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 29, 1997
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 29, 1997 :
Class A Common Shares 5,025,402
Class B Common Shares 1,923,006
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 thirty-nine
weeks ended March 29, 1997 and
March 23, 1996 (unaudited) 3
Consolidated Balance Sheets - March 29,
1997 (unaudited) and June 29, 1996 4
Consolidated Statements of Stockholders'
Equity - thirty-nine weeks ended
March 29, 1997 and March 23, 1996
(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 39 Weeks Ended
EARNINGS 3/29/97 3/23/96 3/29/97 3/23/96
Net sales 60,489 53,042 183,712 166,925
Cost of goods sold (42,050) (36,863) (126,518)(116,816)
Selling and general (12,426) (11,716) (37,275) (35,971)
Other income and expense 316 163 1,081 1,369
Earnings before income taxes 6,329 4,626 21,000 15,507
Provision for federal, foreign and
state income taxes 2,077 1,296 7,029 4,987
Net earnings 4,252 3,330 13,971 10,520
Earnings per share .61 .47 1.99 1.49
Dividends per share .18 .18 .54 .54
CASH FLOWS
Cash flows from operating activities:
Net earnings 4,252 3,330 13,971 10,520
Noncash expenses:
Depreciation and amortization 2,592 2,296 7,637 6,982
Deferred taxes 90 96 348 588
Unrealized translation losses(gains) (4) 6 39 74
Working capital changes:
Receivables 1,763 2,746 (1,454) 1,269
Inventories 980 (4,775) (1,590) (12,633)
Other assets and liabilities (3,982) (329) (3,758) 2,538
Prepaid pension cost and other (324) (216) (471) (493)
Net cash from operations 5,367 3,154 14,722 8,845
Cash flows from investing activities:
Additions to plant and equipment (3,335) (3,668) (9,108) (9,118)
(Increase)decrease in short-term
investments (43) (1,332) 1,288 (32)
Net cash used in investing (3,378) (5,000) (7,820) (9,150)
Cash flows from financing activities:
Short-term borrowings, net 1,835 1,856 411 3,378
Long-term debt repayments (1,000) 0 (1,300) (300)
Common stock issued 838 750 2,731 2,253
Treasury shares purchased (2,675) (940) (5,871) (3,743)
Dividends (1,247) (1,264) (3,766) (3,796)
Net cash used in financing (2,249) 402 (7,795) (2,208)
Effect of translation rate changes
on cash (38) (2) (7) (29)
Net decrease in cash (298) (1,446) (900) (2,542)
Cash, beginning of period 815 1,493 1,417 2,589
Cash, end of period 517 47 517 47
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)
Mar. 29 June 29
1997 1996
ASSETS (unaudited)
Current assets:
Cash 517 1,417
Investments 26,719 27,794
Accounts receivable (less allowance for doubtful
accounts of $1,423,000 and $1,284,000) 39,733 37,745
Inventories:
Finished goods 28,011 27,692
Goods in process and finished parts 27,567 22,858
Raw materials and supplies 16,943 19,746
72,521 70,296
Prepaid expenses and other current assets 1,521 4,746
Total current assets 141,011 141,998
Property, plant and equipment, at cost (less
accumulated depreciation of $62,709,000
and $55,876,000) 61,518 59,602
Cost in excess of net assets acquired (less
accumulated amortization of $3,418,000
and $3,117,000) 7,861 8,115
Prepaid pension cost 18,477 17,246
Other assets 351 351
229,218 227,312
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 3,610 3,199
Accounts payable and accrued expenses 12,140 14,432
Accrued salaries and wages 4,951 6,149
Taxes payable 2,298 5,545
Employee deposits for stock purchase plan 498 528
Total current liabilities 23,497 29,853
Deferred income taxes 8,369 8,001
Long-term debt 5,800 7,100
Accumulated postretirement medical benefit obligation 15,763 15,073
Stockholders' equity:
Class A Common $1 par (10,000,000 shrs. auth.;
5,025,402 outstanding in 1997, excluding
991,156 held in treasury; 5,051,215 outstanding
in 1996, excluding 895,516 held in treasury) 5,025 5,051
Class B Common $1 par (10,000,000 shrs. auth.;
1,923,006 outstanding in 1997, excluding
251,731 held in treasury; 2,004,174 outstanding
in 1996, excluding 220,572 held in treasury) 1,923 2,004
Additional paid-in capital 38,026 36,650
Retained earnings reinvested and employed in
the business 134,068 128,272
Foreign currency translation adjustment (3,358) (4,716)
Other equity adjustments 105 24
Total stockholders' equity 175,789 167,285
229,218 227,312
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 Thirty-nine Weeks Ended March 29, 1997 and March 23, 1996
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 24, 1995
(883,556 Class A
and 155,628 Class B
shares in treasury) 7,117 34,610 119,506 (4,404) 156,829
Net earnings 10,520 10,520
Dividends ($.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 March 23, 1996
(899,272 Class A
and 209,917 Class B
shares in treasury) 7,054 35,991 123,422 (4,993) 161,474
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 13,971 13,971
Dividends ($.54) (3,766) (3,766)
Treasury shares:
Purchased (217) (1,245) (4,409) (5,871)
Issued 90 2,289 2,379
Options exercised 20 332 352
Translation gain, net 1,358 1,358
Investment valuation 81 81
Balance March 29, 1997
(991,156 Class A
and 251,731 Class B
shares in treasury) 6,948 38,026 134,068 (3,253) 175,789
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 March 29,
1997 and June 29, 1996; the results of operations and cash flows for the
thirteen weeks and thirty-nine weeks ended March 29, 1997 and March 23,
1996; and changes in stockholders' equity for the thirty-nine weeks ended March
29, 1997 and March 23, 1996.
