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 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 December 28, 1996 :
Class A Common Shares 5,063,904
Class B Common Shares 1,947,434
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 twenty-six
weeks ended December 28, 1996 and
December 23, 1995 (unaudited) 3
Consolidated Balance Sheets - December 28,
1996 (unaudited) and June 29, 1996 4
Consolidated Statements of Stockholders'
Equity - twenty-six weeks ended
December 28, 1996 and December 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 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 26 Weeks Ended
EARNINGS 12/28/96 12/23/95 12/28/96 12/23/95
Net sales 64,587 61,883 123,223 113,883
Cost of goods sold (43,898) (43,178) (84,468) (79,953)
Selling and general (12,597) (12,222) (24,849) (24,255)
Other income and expense 394 452 765 1,206
Earnings before income taxes 8,486 6,935 14,671 10,881
Provision for federal, foreign and
state income taxes 2,809 2,308 4,952 3,691
Net earnings 5,677 4,627 9,719 7,190
Earnings per share .81 .66 1.38 1.02
Dividends per share .18 .18 .36 .36
CASH FLOWS
Cash flows from operating activities:
Net earnings 5,677 4,627 9,719 7,190
Noncash expenses:
Depreciation and amortization 2,542 2,332 5,045 4,686
Deferred taxes 66 88 258 492
Unrealized translation losses 13 70 43 68
Working capital changes:
Receivables 543 (5,166) (3,217) (1,477)
Inventories 231 (339) (2,570) (7,858)
Other assets and liabilities 2,356 3,277 224 2,867
Prepaid pension cost and other (139) (141) (147) 277
Net cash from operations 11,289 4,748 9,355 5,691
Cash flows from investing activities:
Additions to plant and equipment (3,136) (2,806) (5,773) (5,450)
(Increase)decrease in short-term
investments (1,369) (407) 1,331 1,300
Net cash used in investing (4,505) (3,213) (4,442) (4,150)
Cash flows from financing activities:
Short-term borrowings, net (4,150) 1,522 (1,424) 1,522
Long-term debt repayments (300) (300) (300) (300)
Common stock issued 1,062 880 1,893 1,503
Treasury shares purchased (1,845) (891) (3,196) (2,803)
Dividends (1,258) (1,265) (2,519) (2,532)
Net cash used in financing (6,491) (54) (5,546) (2,610)
Effect of translation rate changes
on cash 36 (17) 31 (27)
Net increase (decrease) in cash 329 1,464 (602) (1,096)
Cash, beginning of period 486 29 1,417 2,589
Cash, end of period 815 1,493 815 1,493
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)
Dec. 28 June 29
1996 1996
ASSETS (unaudited)
Current assets:
Cash 815 1,417
Investments 26,817 27,794
Accounts receivable (less allowance for doubtful
accounts of $1,357,000 and $1,284,000) 41,811 37,745
Inventories:
Finished goods 28,732 27,692
Goods in process and finished parts 28,182 22,858
Raw materials and supplies 17,004 19,746
73,918 70,296
Prepaid expenses and other current assets 1,204 4,746
Total current assets 144,565 141,998
Property, plant and equipment, at cost (less
accumulated depreciation of $60,662,000
and $55,876,000) 60,973 59,602
Cost in excess of net assets acquired (less
accumulated amortization of $3,345,000
and $3,117,000) 7,966 8,115
Prepaid pension cost 17,839 17,246
Other assets 351 351
231,694 227,312
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 1,775 3,199
Accounts payable and accrued expenses 14,591 14,432
Accrued salaries and wages 5,133 6,149
Taxes payable 3,640 5,545
Employee deposits for stock purchase plan 378 528
Total current liabilities 25,517 29,853
Deferred income taxes 8,260 8,001
Long-term debt 6,800 7,100
Accumulated postretirement medical benefit obligation 15,533 15,073
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.) 5,064 5,051
Class B Common $1 par (10,000,000 shrs. auth.) 1,947 2,004
Additional paid-in capital 37,763 36,650
Retained earnings reinvested and employed in
the business 133,100 128,272
Foreign currency translation adjustment (2,364) (4,716)
Other equity adjustments 74 24
Total stockholders' equity 175,584 167,285
231,694 227,312
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 Twenty-six Weeks Ended December 28, 1996 and December 23, 1995
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 24, 1995
(883,556 Class A
and 155,628 Class B
shares in treasury) 7,117 34,610 119,506 (4,404) 156,829
Net earnings 7,190 7,190
Dividends ($.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
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 9,719 9,719
Dividends ($.36) (2,519) (2,519)
Treasury shares:
