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 September 28, 1996
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 September 28, 1996 :
Class A Common Shares 5,056,091
Class B Common Shares 1,978,488
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 weeks ended
September 28, 1996 and September 23, 1995
(unaudited) 3
Consolidated Balance Sheets - September 28,
1996 (unaudited) and June 29, 1996 4
Consolidated Statements of Stockholders'
Equity - thirteen weeks ended September 28,
1996 and September 23, 1995 (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 4. Submission of Matters to a Vote of Security Holders 8
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
EARNINGS 9/28/96 9/23/95
Net sales 58,636 52,000
Cost of goods sold (40,570) (36,775)
Selling and general (12,252) (12,033)
Other income and expense 371 754
Earnings before income taxes 6,185 3,946
Provision for federal, foreign and
state income taxes 2,143 1,383
Net earnings 4,042 2,563
Earnings per share .57 .36
Dividends per share .18 .18
CASH FLOWS
Cash flows from operating activities:
Net earnings 4,042 2,563
Noncash expenses (income):
Depreciation and amortization 2,503 2,354
Deferred taxes 192 404
Unrealized translation losses (gains) 30 (2)
Working capital changes:
Receivables (3,760) 3,689
Inventories (2,801) (7,519)
Other current assets and liabilities (2,132) (410)
Prepaid pension cost and other (8) (136)
Net cash from operating activities (1,934) 943
Cash flows from investing activities:
Additions to plant and equipment (2,637) (2,644)
Decrease in short-term investments 2,701 1,707
Net cash used in investing activities 64 (937)
Cash flows from financing activities:
Short-term borrowings, net 2,726
Common stock issued 831 623
Treasury shares purchased (1,352) (1,912)
Dividends (1,261) (1,267)
Net cash used in financing activities 944 (2,556)
Effect of translation rate changes on cash (5) (10)
Net increase (decrease) in cash (931) (2,560)
Cash, beginning of period 1,417 2,589
Cash, end of period 486 29
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)
Sept. 28 June 29
1996 1996
ASSETS (unaudited)
Current assets:
Cash 486 1,417
Investments 25,173 27,794
Accounts receivable (less allowance for
doubtful accounts of $1,312,000
and $1,284,000) 41,524 37,745
Inventories:
Finished goods 29,579 27,692
Goods in process and finished parts 25,957 22,858
Raw materials and supplies 17,640 19,746
73,176 70,296
Prepaid expenses and other current assets 2,281 4,746
Total current assets 142,640 141,998
Property, plant and equipment, at cost
(less accumulated depreciation of $57,723,000
and $55,876,000) 59,791 59,602
Cost in excess of net assets acquired (less accumu-
lated amortization of $3,211,000 and $3,117,000) 8,027 8,115
Prepaid pension cost 17,554 17,246
Other assets 351 351
228,363 227,312
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 5,925 3,199
Accounts payable and accrued expenses 12,449 14,432
Accrued salaries and wages 4,779 6,149
Taxes payable 4,288 5,545
Employee deposits for stock purchase plan 630 528
Total current liabilities 28,071 29,853
Deferred income taxes 8,121 8,001
Long-term debt 7,100 7,100
Accumulated postretirement medical benefit obligation 15,303 15,073
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 5,056 5,051
Class B Common $1 par (10,000,000 shrs. auth.) 1,978 2,004
Additional paid-in capital 37,148 36,650
Retained earnings reinvested and employed in
the business 130,055 128,272
Foreign currency translation adjustment (4,543) (4,716)
Other equity adjustments 74 24
Total stockholders' equity 169,768 167,285
228,363 227,312
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 Thirteen Weeks Ended September 28, 1996 and September 23, 1995
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
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 2,563 2,563
Dividends ($0.18) (1,267) (1,267)
Treasury shares:
Purchased (84) (374) (1,454) (1,912)
Issued 28 595 623
Translation loss, net (555) (555)
Investment valuation 29 29
Balance Sept. 23, 1995
(901,689 Class A
and 193,773 Class B
shares in treasury) 7,061 34,831 119,348 (4,930) 156,310
Balance June 29, 1996
(895,516 Class A
and 220,572 Class B
shares in treasury) 7,055 36,650 128,272 (4,692) 167,285
Net earnings 4,042 4,042
Dividends ($0.18) (1,261) (1,261)
Treasury shares:
Purchased (56) (298) (998) (1,352)
Issued 35 796 831
Translation gain, net 173 173
Investment valuation 50 50
Balance Sept. 28 1996
(903,308 Class A
and 233,590 Class B
shares in treasury) 7,034 37,148 130,055 (4,469) 169,768
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 September 28,
1996 and June 29, 1996; and also the results of operations, cash flows and
changes in stockholders' equity for the thirteen weeks ended September 28,
1996 and September 23, 1995.
