipment

 

 

         (652)   

 

 

           191   

 

 

            -   

 

Excess tax benefit from share-based payment activity

 

 

             -   

 

 

(795)

 

 

(2,088)

 

Increase/(decrease) in cash from changes in assets and liabilities, net of effects

    from discontinued operations and business acquisitions:

Accounts receivables, net

 

 

     (6,013)

 

 

     4,144

 

 

  (5,564)

 

Inventories

 

 

     (3,796)

 

 

     1,729

 

 

 (6,073)

 

Contributions to defined benefit plans

 

 

     (1,443)

 

 

    (1,320)

 

 

 (1,484)

 

Prepaid expenses and other

 

 

61

 

 

     1,092

 

 

    4,619

 

Accounts payable

 

 

4,552

 

 

   (3,368)

 

 

(3,657)

 

Accrued payroll, employee benefits and other liabilities

3,726

 

 

    6,731

 

 

(4,334)

 

Income taxes payable

 

 

  (5,610)

 

 

  (5,289)

 

 

9,477

 

Net cash provided by operating activities from continuing operations

  64,033

 

 

  81,221

 

 

   66,167

 

Net cash used for operating activities from discontinued operations

 (594)

 

 

 (897)

 

 

    (2,128)

 

Net cash provided by operating activities

 

 

63,439

 

 

   80,324

 

 

64,039

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

 

Expenditures for capital assets

 

 

 (26,448)

 

 

 (17,851)

 

 

(22,561)

 

Expenditures for acquisitions, net of cash acquired

 

 

(153,815)

 

 

(13,700)

 

 

(57,149)

 

Expenditures for executive life insurance policies

 

 

     (377)

 

 

     (417)

 

 

    (408)

 

Proceeds from sale of real estate and equipment

 

 

1,106

 

 

383

 

 

66

 

Other investing activity

 

 

483

 

 

    -

 

 

    1,536

 

Net cash provided by (used for) investing activities from continuing operations

(179,051)

 

 

(31,585)

 

 

(78,516)

 

Net cash provided by investing activities from discontinued operations

-        

 

 

 2,803

 

 

-

 

Net cash provided by (used for) investing activities

 

 

(179,051)

 

 

(28,782)

 

 

(78,516)

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

263,700

 

 

   65,000

 

 

  274,700

 

Payments of debt

 

 

(164,200)

 

 

(75,000)

 

 

(216,700)

 

Stock issued under employee stock option and purchase plans

 

 

        848

 

 

        942

 

 

696

 

Excess tax benefit from share-based payment activity

 

 

        -

 

 

        795

 

 

2,088

 

Purchase of treasury stock

 

 

   (7,806)

 

 

   (5,636)

 

 

  (10,356)

 

Cash dividends paid

 

 

   (7,852)

 

 

   (6,846)

 

 

     (5,820)

 

Net cash provided by (used for) financing activities

 

 

84,690

 

 

 (20,745)

 

 

    44,608

 

Effect of exchange rate changes on cash

 

 

    (2,500)

 

 

    (4,937)

 

 

     (8,263)

 

Net change in cash and cash equivalents

 

 

    (33,422)

 

 

    25,860

 

 

      21,868

 

Cash and cash equivalents at beginning of year

 

 

    121,988

 

 

    96,128

 

 

      74,260

 

Cash and cash equivalents at end of year

 

$

88,566

 

$

 121,988

 

$

     96,128

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

 

 

        Interest

 

$

     3,258

 

$

     2,351

 

$

        2,547

 

        Income taxes, net of refunds

 

$

20,413

 

$

   24,769

 

$

12,891

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 



STANDEX INTERNATIONAL CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  SUMMARY OF ACCOUNTING POLICIES


Basis of Presentation and Consolidation


Standex International Corporation (“Standex” or the “Company”) is a diversified manufacturing company with operations in the United States, Europe, Asia, Africa, and Latin America.  The accompanying consolidated financial statements include the accounts of Standex International Corporation and its subsidiaries and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  All intercompany accounts and transactions have been eliminated in consolidation.


The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.  We evaluated subsequent events through the date and time our consolidated financial statements were issued.  


Accounting Estimates


The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended.  Estimates are based on historical experience, actuarial estimates, current conditions and various other assumptions that are believed to be reasonable under the circumstances.  These estimates form the basis for making judgments about the carrying values of assets and liabilities when they are not readily apparent from other sources.  These estimates assist in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies.  Actual results may differ from these estimates under different assumptions or conditions.


Cash and Cash Equivalents


Cash and cash equivalents include highly liquid investments purchased with a maturity of three months or less.  These investments are carried at cost, which approximates fair value.  At June 30, 2017 and 2016, the Company’s cash was comprised solely of cash on deposit.


Trading Securities


The Company purchases investments for its non-qualified defined contribution plan for employees who exceed certain thresholds under our traditional 401(k) plan.  These investments are classified as trading and reported at fair value.  The investments generally consist of mutual funds, are included in other non-current assets and amounted to $2.4 million at June 30, 2017 and $2.3 million at June 30, 2016.  Gains and losses on these investments are recorded as other non-operating income (expense), net in the Consolidated Statements of Operations.


Accounts Receivable Allowances


The Company has provided an allowance for doubtful accounts reserve which represents the best estimate of probable loss inherent in the Company’s account receivables portfolio.  This estimate is derived from the Company’s knowledge of its end markets, customer base, products, and historical experience.


The changes in the allowances for uncollectible accounts during 2017, 2016, and 2015 were as follows (in thousands):