UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 1-367
THE L. S. STARRETT COMPANY
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1866480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
121 CRESCENT STREET, ATHOL, MASSACHUSETTS 01331-1915
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 508-249-3551
Former name, address and fiscal year, if changed since last report.
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 filings requirements for the past 90 days.
YES X NO
Common Shares outstanding as of September 24, 1994 :
Class A Common Shares 4,850,464
Class B Common Shares 2,236,202
Page 1 of 9
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THE L. S. STARRETT COMPANY
CONTENTS
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Earnings and
Cash Flows - thirteen weeks ended
September 24, 1994 and September 25, 1993
(unaudited) 3
Consolidated Balance Sheets - September 24,
1994 (unaudited) and June 25, 1994 4
Consolidated Statements of Stockholders'
Equity - thirteen weeks ended September 24,
1994 and September 25, 1993 (unaudited) 5
Calculation of shares for Computation of
Consolidated Earnings per Share - thirteen
weeks ended September 24, 1994 and
September 25, 1993 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Page 2 of 9
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THE L. S. STARRETT COMPANY
Consolidated Statements of Earnings and Cash Flows
(in thousands of dollars except per share data)
(unaudited)
13 Weeks Ended
EARNINGS 9/24/94 9/25/93
Net sales 47,316 41,992
Cost of goods sold (34,054) (30,873)
Selling and general (10,026) (9,175)
Other income and expense 81 (615)
Earnings before income taxes 3,317 1,329
Provision for federal, foreign and
state income taxes 1,157 122
Net earnings 2,160 1,207
Earnings per share .30 .17
CASH FLOWS
Cash flows from operating activities:
Net earnings 2,160 1,207
Noncash expenses (income):
Depreciation and amortization 2,326 2,164
Deferred taxes 684 232
Unrealized translation losses 301 1,760
Working capital changes:
Receivables (2,696) (2,006)
Inventories (476) 1,027
Other current assets and liabilities 2,523 1,835
Prepaid pension cost and other (480) (526)
Net cash from operating activities 4,342 5,693
Cash flows from investing activities:
Additions to plant and equipment (1,970) (2,671)
Increase in short-term investments (2,781) (3,164)
Net cash used in investing activities (4,751) (5,835)
Cash flows from financing activities:
Common stock issued 15 19
Treasury shares purchased (475) (502)
Dividends (1,207) (1,200)
Net cash used in financing activities (1,667) (1,683)
Effect of translation rate changes on cash (57) (39)
Net increase (decrease) in cash (2,133) (1,864)
Cash, beginning of period 2,378 2,845
Cash, end of period 245 981
See notes to consolidated financial statements
<PAGE>
Page 3 of 9
THE L. S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands of dollars)
Sept. 24 June 25
1994 1994
ASSETS (unaudited)
Current assets:
Cash 245 2,378
Investments 29,874 27,055
Accounts receivable (less allowance for
doubtful accounts of $1,048,000
and $954,000) 31,072 29,133
Inventories:
Finished goods 22,636 23,530
Goods in process and finished parts 17,415 16,111
Raw materials and supplies 13,763 13,524
53,814 53,165
Prepaid expenses and other current assets 2,126 4,732
Total current assets 117,131 116,463
Property, plant and equipment, at cost
(less accumulated depreciation of $51,083,000
and $48,786,000) 57,198 57,386
Cost in excess of net assets acquired (less accumu-
lated amortization of $2,481,000 and $2,386,000) 8,742 8,822
Prepaid pension cost 15,530 14,897
Other assets 464 464
199,065 198,032
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 1,477 1,583
Accounts payable and accrued expenses 11,588 11,222
Accrued salaries and wages 3,907 4,276
Taxes payable 1,838 2,327
Employee deposits for stock purchase plan 947 601
Total current liabilities 19,757 20,009
Deferred income taxes 7,357 7,110
Long-term debt 10,571 10,843
Accumulated postretirement medical benefit obligation 13,524 13,422
