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 March 26, 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 March 26, 1994 :
Class A Common Shares 4,796,798
Class B Common Shares 2,267,543
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 thirty-nine
weeks ended March 26, 1994 and
March 27, 1993 (unaudited) 3
Consolidated Balance Sheets - March 26,
1994 (unaudited) and June 26, 1993 4
Consolidated Statements of Stockholders'
Equity - thirty-nine weeks ended
March 26, 1994 and March 27, 1993
(unaudited) 5
Calculation of Shares for Computation of
Consolidated Earnings per Share - thirteen
and thirty-nine weeks ended March 26,
1994 and March 27, 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 1. Legal proceedings 9
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 39 Weeks Ended
EARNINGS 3/26/94 3/27/93 3/26/94 3/27/93
Net sales 43,671 39,901 132,980 129,895
Cost of goods sold (31,202) (28,223) (95,714) (92,797)
Selling and general (9,731) (8,817) (28,180) (26,931)
Other income and expense (785) (576) (1,516) (1,410)
Earnings before income taxes 1,953 2,285 7,570 8,757
Provision for federal, foreign and
state income taxes 561 259 1,903 2,344
Net earnings 1,392 2,026 5,667 6,413
Earnings per share .20 .29 .80 .92
CASH FLOWS
Cash flows from operating activities:
Net earnings 1,392 2,026 5,667 6,413
Noncash expenses:
Depreciation and amortization 2,214 2,135 6,557 6,330
Deferred taxes (130) (159) 366 853
Unrealized translation losses 1,871 1,222 4,701 3,824
Working capital changes:
Receivables 117 2,361 (5,269) 567
Inventories (1,436) (666) 487 2,450
Other assets and liabilities 2,495 (194) 5,109 2,392
Prepaid pension cost and other (619) (487) (1,525) (1,225)
Net cash from operations 5,904 6,238 16,093 21,604
Cash flows from investing activities:
Additions to plant and equipment (1,455) (1,750) (5,027) (5,130)
Increase in short-term investments (2,242) (3,111) (7,060) (12,345)
Net cash used in investing (3,697) (4,861) (12,087) (17,475)
Cash flows from financing activities:
Long-term debt repayments (2,000) (1,000) (2,300) (1,300)
Common stock issued 568 579 1,334 2,419
Treasury shares purchased (365) (459) (1,390) (1,059)
Dividends (1,201) (1,195) (3,600) (3,569)
Net cash used in financing (2,998) (2,075) (5,956) (3,509)
Effect of translation rate changes on cash (7) (51) (74) (245)
Net increase (decrease) in cash (798) (749) (2,024) 375
Cash, beginning of period 1,619 1,917 2,845 793
Cash, end of period 821 1,168 821 1,168
See notes to consolidated financial statements
Page 3 of 9
THE L.S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands of dollars)
Mar. 26 June 26
1994 1993
ASSETS (unaudited)
Current assets:
Cash 821 2,845
Short-term investments 30,398 23,478
Accounts receivable (less allowance for doubtful
accounts of $1,061,000 and $1,001,000) 27,303 29,057
Inventories:
Finished goods 22,110 21,324
Goods in process and finished parts 18,643 19,189
Raw materials and supplies 11,728 13,054
52,481 53,567
Prepaid expenses and other current assets 1,161 3,355
Total current assets 112,164 112,302
Property, plant and equipment, at cost
(less accumulated depreciation of $49,280,000
and $43,641,000) 58,024 59,618
Cost in excess of net assets acquired (less accumu-
lated amortization of $2,291,000 and $2,034,000) 8,902 9,205
Prepaid pension cost 14,617 12,870
Other assets 449 441
194,156 194,436
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 1,111 1,311
Accounts payable and accrued expenses 11,818 11,276
Accrued salaries and wages 3,518 4,042
Taxes payable 2,530 2,360
Employee deposits for stock purchase plan 860 433
Total current liabilities 19,837 19,422
Deferred income taxes 6,767 6,101
Long-term debt 11,414 14,527
Accumulated postretirement medical benefit obligation 13,264 12,964
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 4,797 4,640
Class B Common $1 par (10,000,000 shrs. auth.) 2,268 2,425
Additional paid-in capital 31,055 30,023
Retained earnings reinvested and employed in
the business 111,238 110,259
ESOP guaranteed bank loan (814) (1,627)
Foreign currency translation adjustment (5,670) (4,298)
Total stockholders' equity 142,874 141,422
194,156 194,436
See Notes to Consolidated Financial Statements
Page 4 of 9
THE L.S. STARRETT COMPANY
Consolidated Statements of Stockholders' Equity
For the Thirty-nine Weeks Ended March 26, 1994 and March 27, 1993
(in thousands of dollars)
(unaudited)
Equity Adjustments
Common Addi-
Stock Out- tional Currency
standing Paid-in Retained Trans-
($1 Par) Capital Earnings ESOP lation Total
Balance June 27,1992
(1,357,654 Class A
and 94,790 Class B
shares in treasury) 6,945 26,782 107,313 (2,712) 524 138,852
Net earnings 6,413 6,413
Dividends ($.51) (3,569) (3,569)
Treasury shares:
Purchased (44) (177) (838) (1,059)
