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 27, 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 September 27, 1997 :
Class A Common Shares 4,972,409
Class B Common Shares 1,887,180
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 27, 1997 and September 28, 1996
(unaudited) 3
Consolidated Balance Sheets - September 27,
1997 (unaudited) and June 28, 1997 4
Consolidated Statements of Stockholders'
Equity - thirteen weeks ended September 27,
1997 and September 28, 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 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 9/27/97 9/28/96
Net sales 65,213 58,636
Cost of goods sold (44,479) (40,570)
Selling and general (12,794) (12,252)
Other income and expense 460 371
Earnings before income taxes 8,400 6,185
Provision for federal, foreign and
state income taxes 2,987 2,143
Net earnings 5,413 4,042
Earnings per share .78 .57
Dividends per share .19 .18
CASH FLOWS
Cash flows from operating activities:
Net earnings 5,413 4,042
Noncash expenses:
Depreciation and amortization 2,745 2,503
Deferred taxes 46 192
Unrealized translation losses(gains) 83 30
Working capital changes:
Receivables (7,405) (3,760)
Inventories 2,155 (2,801)
Other assets and liabilities 3,634 (2,132)
Prepaid pension cost and other (419) (8)
Net cash from operations 6,252 (1,934)
Cash flows from investing activities:
Additions to plant and equipment (3,820) (2,637)
(Increase)decrease in short-term
investments (1,310) 2,701
Net cash used in investing (5,130) 64
Cash flows from financing activities:
Short-term borrowings, net 2,726
Common stock issued 886 881
Treasury shares purchased (3,685) (1,352)
Dividends (1,317) (1,261)
Net cash used in financing (4,116) 944
Effect of translation rate changes
on cash 1 (5)
Net decrease in cash (2,993) (931)
Cash, beginning of period 3,053 1,417
Cash, end of period 60 486
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)
Sep. 27 June 28
1997 1997
ASSETS (unaudited)
Current assets:
Cash 60 3,053
Investments 28,648 27,389
Accounts receivable (less allowance for doubtful
accounts of $1,873,000 and $1,877,000) 43,788 36,625
Inventories:
Finished goods 29,907 32,374
Goods in process and finished parts 26,991 26,698
Raw materials and supplies 16,613 16,774
73,511 75,846
Prepaid expenses and other current assets 1,331 4,682
Total current assets 147,338 147,595
Property, plant and equipment, at cost (less
accumulated depreciation of $63,346,000
and $60,816,000) 65,171 64,101
Cost in excess of net assets acquired (less
accumulated amortization of $3,597,000
and $3,514,000) 7,676 7,772
Prepaid pension cost 19,445 18,928
Other assets 423 350
240,053 238,746
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 3,610 3,610
Accounts payable and accrued expenses 14,624 13,205
Accrued salaries and wages 5,376 6,628
Taxes payable 4,314 3,927
Employee deposits for stock purchase plan 29 434
Total current liabilities 27,953 27,804
Deferred income taxes 8,362 8,247
Long-term debt 6,500 6,500
Accumulated postretirement medical benefit obligation 15,894 15,730
Stockholders' equity:
Class A Common $1 par (20,000,000 shrs. auth.;
4,972,409 outstanding in Sep.1997, excluding
1,071,919 held in treasury; 5,038,013 outstanding
in June 1997, excluding 995,943 held in treasury)4,973 5,038
Class B Common $1 par (10,000,000 shrs. auth.;
1,887,180 outstanding in Sep.1997, excluding
268,337 held in treasury; 1,905,606 outstanding
in June 1997, excluding 260,283 held in treasury)1,887 1,906
Additional paid-in capital 38,897 38,730
Retained earnings reinvested and employed in
the business 139,002 137,788
Foreign currency translation adjustment (3,573) (3,155)
Other equity adjustments 158 158
Total stockholders' equity 181,344 180,465
240,053 238,746
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 27, 1997 and September 28, 1996
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 29, 1996 7,055 36,650 128,272 (4,692) 167,285
Net earnings 4,042 4,042
Dividends ($.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 September 28, 1996 7,034 37,148 130,055 (4,469) 169,768
Balance June 28, 1997 6,944 38,730 137,788 (2,997) 180,465
Net earnings 5,413 5,413
Dividends ($.19) (1,317) (1,317)
Treasury shares:
Purchased (110) (693) (2,882) (3,685)
Issued 26 860 886
Translation loss, net (418) (418)
Investment valuation 0 0
Balance September 27, 1997 6,860 38,897 139,002 (3,415) 181,344