Purchased (125) (699) (2,372) (3,196)
Issued 61 1,480 1,541
Options exercised 20 332 352
Translation gain, net 2,352 2,352
Investment valuation 50 50
Balance Dec. 28, 1996
(938,027 Class A
and 241,930 Class B
shares in treasury) 7,011 37,763 133,100 (2,290) 175,584
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 December 28,
1996 and June 29, 1996; the results of operations and cash flows for the
thirteen weeks and twenty-six weeks ended December 28, 1996 and December 23,
1995; and changes in stockholders' equity for the twenty-six weeks ended
December 28, 1996 and December 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 Twenty-six Weeks
Ended December Ended December
1996 1995 1996 1995
Interest income 464 483 936 999
Interest expense and com-
mitment fees (179) (222) (364) (398)
Realized and unrealized ex-
change gains and losses (35) (117) (84) (145)
Other 144 308 277 750
394 452 765 1,206_
Approximately 80% of all inventories are valued on the LIFO method. At
December 28, 1996, and June 29, 1996, total inventories are $25,984,000 and
$25,852,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
December June
1996 1996
Industrial revenue bond 2,400 2,700
Revolving credit agreement 5,000 5,000
7,400 7,700
Less current portion 600 600
6,800 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 are up 4% for the quarter and 8% year to date. The increases in the
quarterly and year to date comparisons are primarily in domestic operations and
reflect an overall improvement in business conditions. The first and second
quarter sales comparison was affected by approximately $2.5 million in sales
that are seasonal in nature and occurred in the first quarter in fiscal 1997,
but in the second quarter in fiscal 1996.
Earnings Before Taxes
Pretax earnings are up 22% for the quarter and 35% year to date. This is a
result of the increase in sales volume mentioned above, the related
efficiencies from the increased manufacturing activity, and the fact that
selling and general expenses increased at a lower rate than sales.
Income Taxes
The effective income tax rate is 33% for the quarter and 34% year to date. The
rates were approximately the same in the corresponding periods in the prior
year. The effect of lower rates in Brazil in fiscal 1997 has been offset by
domestic income mix changes resulting in higher income taxes in Puerto Rico.
LIQUIDITY AND CAPITAL RESOURCES
13 Weeks Ended 26 Weeks Ended
12/28/96 12/23/95 12/28/96 12/23/95
Cash provided by operations 11,289 4,748 9,355 5,691
Cash used in investing activities (4,505) (3,213) (4,442) (4,150)
Cash used in financing activities (6,491) (54) (5,546) (2,610)
Cash effect of translation rate changes 36 (17) 31 (27)
Net increase (decrease) in cash 329 1,464 (602) (1,096)
Cash flow provided by the increase in net earnings has been used primarily to
finance increases in receivables and inventory resulting from the overall
improvement in business activity as well as to reduce short-term borrowings.
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 5.7 to 1 as of December 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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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 26 Weeks Ended
12/28/96 12/23/95 12/28/96 12/23/95
Average number of shares out-
standing during the period 7,018,606 7,051,542 7,029,014 7,069,205
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 7,501 8,785 9,916 9,691
Average common and common equiva-
lent shares outstanding 7,026,107 7,060,327 7,038,930 7,078,896
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 4, 1997 S/R.U.WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date February 4, 1997 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> 6-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> DEC-28-1996
<CASH> 815
<SECURITIES> 26,817
<RECEIVABLES> 43,168
<ALLOWANCES> 1,357
<INVENTORY> 73,918
<CURRENT-ASSETS> 144,565
<PP&E> 121,635
<DEPRECIATION> 60,662
<TOTAL-ASSETS> 231,694
<CURRENT-LIABILITIES> 25,517
<BONDS> 6,800
0
0
<COMMON> 7,011
<OTHER-SE> 168,573
<TOTAL-LIABILITY-AND-EQUITY> 231,694
<SALES> 123,223
<TOTAL-REVENUES> 123,223
<CGS> 84,468
<TOTAL-COSTS> 84,468
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364
<INCOME-PRETAX> 14,671
<INCOME-TAX> 4,952
<INCOME-CONTINUING> 9,719
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,719
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