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 25, 1995
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 25, 1995 :
Class A Common Shares 4,844,502
Class B Common Shares 2,188,401
Page 1 of 8
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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 and thirty-nine
weeks ended March 25, 1995 and
March 26, 1994 (unaudited) 3
Consolidated Balance Sheets - March 25,
1995 (unaudited) and June 25, 1994 4
Consolidated Statements of Stockholders'
Equity - thirty-nine weeks ended
March 25, 1995 and March 26, 1994
(unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other information:
Item 6. Exhibits and reports on Form 8-K 8
Page 2 of 8
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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 39 Weeks Ended
EARNINGS 3/25/95 3/26/94 3/25/95 3/26/94
Net sales 52,720 43,671 156,168 132,980
Cost of goods sold (37,853) (31,202) (111,332) (95,714)
Selling and general (10,944) (9,731) (31,849) (28,180)
Other income and expense 647 (785) 1,161 (1,516)
Earnings before income taxes 4,570 1,953 14,148 7,570
Provision for federal, foreign and
state income taxes 1,751 561 5,324 1,903
Net earnings 2,819 1,392 8,824 5,667
Earnings per share .40 .20 1.25 .80
Dividends per share .17 .17 .51 .51
CASH FLOWS
Cash flows from operating activities:
Net earnings 2,819 1,392 8,824 5,667
Noncash expenses:
Depreciation and amortization 2,345 2,214 7,001 6,557
Deferred taxes 406 (130) 1,287 366
Unrealized translation losses (182) 1,871 128 4,701
Working capital changes:
Receivables 1,533 117 (2,586) (5,269)
Inventories 443 (1,436) 1,879 487
Other assets and liabilities 1,217 2,495 6,068 5,109
Prepaid pension cost and other 15 (619) (1,257) (1,525)
Net cash from operations 8,596 5,904 21,344 16,093
Cash flows from investing activities:
Additions to plant and equipment (3,286) (1,455) (7,579) (5,027)
Increase in short-term investments (3,304) (2,242) (8,389) (7,060)
Net cash used in investing (6,590) (3,697) (15,968) (12,087)
Cash flows from financing activities:
Long-term debt repayments (1,000) (2,000) (1,300) (2,300)
Common stock issued 155 568 677 1,334
Treasury shares purchased (802) (365) (2,367) (1,390)
Dividends (1,137) (1,201) (3,552) (3,600)
Net cash used in financing (2,784) (2,998) (6,542) (5,956)
Effect of translation rate changes
on cash 7 (7) (31) (74)
Net increase (decrease) in cash (771) (798) (1,197) (2,024)
Cash, beginning of period 1,952 1,619 2,378 2,845
Cash, end of period 1,181 821 1,181 821
See notes to consolidated financial statements
Page 3 of 8
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THE L. S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands of dollars)
Mar. 25 June 25
1995 1994
ASSETS (unaudited)
Current assets:
Cash 1,181 2,378
Short-term investments 35,586 27,055
Accounts receivable (less allowance for doubtful
accounts of $1,131,000 and $954,000) 31,478 29,133
Inventories:
Finished goods 21,711 23,530
Goods in process and finished parts 17,261 16,111
Raw materials and supplies 12,780 13,524
51,752 53,165
Prepaid expenses and other current assets 1,387 4,732
Total current assets 121,384 116,463
Property, plant and equipment, at cost (less
accumulated depreciation of $55,613,000
and $48,786,000) 58,262 57,386
Cost in excess of net assets acquired (less
accumulated amortization of $2,674,000
and $2,386,000) 8,578 8,822
Prepaid pension cost 16,419 14,897
Other assets 388 464
205,031 198,032
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 600 1,583
Accounts payable and accrued expenses 13,223 11,222
Accrued salaries and wages 3,974 4,276
Taxes payable 3,665 2,327
Employee deposits for stock purchase plan 1,456 601
Total current liabilities 22,918 20,009
Deferred income taxes 7,792 7,110
Long-term debt 9,000 10,843
Accumulated postretirement medical benefit obligation 13,727 13,422
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 4,845 4,851
Class B Common $1 par (10,000,000 shrs. auth.) 2,188 2,256
Additional paid-in capital 32,379 32,272
Retained earnings reinvested and employed in
the business 116,696 113,147
Equity Adjustments (4,514) (5,878)
Total stockholders' equity 151,594 146,648
205,031 198,032
See Notes to Consolidated Financial Statements
Page 4 of 8
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THE L. S. STARRETT COMPANY
Consolidated Statements of Stockholders' equity
For the Thirty-nine Weeks Ended March 25, 1995 and March 26, 1994
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 26,1993
(1,303,954 Class A
and 111,482 Class B
shares in treasury) 7,065 30,023 110,259 (5,925) 141,422
Net earnings 5,667 5,667
Dividends ($.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 losses (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 (6,484) 142,874
Balance June 25, 1994
(1,251,378 Class A
and 133,397 Class B
shares in treasury) 7,107 32,272 113,147 (5,878) 146,648
Net earnings 8,824 8,824
Dividends ($.51) (3,552) (3,552)
Treasury shares:
Purchased (109) (535) (1,723) (2,367)
Issued 15 309 324
Options exercised 20 333 353
ESOP loan repayments 543 543
Translation gains 1,121 1,121
Investment valuation (300) (300)
Balance Mar. 25, 1995
(1,327,337 Class A
and 151,841 Class B
shares in treasury) 7,033 32,379 116,696 (4,514) 151,594
See Notes to Consolidated Financial Statements
Page 5 of 8
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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 March 25, 1995
and June 25, 1994; the results of operations and cash flows for the thirteen
weeks and thirty-nine weeks ended March 25, 1995 and March 26, 1994; and
changes in stockholders' equity for the thirty-nine weeks ended March 25, 1995
and March 26, 1994.