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 27,
1997 and June 28, 1997; the results of operations and cash flows for the
thirteen weeks ended September 27, 1997 and September 28, 1996; and changes in
stockholders' equity for the thirteen weeks ended September 27, 1997 and
September 28, 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 28, 1997, 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
Ended September
1997 1996
Interest income 642 472
Interest expense and commitment fees (205) (185)
Realized and unrealized exchange losses (97) (49)
Other 120 133
460 371
Approximately 80% of all inventories are valued on the LIFO method. At
September 27, 1997 and June 28, 1997, total inventories are $25,287,000 and
$24,790,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
September June
1997 1997
Industrial revenue bond 2,100 2,100
Revolving credit agreement 5,000 5,000
7,100 7,100
Less current portion 600 600
6,500 6,500
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.128, "Earnings per Share," which will be
effective during the second quarter of fiscal 1998. Had SFAS No. 128 been
effective for the quarters ended in September 1997 and 1996, reported earnings
per share would have been unchanged.
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 11% above the corresponding quarter of a
year ago. The increase is in both domestic and foreign operations, reflecting
the overall good domestic business conditions as well as a solid increase in
Brazil's unit volume.
Earnings Before Taxes
Pretax earnings are up 36% from the September 1996 quarter. This improvement is
consistent with the increase in sales volume mentioned above and the related
efficiencies from increased manufacturing activity. In addition, reductions
in selling and general wages in Brazil continue to help.
Income Taxes
The effective income tax rate was approximately 35% in the September quarter of
both years. These rates are considered normal and reflect the diminishing
effect of permanent book-tax differences as overall taxable income improves.
LIQUIDITY AND CAPITAL RESOURCES
13 Weeks Ended
9/27/97 9/28/96
Cash provided by operations 6,252 (1,934)
Cash used in investing activities (5,130) 64
Cash used in financing activities (4,116) 944
Cash effect of translation rate changes 1 (5)
Net decrease in cash (2,993) (931)
Increased cash flow provided by the increase in net earnings has been used
primarily to finance increases in working capital resulting from the overall
improvement in business activity. In addition, the Company purchased $1.3M more
in treasury shares in the 1997 September quarter than it did in 1996.
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 27, 1997 and 4.8 to 1 as of
June 28, 1997.
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), to competition, including pricing pressures from
low-wage foreign sources, and to 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 28, 1997.
Page 7 of 8
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THE L. S. STARRETT COMPANY
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 17, 1997.
(c) 1.The following directors were elected:
Abstentions
Votes Votes and Broker
For Withheld Non-votes
A shares voting as separate class:
William S. Hurley 4,414,687 253,269 N/A
A and B shares voting together:
Douglas A. Starrett 21,800,312 320,984 N/A
2.The following additional matters, as more fully described in the
registrant's Notice and Proxy Statement for said meeting, were voted
upon:
Adoption of the 1997 Employees' Stock Purchase Plan. There were
20,606,791 votes in favor, 884,954 against and 232,375 abstentions.
Increase of authorized Class A shares to 20,000,000. There were
21,272,237 votes in favor, 515,857 against and 328,820 abstentions.
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
9/27/97 9/28/96
Average number of shares outstanding during the period 6,923,589 7,039,422
Incremental shares computed on the assumption that
dilutive stock options had been exercised with
the proceeds used to purchase treasury stock 15,983 12,331
Average common and common equivalent shares outstanding 6,939,572 7,051,753
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 7, 1997 S/R.U.WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date November 7, 1997 S/S.G.THOMSON
S. G. Thomson (Chief Accounting Officer)
Page 8 of 8
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