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 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 978-249-3551
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 filing requirements for the past 90 days.
YES X NO
Common Shares outstanding as of December 27, 1997 :
Class A Common Shares 5,059,898
Class B Common Shares 1,820,990
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 27, 1997 and
December 28, 1996 (unaudited) 3
Consolidated Balance Sheets - December 27,
1997 (unaudited) and June 28, 1997 4
Consolidated Statements of Stockholders'
Equity - twenty-six weeks ended
December 27, 1997 and December 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 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 12/27/97 12/28/96 12/27/97 12/28/96
Net sales 68,638 64,587 133,851 123,223
Cost of goods sold (45,372) (43,898) (89,851) (84,468)
Selling and general (14,216) (12,597) (27,010) (24,849)
Other income and expense 382 394 842 765
Earnings before income taxes 9,432 8,486 17,832 14,671
Provision for federal, foreign and
state income taxes 3,041 2,809 6,028 4,952
Net earnings 6,391 5,677 11,804 9,719
Earnings per share .93 .81 1.71 1.38
Dividends per share .19 .18 .38 .36
CASH FLOWS
Cash flows from operating activities:
Net earnings 6,391 5,677 11,804 9,719
Noncash expenses:
Depreciation and amortization 2,650 2,542 5,395 5,045
Deferred taxes (254) 66 (208) 258
Unrealized translation losses 71 13 154 43
Working capital changes:
Receivables 1,378 543 (6,027) (3,217)
Inventories 1,234 231 3,389 (2,570)
Other assets and liabilities (583) 2,356 3,051 224
Prepaid pension cost and other (1,113) (139) (1,532) (147)
Net cash from operations 9,774 11,289 16,026 9,355
Cash flows from investing activities:
Additions to plant and equipment (3,986) (3,136) (7,806) (5,773)
(Increase)decrease in short-term
investments (3,211) (1,369) (4,521) 1,331
Net cash used in investing (7,197) (4,505) (12,327) (4,442)
Cash flows from financing activities:
Short-term borrowings, net 101 (4,150) 101 (1,424)
Long-term debt repayments (300) (300) (300) (300)
Common stock issued 934 1,062 1,820 1,893
Treasury shares purchased (334) (1,845) (4,019) (3,196)
Dividends (1,302) (1,258) (2,619) (2,519)
Net cash used in financing (901) (6,491) (5,017) (5,546)
Effect of translation rate changes
on cash 25 36 26 31
Net increase (decrease) in cash 1,701 329 (1,292) (602)
Cash, beginning of period 60 486 3,053 1,417
Cash, end of period 1,761 815 1,761 815
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. 27 June 28
1997 1997
ASSETS (unaudited)
Current assets:
Cash 1,761 3,053
Investments 32,056 27,389
Accounts receivable (less allowance for doubtful
accounts of $2,264,000 and $1,877,000) 42,819 36,625
Inventories:
Finished goods 30,242 32,374
Goods in process and finished parts 26,353 26,698
Raw materials and supplies 16,270 16,774
72,865 75,846
Prepaid expenses and other current assets 2,006 4,682
Total current assets 151,507 147,595
Property, plant and equipment, at cost (less
accumulated depreciation of $66,220,000
and $60,816,000) 66,788 64,101
Cost in excess of net assets acquired (less
accumulated amortization of $3,717,000
and $3,514,000) 7,702 7,772
Prepaid pension cost 19,780 18,928
Other assets 1,247 350
247,024 238,746
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 3,711 3,610
Accounts payable and accrued expenses 14,573 13,205
Accrued salaries and wages 5,856 6,628
Taxes payable 3,710 3,927
Employee deposits for stock purchase plan 74 434
Total current liabilities 27,924 27,804
Deferred income taxes 8,493 8,247
Long-term debt 6,200 6,500
Accumulated postretirement medical benefit obligation 16,059 15,730
Stockholders' equity:
Class A Common $1 par (20,000,000 shrs. auth.;
5,059,898 outstanding in Dec.1997, excluding
1,059,014 in treasury; 5,038,013 outstanding
in June 1997, excluding 995,943 in treasury) 5,060 5,038
Class B Common $1 par (10,000,000 shrs. auth.;
1,820,990 outstanding in Dec.1997, excluding
269,960 in treasury; 1,905,606 outstanding
in June 1997, excluding 260,283 in treasury) 1,821 1,906
Additional paid-in capital 39,749 38,730
Retained earnings reinvested and employed in
the business 143,818 137,788
Foreign currency translation adjustment (2,335) (3,155)
Other equity adjustments 235 158
Total stockholders' equity 188,348 180,465
247,024 238,746
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 Twenty-six Weeks Ended December 27, 1997 and December 28, 1996
