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 December 25, 1993
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 December 25, 1993 :
Class A Common Shares 4,713,627
Class B Common Shares 2,342,653
Page 1 of 9
THE L. S. STARRETT COMPANY
CONTENTS
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Earnings and
Cash Flows - thirteen and twenty-six
weeks ended December 25, 1993 and
December 26, 1992 (unaudited) 3
Consolidated Balance Sheets - December 25,
1993 (unaudited) and June 26, 1993 4
Consolidated Statements of Stockholders'
Equity - twenty-six weeks ended
December 25, 1993 and December 26, 1992
(unaudited) 5
Calculation of Shares for Computation of
Consolidated Earnings per Share - thirteen
and twenty-six weeks ended December 25,
1993 and December 26, 1992 (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 6. Exhibits and reports on Form 8-K 9
Page 2 of 9
THE L.S. STARRETT COMPANY
Consolidated Statements of Earnings and Cash Flows
(in thousands of dollars except per share data)
(unaudited)
13 Weeks Ended 26 Weeks Ended
EARNINGS 12/25/93 12/26/92 12/25/93 12/26/92
Net sales 47,317 45,887 89,309 89,994
Cost of goods sold (33,639) (33,572) (64,512) (64,574)
Selling and general (9,274) (9,037) (18,449) (18,114)
Other income and expense (116) (345) (731) (834)
Earnings before income taxes 4,288 2,933 5,617 6,472
Provision for federal, foreign and
state income taxes 1,220 838 1,342 2,085
Net earnings 3,068 2,095 4,275 4,387
Earnings per share .43 .30 .60 .63
CASH FLOWS
Cash flows from operating activities:
Net earnings 3,068 2,095 4,275 4,387
Noncash expenses:
Depreciation and amortization 2,179 2,103 4,343 4,195
Deferred taxes 264 308 496 1,012
Unrealized translation losses 1,070 1,256 2,830 2,602
Working capital changes:
Receivables (3,380) (2,429) (5,386) (1,794)
Inventories 896 2,611 1,923 3,116
Other assets and liabilities 779 366 2,614 2,586
Prepaid pension cost and other (380) (264) (906) (738)
Net cash from operations 4,496 6,046 10,189 15,366
Cash flows from investing activities:
Additions to plant and equipment (901) (1,638) (3,572) (3,380)
Increase in short-term investments (1,654) (3,821) (4,818) (9,234)
Net cash used in investing (2,555) (5,459) (8,390) (12,614)
Cash flows from financing activities:
Long-term debt repayments (300) (300) (300) (300)
Common stock issued 747 1,812 766 1,840
Treasury shares purchased (523) (502) (1,025) (600)
Dividends (1,199) (1,194) (2,399) (2,374)
Net cash used in financing (1,275) (184) (2,958) (1,434)
Effect of translation rate changes on cash (28) (185) (67) (194)
Net increase (decrease) in cash 638 218 (1,226) 1,124
Cash, beginning of period 981 1,699 2,845 793
Cash, end of period 1,619 1,917 1,619 1,917
See notes to consolidated financial statements
Page 3 of 9
THE L.S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands of dollars)
Dec. 25 June 26
1993 1993
ASSETS (unaudited)
Current assets:
Cash 1,619 2,845
Short-term investments 28,162 23,478
Accounts receivable (less allowance for doubtful
accounts of $1,006,000 and $1,001,000) 29,697 29,057
Inventories:
Finished goods 21,781 21,324
Goods in process and finished parts 16,586 19,189
Raw materials and supplies 12,669 13,054
51,036 53,567
Prepaid expenses and other current assets 1,221 3,355
Total current assets 111,735 112,302
Property, plant and equipment, at cost
(less accumulated depreciation of $47,338,000
and $43,641,000) 58,716 59,618
Cost in excess of net assets acquired (less accumu-
lated amortization of $2,202,000 and $2,034,000) 8,991 9,205
Prepaid pension cost 13,963 12,870
Other assets 429 441
193,834 194,436
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 600 1,311
Accounts payable and accrued expenses 10,750 11,276
Accrued salaries and wages 3,667 4,042
Taxes payable 2,485 2,360
Employee deposits for stock purchase plan 693 433
Total current liabilities 18,195 19,422
Deferred income taxes 6,527 6,101
Long-term debt 13,685 14,527
Accumulated postretirement medical benefit obligation 13,164 12,964
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 4,714 4,640
Class B Common $1 par (10,000,000 shrs. auth.) 2,343 2,425
Additional paid-in capital 30,572 30,023
Retained earnings reinvested and employed in
the business 111,335 110,259
ESOP guaranteed bank loan (1,085) (1,627)
Foreign currency translation adjustment (5,616) (4,298)
Total stockholders' equity 142,263 141,422
193,834 194,436
See Notes to Consolidated Financial Statements
Page 4 of 9
THE L.S. STARRETT COMPANY
Consolidated Statements of Stockholders' equity
For the Twenty-six Weeks Ended December 25, 1993 and December 26, 1992
(in thousands of dollars)
(unaudited)
Equity Adjustments
Common Addi-
Stock Out- tional Currency
standing Paid-in Retained Trans-
($1 Par) Capital Earnings ESOP lation Total
