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 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 December 24, 1994 :
Class A Common Shares 4,856,909
Class B Common Shares 2,205,143
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 and twenty-six
weeks ended December 24, 1994 and
December 25, 1993 (unaudited) 3
Consolidated Balance Sheets - December 24,
1994 (unaudited) and June 25, 1994 4
Consolidated Statements of Stockholders'
Equity - twenty-six weeks ended
December 24, 1994 and December 25, 1993
(unaudited) 5
Calculation of Shares for Computation of
Consolidated Earnings per Share - thirteen
and twenty-six weeks ended December 24,
1994 and December 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 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 26 Weeks Ended
EARNINGS 12/24/94 12/25/93 12/24/94 12/25/93
Net sales 56,132 47,317 103,448 89,309
Cost of goods sold (39,425) (33,639) (73,479) (64,512)
Selling and general (10,879) (9,274) (20,905) (18,449)
Other income and expense 433 (116) 514 (731)
Earnings before income taxes 6,261 4,288 9,578 5,617
Provision for federal, foreign and
state income taxes 2,416 1,220 3,573 1,342
Net earnings 3,845 3,068 6,005 4,275
Earnings per share .55 .43 .85 .60
Dividends per share .17 .17 .34 .34
CASH FLOWS
Cash flows from operating activities:
Net earnings 3,845 3,068 6,005 4,275
Noncash expenses:
Depreciation and amortization 2,330 2,179 4,656 4,343
Deferred taxes 197 264 881 496
Unrealized translation losses 9 1,070 310 2,830
Working capital changes:
Receivables (1,423) (3,380) (4,119) (5,386)
Inventories 1,912 896 1,436 1,923
Other assets and liabilities 2,328 779 4,851 2,614
Prepaid pension cost and other (792) (380) (1,272) (906)
Net cash from operations 8,406 4,496 12,748 10,189
Cash flows from investing activities:
Additions to plant and equipment (2,323) (901) (4,293) (3,572)
Increase in short-term investments (2,304) (1,654) (5,085) (4,818)
Net cash used in investing (4,627) (2,555) (9,378) (8,390)
Cash flows from financing activities:
Long-term debt repayments (300) (300) (300) (300)
Common stock issued 507 747 522 766
Treasury shares purchased (1,090) (523) (1,565) (1,025)
Dividends (1,208) (1,199) (2,415) (2,399)
Net cash used in financing (2,091) (1,275) (3,758) (2,958)
Effect of translation rate changes
on cash 19 (28) (38) (67)
Net increase (decrease) in cash 1,707 638 (426) (1,226)
Cash, beginning of period 245 981 2,378 2,845
Cash, end of period 1,952 1,619 1,952 1,619
See notes to consolidated financial statements
Page 3 of 9
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THE L. S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands of dollars)
Dec. 24 June 25
1994 1994
ASSETS (unaudited)
Current assets:
Cash 1,952 2,378
Short-term investments 32,215 27,055
Accounts receivable (less allowance for doubtful
accounts of $1,017,000 and $954,000) 32,718 29,133
Inventories:
Finished goods 22,706 23,530
Goods in process and finished parts 16,603 16,111
Raw materials and supplies 12,778 13,524
52,087 53,165
Prepaid expenses and other current assets 1,761 4,732
Total current assets 120,733 116,463
Property, plant and equipment, at cost (less
accumulated depreciation of $53,408,000
and $48,786,000) 57,353 57,386
Cost in excess of net assets acquired (less
accumulated amortization of $2,578,000
and $2,386,000) 8,662 8,822
Prepaid pension cost 16,121 14,897
Other assets 426 464
203,295 198,032
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 600 1,583
Accounts payable and accrued expenses 11,771 11,222
Accrued salaries and wages 4,531 4,276
Taxes payable 3,934 2,327
Employee deposits for stock purchase plan 961 601
Total current liabilities 21,797 20,009
Deferred income taxes 7,608 7,110
Long-term debt 10,000 10,843
Accumulated postretirement medical benefit obligation 13,625 13,422
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 4,857 4,851
Class B Common $1 par (10,000,000 shrs. auth.) 2,205 2,256
Additional paid-in capital 32,405 32,272
Retained earnings reinvested and employed in
the business 115,606 113,147
Equity Adjustments (4,808) (5,878)
Total stockholders' equity 150,265 146,648
203,295 198,032
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 Twenty-six Weeks Ended December 24, 1994 and December 25, 1993
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 26,1993
(1,303,954 Class A
and 111,482 Class B
shares in treasury) 7,065 30,023 110,259 (5,925) 141,422
Net earnings 4,275 4,275
Dividends ($.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 Losses (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 (6,701) 142,263
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 6,005 6,005
Dividends ($.34) (2,415) (2,415)
Treasury shares:
Purchased (73) (361) (1,131) (1,565)
Issued 8 161 169
Options exercised 20 333 353
ESOP loan repayments 543 543
Translation gains 819 819
Investment valuation (292) (292)
Balance Dec. 24, 1994
(1,306,060 Class A
and 143,969 Class B
shares in treasury) 7,062 32,405 115,606 (4,808) 150,265
See Notes to Consolidated Financial Statements
Page 5 of 9
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THE L. S. STARRETT COMPANY
Calculation of Shares for Computation of
Consolidated Earnings per Share
(unaudited)
13 Weeks Ended 26 Weeks Ended
12/24/94 12/25/93 12/24/94 12/25/93
Average number of shares out-
standing during the period 7,086,749 7,061,934 7,093,029 7,059,870
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 4,826 7,089 6,866 8,299
Average common and common equiva-
lent shares outstanding 7,091,575 7,069,023 7,099,895 7,068,169
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 December 24,
1994 and June 25, 1994; the results of operations and cash flows for the
thirteen weeks and twenty-six weeks ended December 24, 1994 and December 25,
1993; and changes in stockholders' equity for the twenty-six weeks ended
December 24, 1994 and December 25, 1993.
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 Twenty-six Weeks
Ended December Ended December
1994 1993 1994 1993
Interest income 333 253 661 483
Interest expense and com-
mitment fees (212) (168) (433) (339)
Realized and unrealized ex-
change gains and losses 249 (248) 13 (1,113)
Other 63 47 273 238
433 (116) 514 (731)
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 24, 1994, and June 25, 1994, total inventories are $25,445,000 and
$25,391,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
December June
1994 1994
Industrial revenue bond 3,600 3,900
ESOP guaranteed bank loan 543
Revolving credit agreement 7,000 7,000
10,600 11,443
Less current portion 600 600
10,000 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 are up 19% for the quarter and 16% 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 46% for the quarter and 71% 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 December 1994 quarter over the 1993 quarter was not quite as large as the
year to date improvement, partly because of the effect of a favorable LIFO
inventory layer reduction in the December 1993 quarter and higher advertising
and R&D expenditures in the December 1994 quarter.
Income Taxes
The effective income tax rate is 39% for the quarter and 37% year to date
compared to 28% and 24% 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 1994 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 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 December 24, 1994 is $3.3 million of liquid AAA
rated Puerto Rico debt obligations. These investments were made during the
first quarter of fiscal 1995 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 5.5 to one on December 24, 1994 and 5.8 to one on June 25,
1994. Cash and short-term investments are up over $4 million compared to June
1994, but June tends to be a low point.
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 8 of 9
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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
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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