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 23, 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 March 23, 1996 :
Class A Common Shares 5,023,025
Class B Common Shares 2,032,055
Page 1 of 8
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 23, 1996 and
March 25, 1995 (unaudited) 3
Consolidated Balance Sheets - March 23,
1996 (unaudited) and June 24, 1995 4
Consolidated Statements of Stockholders'
Equity - thirty-nine weeks ended
March 23, 1996 and March 25, 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 6. Exhibits and reports on Form 8-K 8
Page 2 of 8
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 3/23/96 3/25/95 3/23/96 3/25/95
Net sales 53,042 52,720 166,925 156,168
Cost of goods sold (36,863) (37,853) (116,816)(111,332)
Selling and general (11,716) (10,944) (35,971) (31,849)
Other income and expense 163 647 1,369 1,161
Earnings before income taxes 4,626 4,570 15,507 14,148
Provision for federal, foreign and
state income taxes 1,296 1,751 4,987 5,324
Net earnings 3,330 2,819 10,520 8,824
Earnings per share .47 .40 1.49 1.25
Dividends per share .18 .17 .54 .51
CASH FLOWS
Cash flows from operating activities:
Net earnings 3,330 2,819 10,520 8,824
Noncash expenses:
Depreciation and amortization 2,296 2,345 6,982 7,001
Deferred taxes 96 406 588 1,287
Unrealized translation losses(gains) 6 (182) 74 128
Working capital changes:
Receivables 2,746 1,533 1,269 (2,586)
Inventories (4,775) 443 (12,633) 1,879
Other assets and liabilities 1,527 1,217 5,916 6,068
Prepaid pension cost and other (216) 15 (493) (1,257)
Net cash from operations 5,010 8,596 12,223 21,344
Cash flows from investing activities:
Additions to plant and equipment (3,668) (3,286) (9,118) (7,579)
Increase in short-term investments (1,332) (3,304) (32) (8,389)
Net cash used in investing (5,000) (6,590) (9,150) (15,968)
Cash flows from financing activities:
Long-term debt repayments (1,000) (300) (1,300)
Common stock issued 750 155 2,253 677
Treasury shares purchased (940) (802) (3,743) (2,367)
Dividends (1,264) (1,137) (3,796) (3,552)
Net cash used in financing (1,454) (2,784) (5,586) (6,542)
Effect of translation rate changes
on cash (2) 7 (29) (31)
Net increase (decrease) in cash (1,446) (771) (2,542) (1,197)
Cash, beginning of period 1,493 1,952 2,589 2,378
Cash, end of period 47 1,181 47 1,181
See notes to consolidated financial statements
Page 3 of 8
THE L. S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands of dollars)
Mar. 23 June 24
1996 1995
ASSETS (unaudited)
Current assets:
Cash 47 2,589
Short-term investments 28,699 28,511
Accounts receivable (less allowance for doubtful
accounts of $1,368,000 and $1,071,000) 36,952 38,716
Inventories:
Finished goods 27,778 22,698
Goods in process and finished parts 21,588 18,928
Raw materials and supplies 19,107 14,571
68,473 56,197
Prepaid expenses and other current assets 1,106 4,625
Total current assets 135,277 130,638
Property, plant and equipment, at cost (less
accumulated depreciation of $58,613,000
and $52,722,000) 60,269 58,135
Cost in excess of net assets acquired (less
accumulated amortization of $3,020,000
and $2,766,000) 8,200 8,488
Prepaid pension cost 17,268 16,328
Other assets 351 351
221,365 213,940
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 3,978 600
Accounts payable and accrued expenses 14,952 14,080
Accrued salaries and wages 4,131 5,102
Taxes payable 5,146 6,005
Employee deposits for stock purchase plan 283 378
Total current liabilities 28,490 26,165
Deferred income taxes 8,526 8,093
Long-term debt 8,400 8,700
Accumulated postretirement medical benefit obligation 14,475 14,153
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 5,023 4,951
Class B Common $1 par (10,000,000 shrs. auth.) 2,031 2,166
Additional paid-in capital 35,991 34,610
Retained earnings reinvested and employed in
the business 123,422 119,506
Equity Adjustments (4,993) (4,404)
Total stockholders' equity 161,474 156,829
221,365 213,940
See notes to consolidated financial statements
Page 4 of 8
THE L. S. STARRETT COMPANY
Consolidated Statements of Stockholders' Equity
For the Thirty-nine Weeks Ended March 23, 1996 and March 25, 1995
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 25,1994
(1,251,378 Class A
and 133,397 Class B
shares in treasury) 7,107 32,272 113,147 (5,878) 146,648
Net earnings 8,824 8,824
Dividends ($.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 gain, net 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
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 10,520 10,520
Dividends ($.54) (3,796) (3,796)
Treasury shares:
Purchased (161) (774) (2,808) (3,743)
Issued 91 2,020 2,111
Options exercised 7 135 142
Translation loss, net (911) (911)
Investment valuation 322 322
Balance Mar. 23, 1996
(899,272 Class A
and 209,917 Class B
shares in treasury) 7,054 35,991 123,422 (4,993) 161,474
See notes to consolidated financial statements
Page 5 of 8
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 23, 1996
and June 24, 1995; the results of operations and cash flows for the thirteen
weeks and thirty-nine weeks ended March 23, 1996 and March 25, 1995; and
changes in stockholders' equity for the thirty-nine weeks ended March 23, 1996
and March 25, 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 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 Thirty-nine Weeks
Ended March Ended March
1996 1995 1996 1995
Interest income 412 507 1,411 1,168
Interest expense and com-
mitment fees (296) (192) (694) (625)
Realized and unrealized ex-
change gains (losses) (17) 396 (162) 409
Other 64 (64) 814 209
163 647 1,369 1,161
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
23, 1996, and June 25, 1995, total inventories are $25,847,000 and $25,627,000
less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
March June
1996 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 6 of 8
THE L. S. STARRETT COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Sales are up 1% for the quarter and 7% year to date. The modest increase in
the quarterly comparison is due to a slowdown in sales in the month of January
that was subsequently reversed. The year to date improvement is in all
locations, particularly domestic, and reflects an overall improvement in
business conditions.
Earnings Before Taxes
Pretax earnings are up 1% for the quarter and 10% year to date. This is
primarily the result of the sales volume changes mentioned above and the
resulting increase in factory hours and overhead absorption. The quarter and
year to date pretax earnings improvement was moderated by state mandated wage
increases in Brazil that, in the short term, have not been passed on in the
form of increased selling prices.
Income Taxes
The effective income tax rate is 28% for the quarter and 32% year to date
compared to 38% in each of the same periods in the prior year. The decreases
are mainly attributable to the lower contribution to pretax earnings from
Brazil, where the effective tax rate is higher than in the U.S., and, in
fiscal 1995, 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 4.7 to 1 on March 23, 1996 and 5.0 to 1 on June 24, 1995. The
increase in inventories is mainly in Brazil where shipments did not meet
forecast.
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.
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 7 of 8
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
3/23/96 3/25/95 3/23/96 3/25/95
Average number of shares out-
standing during the period 7,046,911 7,051,267 7,061,774 7,079,108
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 13,756 10,150 11,046 7,961
Average common and common equiva-
lent shares outstanding 7,060,667 7,061,417 7,072,820 7,087,069
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 6, 1996 S/ R. U. Wellington, Jr.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date May 6, 1996 S/ S. G. Thomson
S. G. Thomson (Chief Accounting Officer)
Page 8 of 8
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<ARTICLE> 5
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<PERIOD-END> MAR-23-1996
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