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 28, 1998
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 filings requirements for the past 90 days.
YES X NO
Common Shares outstanding as of March 28, 1998 :
Class A Common Shares 5,154,824
Class B Common Shares 1,734,723
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 28, 1998 and
March 29, 1997 (unaudited) 3
Consolidated Balance Sheets - March 28,
1998 (unaudited) and June 28, 1997 4
Consolidated Statements of Stockholders'
Equity - thirty-nine weeks ended
March 28, 1998 and March 29, 1997
(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 3/28/98 3/29/97 3/28/98 3/29/97
Net sales 61,195 60,489 195,046 183,712
Cost of goods sold (41,317) (42,050) (131,168)(126,518)
Selling and general (12,761) (12,426) (39,771) (37,275)
Other income and expense 319 316 1,161 1,081
Earnings before income taxes 7,436 6,329 25,268 21,000
Provision for federal, foreign and
state income taxes 2,441 2,077 8,469 7,029
Net earnings 4,995 4,252 16,799 13,971
Basic earnings per share .72 .61 2.43 1.99
Dividends per share .19 .18 .57 .54
CASH FLOWS
Cash flows from operating activities:
Net earnings 4,995 4,252 16,799 13,971
Noncash expenses:
Depreciation and amortization 2,802 2,592 8,197 7,637
Deferred taxes 232 90 24 348
Unrealized translation losses(gains) (4) 154 39
Working capital changes:
Receivables 2,265 1,763 (3,762) (1,454)
Inventories 336 980 3,725 (1,590)
Other assets and liabilities 169 (3,982) 3,220 (3,758)
Prepaid pension cost and other (1,043) (324) (2,575) (471)
Net cash from operations 9,756 5,367 25,782 14,722
Cash flows from investing activities:
Additions to plant and equipment (4,242) (3,335) (12,048) (9,108)
(Increase)decrease in short-term
investments (2,070) (43) (6,591) 1,288
Net cash used in investing (6,312) (3,378) (18,639) (7,820)
Cash flows from financing activities:
Short-term borrowings, net (1,382) 1,835 (1,281) 411
Long-term debt repayments (2,000) (1,000) (2,300) (1,300)
Common stock issued 820 838 2,640 2,731
Treasury shares purchased (505) (2,675) (4,524) (5,871)
Dividends (1,304) (1,247) (3,923) (3,766)
Net cash used in financing (4,371) (2,249) (9,388) (7,795)
Effect of translation rate changes
on cash (2) (38) 24 (7)
Net decrease in cash (929) (298) (2,221) (900)
Cash, beginning of period 1,761 815 3,053 1,417
Cash, end of period 832 517 832 517
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. 28 June 28
1998 1997
ASSETS (unaudited) _______
Current assets:
Cash 832 3,053
Investments 34,026 27,389
Accounts receivable (less allowance for doubtful
accounts of $2,269,000 and $1,877,000) 40,178 36,625
Inventories:
Finished goods 29,687 32,374
Goods in process and finished parts 26,283 26,698
Raw materials and supplies 15,933 16,774
71,903 75,846
Prepaid expenses and other current assets 1,926 4,682
Total current assets 148,865 147,595
Property, plant and equipment, at cost (less
accumulated depreciation of $68,424,000
and $60,816,000) 67,842 64,101
Cost in excess of net assets acquired (less
accumulated amortization of $3,790,000
and $3,514,000) 7,599 7,772
Prepaid pension cost 21,091 18,928
Other assets 1,244 350
246,641 238,746
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities 2,329 3,610
Accounts payable and accrued expenses 15,528 13,205
Accrued salaries and wages 6,059 6,628
Taxes payable 2,034 3,927
Employee deposits for stock purchase plan 587 434
Total current liabilities 26,537 27,804
Deferred income taxes 8,603 8,247
Long-term debt 4,200 6,500
Accumulated postretirement medical benefit obligation 16,216 15,730
Stockholders' equity:
Class A Common $1 par (20,000,000 shrs. auth.;
5,154,824 outstanding in 1998, excluding
1,048,448 held in treasury; 5,038,013 outstanding
in 1997, excluding 995,943 held in treasury) 5,155 5,038
Class B Common $1 par (10,000,000 shrs. auth.;
1,734,723 outstanding in 1998, excluding
271,867 held in treasury; 1,905,606 outstanding
in 1997, excluding 260,283 held in treasury) 1,735 1,906
Additional paid-in capital 40,466 38,730
Retained earnings reinvested and employed in
the business 147,098 137,788
Foreign currency translation adjustment (3,653) (3,155)
Other equity adjustments 284 158
Total stockholders' equity 191,085 180,465
246,641 238,746
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 Thirty-nine Weeks Ended March 28, 1998 and March 29, 1997
(in thousands of dollars)
(unaudited)
Common Addi-
Stock Out- tional Equity
standing Paid-in Retained Adjust-
($1 Par) Capital Earnings ments Total
Balance June 29, 1996
(895,516 Class A
and 220,572 Class B
shares in treasury) 7,055 36,650 128,272 (4,692) 167,285
Net earnings 13,971 13,971
Dividends ($.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
Balance June 28, 1997
(995,943 Class A
and 260,283 Class B
shares in treasury) 6,944 38,730 137,788 (2,997) 180,465
Net earnings 16,799 16,799
Dividends ($.57) (3,923) (3,923)
Treasury shares:
Purchased (132) (826) (3,566) (4,524)
Issued 68 2,377 2,445
Options exercised 10 185 195
Translation loss, net (498) (498)
Investment valuation 126 126
Balance March 28, 1998
(1,048,448 Class A
and 271,867 Class B
shares in treasury) 6,890 40,466 147,098 (3,369) 191,085
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 28,
1998 and June 28, 1997; the results of operations and cash flows for the
thirteen weeks and thirty-nine weeks ended March 28, 1998 and March 29,
1997; and changes in stockholders' equity for the thirty-nine weeks ended March
28, 1998 and March 29, 1997.