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 4,850 4,851
Class B Common $1 par (10,000,000 shrs. auth.) 2,236 2,256
Additional paid-in capital 32,185 32,272
Retained earnings reinvested and employed in
the business 113,748 113,147
ESOP guaranteed bank loan (271) (543)
Foreign currency translation adjustment (4,892) (5,335)
Total stockholders' equity 147,856 146,648
199,065 198,032
See Notes to Consolidated Financial Statements
Page 4 of 9
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THE L. S. STARRETT COMPANY
Consolidated Statements of Stockholders' Equity
For the Thirteen Weeks Ended September 24, 1994 and September 25, 1993
(in thousands of dollars)
(unaudited)
Equity Adjustments
Common Addi-
Stock Out- tional Currency
standing Paid-in Retained Trans-
($1 Par) Capital Earnings ESOP lation Total
Balance, 6/26/93
(1,303,954 Class A
and 111,482 Class B
shares in treasury) 7,065 30,023 110,259 (1,627) (4,298) 141,422
Net earnings 1,207 1,207
Dividends ($0.17) (1,200) (1,200)
Treasury shares:
Purchased (22) (87) (393) (502)
Issued 1 18 19
ESOP loan repayments 271 271
Translation loss,net (1,228) (1,228)
Balance, 9/25/93
(1,316,743 Class A
and 118,602 Class B
shares in treasury) 7,044 29,954 109,873 (1,356) (5,526) 139,989
Balance, 6/25/94
(1,251,378 Class A
and 133,397 Class B
shares in treasury) 7,107 32,272 113,147 (543) (5,335) 146,648
Net earnings 2,160 2,160
Dividends ($0.17) (1,207) (1,207)
Treasury shares:
Purchased (22) (101) (352) (475)
Issued 1 14 15
ESOP loan repayments 272 272
Translation gain,net 443 443
Balance, 9/24/94
(1,266,993 Class A
and 138,511 Class B
shares in treasury) 7,086 32,185 113,748 (271) (4,892) 147,856
See Notes to Consolidated Financial Statements
<PAGE>
Page 5 of 9
THE L. S. STARRETT COMPANY
Calculation of Shares for Computation of
Consolidated Earnings per Share
(unaudited)
13 Weeks Ended
9/24/94 9/25/93
Average number of shares outstanding
during the period 7,099,308 7,057,805
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 8,906 9,509
Average common and common equivalent
shares outstanding 7,108,214 7,067,314
See Notes to Consolidated Financial Statements
Page 6 of 9
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THE L. S. STARRETT COMPANY
Notes to Consolidated Financial Statements
In the opinion of management, the accompanying financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the financial position of the Company as of September 24,
1994 and June 25, 1994; and also the results of operations, cash flows and
changes in stockholders' equity for the thirteen weeks ended September 24,
1994 and September 25, 1993.
The Company follows the same accounting policies in the preparation of interim
statements as described in the Company's annual report filed on form 10-K for
the year ended June 25, 1994, and these financial statements should be read
in conjunction with said annual report.
The Company has adopted FAS 115 (Accounting for Certain Investments in Debt
and Equity Securities) effective as of the beginning of the current fiscal
year. The effect on financial condition and results of operations was not
significant. The Company considers all its investments "available for sale."
Other income (expense) is comprised of the following (in thousands):
Thirteen Weeks Thirteen Weeks
September 1994 September 1993
Interest income 328 230
Interest expense and com-
mitment fees (221) (171)
Realized and unrealized ex-
change losses (236) (865)
Other 210 191
81 (615)
The net effect of changes in foreign currency exchange rates includes realized
exchange gains and losses from foreign currency transactions along with
unrealized translation gains and losses from our subsidiary in Brazil, a
country with a hyperinflationary economy. Translation gains and losses on
short-term borrowings and marketable securities in Brazil are netted against
the related interest charged or earned. Similar losses on accounts receivable
are treated as sales discounts and are netted against sales.