Balance June 27,1992
(1,357,654 Class A
and 94,790 Class B
shares in treasury) 6,945 26,782 107,313 (2,712) 524 138,852
Net earnings 4,387 4,387
Dividends ($.34) (2,374) (2,374)
Treasury shares:
Purchased (26) (100) (474) (600)
Issued 24 547 571
Options exercised 75 1,194 1,269
ESOP loan repayments 542 542
Translation loss (5,384) (5,384)
Balance Dec. 26, 1992
(1,350,531 Class A
and 102,633 Class B
shares in treasury) 7,018 28,423 108,852 (2,170) (4,860) 137,263
Balance June 26, 1993
(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 4,275 4,275
Dividends ($.34) (2,399) (2,399)
Treasury shares:
Purchased (42) (183) (800) (1,025)
Issued 25 572 597
Options exercised 9 160 169
ESOP loan repayments 542 542
Translation loss (1,318) (1,318)
Balance Dec. 25, 1993
(1,308,902 Class A
and 123,800 Class B
shares in treasury) 7,057 30,572 111,335 (1,085) (5,616) 142,263
See Notes to Consolidated Financial Statements
Page 5 of 9
THE L.S. STARRETT COMPANY
Calculation of Shares for Computation of
Consolidated Earnings per Share
(unaudited)
13 Weeks Ended 26 Weeks Ended
12/25/93 12/26/92 12/25/93 12/26/92
Average number of shares outstanding
during the period 7,061,934 7,009,061 7,059,870 6,975,663
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 7,089 4,792 8,299 16,185
Average common and common equivalent
shares outstanding 7,069,023 7,013,853 7,068,169 6,991,848
See Notes to Consolidated Financial Statements
Page 6 of 9
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 December 25, 1993 and
June 26, 1993; the results of operations and cash flows for the thirteen weeks
and twenty-six weeks ended December 25, 1993 and December 26, 1992; and changes
in stockholders' equity for the twenty-six weeks ended December 25, 1993 and
December 26, 1992.
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 26, 1993, and these financial statements should be read in
conjunction with said annual report.
Other income (expense) is comprised of the following (in thousands):
Thirteen Weeks Twenty-six Weeks
Ended December Ended December
1993 1992 1993 1992
Interest income 253 268 483 501
Interest expense and com-
mitment fees (168) (193) (339) (446)
Realized and unrealized ex-
change gains and losses (248) (514) (1,113) (934)
Other 47 94 238 45
(116) (345) (731) (834)
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 December
25, 1993, and June 26, 1993, total inventories are $25,543,000 and $25,757,000
less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
December June
1993 1993
Industrial revenue bond 4,200 4,500
ESOP guaranteed bank loan 1,085 1,627
Revolving credit agreement 9,000 9,000
14,285 15,127
Less current portion 600 600
13,685 14,527
Page 7 of 9
THE L. S. STARRETT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Sales are up 3% for the quarter and down 1% for the six months compared to a
year ago. The increase in the quarterly comparison is due primarily to
improvement in domestic unit volume. Exchange rate changes in Scotland have
adversely affected the six month comparison, particularly in the first quarter.
Earnings Before Taxes
Pretax earnings are up 46% for the quarter but down 13% for the six month
comparison. The increases in domestic sales volume and overhead absorption are
responsible for the improvement in the quarterly comparison. The six month
comparison is pulled down by the first quarter, where exchange rates in Scotland
and a relatively strong prior year quarter in Brazil played a part.
Income Taxes
The overall effective income tax rate is 28% for the quarter and 24% for the six
months. This compares to 29% and 32% in the prior year. The year to year changes
relate to the change in the contribution to overall pretax income from Brazil,
where the effective tax rate is higher than elsewhere in the Company, from tax-
exempt interest and from operating earnings in Puerto Rico, where the tax rate
is low. The first quarter of this year and, therefore, the six months were
affected by all three.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position with a working
capital ratio of 6.1 to one on December 25, 1993 and 5.8 to one on June 26,
1993. Cash and short-term investments are up over $3 million compared to June
1993. June tends to be a low point, but continued reduction of domestic
inventories has also contributed to this increase in cash and short-term
investments.
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 the high 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.
Page 8 of 9
THE L. S. STARRETT COMPANY
PART II. OTHER INFORMATION
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 February 7, 1994 S/ R. U. WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date February 7, 1994 S/ S. G. THOMSON
S. G. Thomson (Chief Accounting Officer)
Page 9 of 9