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 Thirty-nine Weeks
Ended March Ended March
1997 1996 1997 1996
Interest income 528 412 1,464 1,411
Interest expense and com-
mitment fees (176) (296) (540) (694)
Realized and unrealized ex-
change losses (21) (17) (105) (162)
Other (15) 64 262 814
316 163 1,081 1,369
Approximately 80% of all inventories are valued on the LIFO method. At
March 29, 1997, and June 29, 1996, total inventories are $26,055,000 and
$25,852,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
March June
1997 1996
Industrial revenue bond 2,400 2,700
Revolving credit agreement 4,000 5,000
6,400 7,700
Less current portion 600 600
5,800 7,100
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.128, "Earnings per Share," which will be
effective for fiscal 1998. The adoption of this standard is not expected to
have a material effect on reported earnings per share.
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 14% for the quarter and 10% year to date. The increases in the
quarterly and year to date comparisons are primarily in domestic operations and
reflect an overall improvement in domestic business conditions, although
foreign sales have increased modestly.
Earnings Before Taxes
Pretax earnings are up 37% for the quarter and 35% year to date. This is a
result of the increase in sales volume mentioned above, the related
efficiencies from increased domestic manufacturing activity (mainly in the year
to date comparison), 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 year to date. This
compares to 28% and 32% a year ago. Higher rates are due to the fact that the
rate in the March quarter of last year was a little lower than normal because
of the income mix between Puerto Rico and the U.S..
LIQUIDITY AND CAPITAL RESOURCES
13 Weeks Ended 39 Weeks Ended
3/29/97 3/23/96 3/29/97 3/23/96
Cash provided by operations 5,367 3,154 14,722 8,845
Cash used in investing activities (3,378) (5,000) (7,820) (9,150)
Cash used in financing activities (2,249) 402 (7,795) (2,208)
Cash effect of translation rate changes (38) (2) (7) (29)
Net increase (decrease) in cash (298) (1,446) (900) (2,542)
Increased 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 purchase treasury
shares.
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 6.0 to 1 as of March 29, 1997 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 39 Weeks Ended
3/29/97 3/23/96 3/29/97 3/23/96
Average number of shares out-
standing during the period 6,977,310 7,046,911 7,011,779 7,061,774
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 14,034 13,756 11,289 11,046
Average common and common equiva-
lent shares outstanding 6,991,344 7,060,667 7,023,068 7,072,820
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 13, 1997 S/R.U.WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date May 13, 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> 9-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> MAR-29-1997
<CASH> 517
<SECURITIES> 26,719
<RECEIVABLES> 41,156
<ALLOWANCES> 1,423
<INVENTORY> 72,521
<CURRENT-ASSETS> 141,011
<PP&E> 124,227
<DEPRECIATION> 62,709
<TOTAL-ASSETS> 229,218
<CURRENT-LIABILITIES> 23,497
<BONDS> 5,800
0
0
<COMMON> 6,948
<OTHER-SE> 168,841
<TOTAL-LIABILITY-AND-EQUITY> 229,218
<SALES> 183,712
<TOTAL-REVENUES> 183,712
<CGS> 126,518
<TOTAL-COSTS> 126,518
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 540
<INCOME-PRETAX> 21,000
<INCOME-TAX> 7,029
<INCOME-CONTINUING> 13,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,971
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.99
</TABLE>