Approximately 80% of all inventories are valued on the LIFO method. At
September 24, 1994, and June 25, 1994, total inventories are $25,407,000 and
$25,391,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
September June
1994 1994
Industrial revenue bond 3,900 3,900
ESOP guaranteed bank loan 271 543
Revolving credit agreement 7,000 7,000
11,171 11,443
Less current maturities 600 600
10,571 10,843
Page 7 of 9
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THE L. S. STARRETT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Sales for the September quarter are 13% above the corresponding quarter of a
year ago. The increase is in both foreign and domestic operations and reflects
an overall improvement in business conditions.
Earnings Before Taxes
Pretax earnings are up 150% from the September 1993 quarter. This reflects the
increase in foreign and domestic sales volume mentioned above, particularly
in Brazil, as well as an increase in factory operating hours resulting in
higher overhead absorption.
Income Taxes
The overall effective income tax rate is 35% in the current quarter compared
to 9% a year ago. Last year's rate was unusually low because of the relative
contribution to overall pretax income from tax-exempt interest and operating
earnings in Puerto Rico. The 1994 tax rate is more normal, but it has been
adversely affected by the recent monetary policy changes in Brazil, which have
dramatically reduced inflation, at least in the short term. The effect of
these changes in Brazil has been a temporarily high effective tax rate. It is
expected that this rate will come down next year when inventories purchased
prior to the policy change have been used up.
Accounting Change
The Company has adopted FAS 115 (Accounting for Certain Investments in Debt
and Equity Securities) effective as of the beginning of the current fiscal
year. The effect on financial condition and results of operations was not
significant. The Company considers all its investments "available for sale."
Included in investments at September 24, 1994 is $3.6 million of liquid AAA
rated Puerto Rico debt obligations. These investments were made during the
current 1994 quarter for the purpose of reducing repatriation taxes and have
maturities of up to ten years.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position with a working
capital ratio of 5.9 to one on September 24, 1994 and 5.8 to one on June 25,
1994.
The fact that the changes in receivables and payables in the Statement of Cash
Flows do not exactly match the changes in the related balance sheet accounts
is because of inflation in Brazil. These differences should not be interpreted
as uses and sources of cash, but rather as noncash adjustments to net income
to arrive at cash generated from operations. Also, these differences tend to
be offset by unrealized exchange gains and losses.
Borrowings under the Company's $20 million revolving credit agreement have
been used to finance acquisitions.
The Company believes that existing cash balances, funds generated from
operations and available funds under its credit line will be sufficient to
meet foreseeable cash needs. Cash not immediately required for working capital
needs is invested in short-term government securities and other money market
investments. These temporary cash investments should be considered when
analyzing overall cash flow.
Page 8 of 9
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PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) A regular meeting of shareholders was held on September 21, 1994.
(c) The following directors were elected:
abstentions
Votes Votes and broker
For Withheld non-votes
A shares voting as separate class:
William S. Hurley 4,393,386 23,452 N/A
A and B shares voting together:
Douglas A. Starrett 24,880,812 207,866 N/A
ITEM 6. Exhibits and Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE L. S. STARRETT COMPANY
(Registrant)
Date November 4, 1994 S/ R. U. WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date November 4, 1994 S/ S. G. THOMSON
S. G. Thomson (Chief Accounting Officer)
Page 9 of 9
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-24-1995
<PERIOD-END> SEP-24-1994
<CASH> 245
<SECURITIES> 29,874
<RECEIVABLES> 32,120
<ALLOWANCES> 1,048
<INVENTORY> 53,814
<CURRENT-ASSETS> 117,131
<PP&E> 108,281
<DEPRECIATION> 51,083
<TOTAL-ASSETS> 199,065
<CURRENT-LIABILITIES> 19,757
<BONDS> 10,571
<COMMON> 7,086
0
0
<OTHER-SE> 140,770
<TOTAL-LIABILITY-AND-EQUITY> 199,065
<SALES> 47,316
<TOTAL-REVENUES> 47,316
<CGS> 34,054
<TOTAL-COSTS> 34,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 3,317
<INCOME-TAX> 1,157
<INCOME-CONTINUING> 2,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,160
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
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