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 29, 1996 7,055 36,650 128,272 (4,692) 167,285
Net earnings 9,719 9,719
Dividends ($.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 7,011 37,763 133,100 (2,290) 175,584
Balance June 28, 1997 6,944 38,730 137,788 (2,997) 180,465
Net earnings 11,804 11,804
Dividends ($.38) (2,619) (2,619)
Treasury shares:
Purchased (119) (745) (3,155) (4,019)
Issued 46 1,579 1,625
Options exercised 10 185 195
Translation gain, net 820 820
Investment valuation 77 77
Balance Dec. 27, 1997 6,881 39,749 143,818 (2,100) 188,348
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 27,
1997 and June 28, 1997; the results of operations and cash flows for the
thirteen weeks and twenty-six weeks ended December 27, 1997 and December 28,
1996; and changes in stockholders' equity for the twenty-six weeks ended
December 27, 1997 and December 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 Twenty-six Weeks
Ended December Ended December
1997 1996 1997 1996
Interest income 746 464 1,388 936
Interest expense and com-
mitment fees (252) (179) (457) (364)
Realized and unrealized ex-
change losses (135) (35) (232) (84)
Other 23 144 143 277
382 394 842 765
Approximately 80% of all inventories are valued on the LIFO method. At
December 27, 1997, and June 28, 1997, total inventories are $25,322,000 and
$24,790,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
December June
1997 1997
Industrial revenue bond 1,800 2,100
Revolving credit agreement 5,000 5,000
6,800 7,100
Less current portion 600 600
6,200 6,500
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.128, "Earnings per Share," which was
effective during this quarter. SFAS No. 128 has had no 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 6% for the quarter and 9% year to date. The increase in the
quarterly comparison is primarily in domestic operations, reflecting continued
good business conditions. The year to date increase is in both domestic and
foreign operations. The strong pound as compared to European currencies and
ongoing concerns about Brazil's economy are affecting volume at our foreign
locations.
Earnings Before Taxes
Pretax earnings are up 11% for the quarter and 22% year to date. These results
follow the increase in sales volume mentioned above and the related
efficiencies from the increased manufacturing activity. Selling and general
expense would have increased at a lower rate than sales had it not been for
certain second quarter bad debt reserves established as a result of the Asian
currency situation.
Income Taxes
The effective income tax rate is 32% 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
12/27/97 12/28/96 12/27/97 12/28/96
Cash provided by operations 9,774 11,289 16,026 9,355
Cash used in investing activities (7,197) (4,505) (12,327) (4,442)
Cash used in financing activities (901) (6,491) (5,017) (5,546)
Cash effect of translation rate changes 25 36 26 31
Net increase (decrease) in cash 1,701 329 (1,292) (602)
Cash flow provided by the increase in net earnings has been used primarily to
finance increases in receivables resulting from the overall improvement in
business activity. 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 5.4 to 1 as of December 27, 1997 and
5.3 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), 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 28, 1997.
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
12/27/97 12/28/96 12/27/97 12/28/96
Average number of shares out-
standing during the period 6,864,625 7,018,606 6,894,107 7,029,014
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 13,956 7,501 14,970 9,916
Average common and common equiva-
lent shares outstanding 6,878,581 7,026,107 6,909,077 7,038,930
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 6, 1998 S/R.U.WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date February 6, 1998 S/S.G.THOMSON
S. G. Thomson (Chief Accounting Officer)
Page 8 of 8
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<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> DEC-27-1997
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<RECEIVABLES> 45,083
<ALLOWANCES> 2,264
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<PP&E> 133,008
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0
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<COMMON> 6,881
<OTHER-SE> 181,467
<TOTAL-LIABILITY-AND-EQUITY> 247,024
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