Except as discussed in the next paragraph, 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 Thirty-nine Weeks
Ended March Ended March
1995 1994 1995 1994
Interest income 507 253 1,168 736
Interest expense and com-
mitment fees (192) (153) (625) (492)
Realized and unrealized ex-
change gains (losses) 396 (965) 409 (2,078)
Other (64) 80 209 318
647 (785) 1,161 (1,516)
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
25, 1995, and June 25, 1994, total inventories are $25,473,000 and $25,391,000
less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
March June
1995 1994
Industrial revenue bond 3,600 3,900
ESOP guaranteed bank loan 543
Revolving credit agreement 6,000 7,000
9,600 11,443
Less current portion 600 600
9,000 10,843
Page 6 of 8
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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 are up 21% for the quarter and 17% year to date. The increase in the
quarterly and year to date comparisons is in both foreign and domestic
operations and reflects an overall improvement in business conditions.
Earnings Before Taxes
Pretax earnings are up 134% for the quarter and 87% year to date. This is
primarily the result of 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. The improvement in
the March 1995 quarter over the 1994 quarter is somewhat exaggerated compared
to the year to date improvement because of the low level of pretax earnings
in the March 1994 quarter.
Income Taxes
The effective income tax rate is 38% for the quarter and 38% year to date
compared to 29% and 25% for the same periods in the prior year. Last year's
rates were unusually low, particularly in the first quarter, because of the
relative contribution to overall pretax income from tax-exempt interest and
operating earnings in Puerto Rico. The 1995 tax rates are more normal, but
have been adversely affected by a change in monetary policy in Brazil that has
reduced inflation, at least temporarily. The effect of this change is a high
current year annualized tax rate in Brazil that is expected to 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 March 25, 1995 is $4.4 million of liquid AAA rated
Puerto Rico debt obligations. These investments were made 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 5.3 to one on March 25, 1995 and 5.8 to one on June 25, 1994.
Cash and short-term investments are up over $7 million compared to June 1994.
June tends to be a low point, but inventory reductions are also responsible
for the increase.
The fact that changes in receivables and payables in the Statement of Cash
Flows do not match the changes in the balance sheet is mainly because of in-
flation in Brazil. These differences are not uses and sources of cash, but
rather are noncash adjustments to net income to arrive at cash generated from
operations. They tend to be offset by unrealized exchange gains and losses.
Borrowings under the Company's $20 million revolving credit agreement were
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 money market
instruments and should be considered when analyzing overall cash flow.
Page 7 of 8
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THE L. S. STARRETT COMPANY
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
6(a) Exhibit 11. Calculation of Shares for Computation of Consolidated
Earnings per Share
13 Weeks Ended 39 Weeks Ended
3/25/95 3/26/94 3/25/95 3/26/94
Average number of shares out-
standing during the period 7,051,267 7,060,172 7,079,108 7,059,970
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 10,150 8,930 7,961 8,509
Average common and common equiva-
lent shares outstanding 7,061,417 7,069,102 7,087,069 7,068,479
6(b) 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 8, 1995 S/ R. U. Wellington, Jr.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date May 8, 1995 S/ S. G. Thomson
S. G. Thomson (Chief Accounting Officer)
Page 8 of 8
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-24-1995
<PERIOD-END> MAR-25-1995
<CASH> 1,181
<SECURITIES> 35,586
<RECEIVABLES> 32,609
<ALLOWANCES> 1,131
<INVENTORY> 51,752
<CURRENT-ASSETS> 121,384
<PP&E> 113,875
<DEPRECIATION> 55,613
<TOTAL-ASSETS> 205,031
<CURRENT-LIABILITIES> 22,918
<BONDS> 9,000
<COMMON> 7,033
0
0
<OTHER-SE> 144,561
<TOTAL-LIABILITY-AND-EQUITY> 205,031
<SALES> 156,168
<TOTAL-REVENUES> 156,168
<CGS> 111,332
<TOTAL-COSTS> 111,332
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 625
<INCOME-PRETAX> 14,148
<INCOME-TAX> 5,324
<INCOME-CONTINUING> 8,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,824
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
