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 23, 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 December 23, 1995 :
Class A Common Shares 5,003,797
Class B Common Shares 2,058,158
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 23, 1995 and
December 24, 1994 (unaudited) 3
Consolidated Balance Sheets - December 23,
1995 (unaudited) and June 24, 1995 4
Consolidated Statements of Stockholders'
Equity - twenty-six weeks ended
December 23, 1995 and December 24, 1994
(unaudited) 5
Calculation of Shares for Computation of
Consolidated Earnings per Share - thirteen
and twenty-six weeks ended December 23,
1995 and December 24, 1994 (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 12/23/95 12/24/94 12/23/95 12/24/94
Net sales 61,883 56,132 113,883 103,448
Cost of goods sold (43,178) (39,425) (79,953) (73,479)
Selling and general (12,222) (10,879) (24,255) (20,905)
Other income and expense 452 433 1,206 514
Earnings before income taxes 6,935 6,261 10,881 9,578
Provision for federal, foreign and
state income taxes 2,308 2,416 3,691 3,573
Net earnings 4,627 3,845 7,190 6,005
Earnings per share .66 .55 1.02 .85
Dividends per share .18 .17 .36 .34
CASH FLOWS
Cash flows from operating activities:
Net earnings 4,627 3,845 7,190 6,005
Noncash expenses:
Depreciation and amortization 2,332 2,330 4,686 4,656
Deferred taxes 88 197 492 881
Unrealized translation losses 70 9 68 310
Working capital changes:
Receivables (5,166) (1,423) (1,477) (4,119)
Inventories (339) 1,912 (7,858) 1,436
Other assets and liabilities 4,799 2,328 4,389 4,851
Prepaid pension cost and other (141) (792) (277) (1,272)
Net cash from operations 6,270 8,406 7,213 12,748
Cash flows from investing activities:
Additions to plant and equipment (2,806) (2,323) (5,450) (4,293)
(Increase)decrease in short-term
investments (407) (2,304) 1,300 (5,085)
Net cash used in investing (3,213) (4,627) (4,150) (9,378)
Cash flows from financing activities:
Long-term debt repayments (300) (300) (300) (300)
Common stock issued 880 507 1,503 522
Treasury shares purchased (891) (1,090) (2,803) (1,565)
Dividends (1,265) (1,208) (2,532) (2,415)
Net cash used in financing (1,576) (2,091) (4,132) (3,758)
Effect of translation rate changes
on cash (17) 19 (27) (38)
Net increase (decrease) in cash 1,464 1,707 (1,096) (426)
Cash, beginning of period 29 245 2,589 2,378
Cash, end of period 1,493 1,952 1,493 1,952
See notes to consolidated financial statements
Page 3 of 9
THE L. S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands of dollars)
Dec. 23 June 24
1995 1995
ASSETS (unaudited)
Current assets:
Cash 1,493 2,589
Short-term investments 27,120 28,511
Accounts receivable (less allowance for doubtful
accounts of $1,293,000 and $1,071,000) 39,738 38,716
Inventories:
Finished goods 26,605 22,698
Goods in process and finished parts 19,203 18,928
Raw materials and supplies 17,903 14,571
63,711 56,197
Prepaid expenses and other current assets 1,195 4,625
Total current assets 133,257 130,638
Property, plant and equipment, at cost (less
accumulated depreciation of $56,454,000
and $52,722,000) 58,804 58,135
Cost in excess of net assets acquired (less
accumulated amortization of $2,935,000
and $2,766,000) 8,286 8,488
Prepaid pension cost 16,946 16,328
Other assets 350 351
217,643 213,940
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 2,122 600
Accounts payable and accrued expenses 13,144 14,080
Accrued salaries and wages 5,297 5,102
Taxes payable 6,445 6,005
Employee deposits for stock purchase plan 131 378
Total current liabilities 27,139 26,165
Deferred income taxes 8,377 8,093
Long-term debt 8,400 8,700
Accumulated postretirement medical benefit obligation 14,352 14,153
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 5,004 4,951
Class B Common $1 par (10,000,000 shrs. auth.) 2,057 2,166
Additional paid-in capital 35,470 34,610
Retained earnings reinvested and employed in
the business 122,060 119,506
Equity Adjustments (5,216) (4,404)
Total stockholders' equity 159,375 156,829
217,643 213,940
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 23, 1995 and December 24, 1994