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 29, 1996, 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 Thirteen Weeks
September 1996 September 1995
Interest income 472 516
Interest expense and com-
mitment fees (185) (176)
Realized and unrealized ex-
change losses (49) (28)
Other 133 442
371 754
Approximately 80% of all inventories are valued on the LIFO method. At
September 28, 1996, and June 29, 1996, total inventories are $25,892,000 and
$25,852,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
September June
1996 1996
Industrial revenue bond 2,700 2,700
Revolving credit agreement 5,000 5,000
7,700 7,700
Less current maturities 600 600
7,100 7,100
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 for the September quarter are 13% above the corresponding quarter of a
year ago. The increase is primarily in domestic operations and reflects
an overall improvement in business conditions.
Earnings Before Taxes
Pretax earnings are up 57% from the September 1995 quarter. This is a result
of the increase in sales volume mentioned above, the related efficiencies from
increased manufacturing activity, and the fact that selling and general
expenses increased at a lower rate than sales.
Income Taxes
The overall effective income tax rate is 35% in the current quarter as well
as the prior year's quarter. The effect of lower rates in Brazil in fiscal
1997 have been offset by domestic income mix changes resulting in higher
income taxes in Puerto Rico.
LIQUIDITY AND CAPITAL RESOURCES
13 Weeks Ended
9/28/96 9/23/95
Cash provided by operations (1,934) 943
Cash used in investing activities 64 (937)
Cash used in financing activities 944 (2,556)
Effect of translation rate changes on cash (5) (10)
Net increase (decrease) in cash (931) (2,560)
Cash flow provided by the increase in net earnings in the current quarter was
more than used up in financing increases in receivables and inventory that
resulted from the overall improvement in business activity. Short-term
borrowings were also used to finance these increases.
The Company maintains sufficient liquidity and has adequate resources,
including lines of credit, to fund its operations under current business
conditions. The Company continues to maintain a strong financial position with
a working capital ratio of 5.1 to 1 as of September 28, 1996 and 4.8 to 1 as
of June 29, 1996.
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report includes forward-looking statements about the Company's
business, sales, liquidity and capital resources, and other operating and
capital requirements. In addition, forward-looking statements concerning
those and other issues may be included in future Company documents and in oral
statements by Company representatives to security analysts and investors. The
Company is subject to risks that could cause actual events to vary materially
from such forward-looking statements. Such risks relate to the unpredicta-
bility of foreign operations (particularly in Brazil), to the cyclical nature
of the Company's industry (including the level of capital spending by
industrial companies), and to competition, including pricing pressures from
low-wage foreign sources and the effects of changes in foreign currency
relationships. These risks are discussed in greater detail in Management's
Discussion and Analysis of Financial Condition and Results of Operations in
the Company's Report on Form 10K for the year ended June 29, 1996.
Page 7 of 8
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PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) A regular meeting of shareholders was held on September 18, 1996.
(c) The following directors were elected:
abstentions
Votes Votes and broker
For Withheld non-votes
A shares voting as separate class:
Andrew B. Sides, Jr. 4,420,989 19,472 N/A
A and B shares voting together:
Douglas R. Starrett 22,503,458 83,043 N/A
Roger U. Wellington, Jr. 22,508,932 77,569 N/A
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
9/28/96 9/23/95
Average number of shares outstanding
during the period 7,039,422 7,086,868
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 12,331 10,596
Average common and common equivalent
shares outstanding 7,051,753 7,097,464
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 November 11, 1996 S/ R. U. WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date November 11, 1996 S/ S. G. THOMSON
S. G. Thomson (Chief Accounting Officer)
Page 8 of 8
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> SEP-28-1996
<CASH> 486
<SECURITIES> 25,173
<RECEIVABLES> 42,836
<ALLOWANCES> 1,312
<INVENTORY> 73,176
<CURRENT-ASSETS> 142,640
<PP&E> 117,514
<DEPRECIATION> 57,723
<TOTAL-ASSETS> 228,363
<CURRENT-LIABILITIES> 28,071
<BONDS> 7,100
0
0
<COMMON> 7,034
<OTHER-SE> 162,734
<TOTAL-LIABILITY-AND-EQUITY> 228,363
<SALES> 58,636
<TOTAL-REVENUES> 58,636
<CGS> 40,570
<TOTAL-COSTS> 40,570
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 6,185
<INCOME-TAX> 2,143
<INCOME-CONTINUING> 4,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> .57
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