Issued 48 1,102 1,150
Options exercised 75 1,194 1,269
ESOP loan repayments 813 813
Translation loss (6,788) (6,788)
Balance Mar. 27, 1993
(1,339,909) Class A
and 108,535 Class B
shares in treasury) 7,024 28,901 109,319 (1,899) (6,264) 137,081
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 5,667 5,667
Dividends ($.51) (3,600) (3,600)
Treasury shares:
Purchased (57) (245) (1,088) (1,390)
Issued 48 1,117 1,165
Options exercised 9 160 169
ESOP loan repayments 813 813
Translation loss (1,372) (1,372)
Balance Mar. 26, 1994
(1,294,287 Class A
and 130,354 Class B
shares in treasury) 7,065 31,055 111,238 (814) (5,670) 142,874
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 39 Weeks Ended
3/26/94 3/27/93 3/26/94 3/27/93
Average number of shares outstanding
during the period 7,060,172 7,022,703 7,059,970 6,991,343
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 8,930 10,891 8,509 14,420
Average common and common equivalent
shares outstanding 7,069,102 7,033,594 7,068,479 7,005,763
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 March 26, 1994 and
June 26, 1993; the results of operations and cash flows for the thirteen weeks
and thirty-nine weeks ended March 26, 1994 and March 27, 1993; and changes in
stockholders' equity for the thirty-nine weeks ended March 26, 1994 and March
27, 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 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 Thirty-nine Weeks
Ended March Ended March
1994 1993 1994 1993
Interest income 253 324 736 825
Interest expense and com-
mitment fees (153) (201) (492) (647)
Realized and unrealized ex-
change gains and losses (965) (666) (2,078) (1,600)
Other 80 (33) 318 12
(785) (576) (1,516) (1,410)
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 March
26, 1994, and June 26, 1993, total inventories are $25,448,000 and $25,757,000
less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
March June
1994 1993
Industrial revenue bond 4,200 4,500
ESOP guaranteed bank loan 814 1,627
Revolving credit agreement 7,000 9,000
12,014 15,127
Less current portion 600 600
11,414 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 9% for the quarter and 2% for the nine months compared to a year
ago. The increase in the quarterly comparison occurs pretty much in all
locations. Exchange rate changes in Scotland during the early part of the year
have adversely affected the nine month comparison.
Earnings Before Taxes
Pretax earnings are down 15% for the quarter and 14% for the nine month
comparison. Heavy expenses associated with retooling and the introduction of
new products adversely affected the third quarter. This followed an improved
second quarter comparision that was helped by increases in domestic volume and
overhead absorption. In addition to the effect of the third quarter, the nine
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 29% for the quarter and 25% for the
nine months. This compares to 11% and 27% in the prior year. The year to date
change relates mainly to the change in the contribution to overall pretax income
during the early part of the year from Brazil, where the effective tax rate is
higher than elsewhere in the Company. An unusual mix of operating earnings from
Brazil and Puerto Rico, where the tax rate is low, along with the favorable tax
treatment of a dividend from Scotland caused the low effective tax rate in the
third quarter of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position with a working
capital ratio of 5.7 to one on March 26, 1994 and 5.8 to one on June 26, 1993.
Cash and short-term investments are up almost $5 million compared to June 1993.
June tends to be a low point, but continued reduction of domestic inventories
as well as other current assets 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 1. Legal proceedings.
The investigation by the Environmental Protection Agency referred to
in the Company's report on Form 10-K for the year ended June 26, 1993
has been resolved. In March 1994, the Company and the EPA entered
into and filed with the U.S. District Court a consent decree by which
the Company agreed to pay a civil penalty of $325,000 for alleged
violations of the Clean Water Act. The consent decree provided that
its execution was not an admission of liability. The Company has
brought its pre-treatment system into compliance with the relevant
laws and will provide periodic reports as necessary. The court decree
will not be final until approved by the court; action on such approval
is anticipated in the near future.
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 May 9, 1994 S/ R. U. WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date May 9, 1994 S/ S. G. THOMSON
S. G. Thomson (Chief Accounting Officer)
Page 9 of 9