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 25,1994
(1,251,378 Class A
and 133,397 Class B
shares in treasury) 7,107 32,272 113,147 (5,878) 146,648
Net earnings 6,005 6,005
Dividends ($.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 gain, net 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
Balance June 24, 1995
(883,556 Class A
and 155,628 Class B
shares in treasury) 7,117 34,610 119,506 (4,404) 156,829
Net earnings 7,190 7,190
Dividends ($.36) (2,532) (2,532)
Treasury shares:
Purchased (123) (576) (2,104) (2,803)
Issued 60 1,301 1,361
Options exercised 7 135 142
Translation loss, net (879) (879)
Investment valuation 67 67
Balance Dec. 23, 1995
(900,881 Class A
and 201,433 Class B
shares in treasury) 7,061 35,470 122,060 (5,216) 159,375
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
12/23/95 12/24/94 12/23/95 12/24/94
Average number of shares out-
standing during the period 7,051,542 7,086,749 7,069,205 7,093,029
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 8,785 4,826 9,691 6,866
Average common and common equiva-
lent shares outstanding 7,060,327 7,091,575 7,078,896 7,099,895
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 23,
1995 and June 24, 1995; the results of operations and cash flows for the
thirteen weeks and twenty-six weeks ended December 23, 1995 and December 24,
1994; and changes in stockholders' equity for the twenty-six weeks ended
December 23, 1995 and December 24, 1994.
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 24, 1995, 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
1995 1994 1995 1994
Interest income 483 333 999 661
Interest expense and com-
mitment fees (222) (212) (398) (433)
Realized and unrealized ex-
change gains and losses (117) 249 (145) 13
Other 308 63 750 273
452 433 1,206 514
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 23, 1995, and June 24, 1995, total inventories are $25,789,000 and
$25,627,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
December June
1995 1995
Industrial revenue bond 3,000 3,300
Revolving credit agreement 6,000 6,000
9,000 9,300
Less current portion 600 600
8,400 8,700
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 10% for the quarter as well as year to date. The increase in the
quarterly and year to date comparisons is in all locations, with the exception
of Brazil, where there was a slight decrease in sales in the December quarter.
Earnings Before Taxes
Pretax earnings are up 11% for the quarter and 14% year to date. This is
primarily the result of the foreign and domestic sales volume changes
mentioned above and increased factory operating hours that result in higher
overhead absorption. The quarter and year to date improvement over the prior
year was moderated somewhat by state mandated wage increases in Brazil that,
in the short term, have not been able to be passed on in the form of increased
selling prices.
Income Taxes
The effective income tax rate is 33% for the quarter and 34% year to date
compared to 39% and 37% for the same periods in the prior year. The decrease
is attributable mainly to the lower contribution to pretax earnings from
Brazil, where the effective tax rate is higher than in the U.S., and, in 1994,
was particularly high as a result of the monetary program instituted by the
Brazilian government.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position with a working
capital ratio of 4.9 to 1 on December 23, 1995 and 5.0 to 1 on June 24, 1995.
Cash and short-term investments are down slightly reflecting a temporary
increase in inventories in Brazil.
The fact that 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.
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
instruments. These temporary cash investments should be considered when
analyzing overall cash flow.
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 6, 1995 S/ R. U. WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date February 6, 1995 S/ S. G. THOMSON
S. G. Thomson (Chief Accounting Officer)
Page 9 of 9
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