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. In the third quarter of fiscal 1998,
the Company's operations in Brazil ceased to be considered highly inflationary
and, accordingly, the Company now accounts for any resulting translation
adjustments as a component of equity.
Other income (expense) is comprised of the following (in thousands):
Thirteen Weeks Thirty-nine Weeks
Ended March Ended March
1998 1997 1998 1997
Interest income 711 528 2,099 1,464
Interest expense and com-
mitment fees (171) (176) (628) (540)
Realized and unrealized ex-
change losses (237) (21) (469) (105)
Other 16 (15) 159 262
319 316 1,161 1,081
Approximately 70% of all inventories are valued on the LIFO method. At
March 28, 1998, and June 28, 1997, total inventories are $25,444,000 and
$24,790,000 less, respectively, than if determined on a FIFO basis.
Long-term debt is comprised of the following (in thousands):
March June
1998 1997
Industrial revenue bond 1,800 2,100
Revolving credit agreement 3,000 5,000
4,800 7,100
Less current portion 600 600
4,200 6,500
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FASB) No.128, Earnings per Share, which was
effective during the second quarter of fiscal 1998. The adoption of this
standard has had no effect on reported earnings per share. The Company will
also be required to adopt FASB No. 130, Other Comprehensive Income, and FASB
No. 131, Disclosures about Segments of an Enterprise and Related Information,
in fiscal 1998.
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 1% for the quarter and 6% year to date. The increase in the
quarterly comparison is coming from domestic operations, and reflects continued
good business conditions. The year to date increase is in both domestic and
foreign operations. Volume at our foreign locations is being adversely affected
by 1) the strong British pound, which makes our Scottish products less
competitive in foreign markets and 2) general economic conditions in Brazil.
Earnings Before Taxes
Pretax earnings are up 17% for the quarter and 20% year to date. Again, these
improvements are coming from domestic operations and follow the increase in
sales volume mentioned above, the related efficiencies from the increased
manufacturing activity, and the effects of various cost reduction initiatives.
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, and reflect the normal benefits of nontaxable investment income and lower
foreign and Puerto Rican tax rates.
LIQUIDITY AND CAPITAL RESOURCES
13 Weeks Ended 39 Weeks Ended
3/28/98 3/29/97 3/28/98 3/29/97
Cash provided by operations 9,756 5,367 25,782 14,722
Cash used in investing activities (6,312) (3,378) (18,639) (7,820)
Cash used in financing activities (4,371) (2,249) (9,388) (7,795)
Cash effect of translation rate changes (2) (38) 24 (7)
Net increase (decrease) in cash (929) (298) (2,221) (900)
Increased cash flow provided by the increase in net earnings plus the net
change in the components of working capital has been used primarily for
increased additions to plant and short-term investments and repayment of bank
debt.
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 5.6 to 1 as of March 28, 1998 and 5.3 to 1 as of
June 28, 1997.
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF1995
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 39 Weeks Ended
3/28/98 3/29/97 3/28/98 3/29/97
Average number of shares out-
standing during the period 6,879,588 6,977,310 6,889,267 7,011,779
Incremental shares computed on the
assumption that dilutive stock
options had been exercised with
the proceeds used to purchase
treasury stock 14,819 14,034 14,919 11,289
Average common and common equiva-
lent shares outstanding 6,894,407 6,991,344 6,904,186 7,023,068
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 8, 1998 S/R.U.WELLINGTON, JR.
R. U. Wellington, Jr. (Treasurer
and Chief Financial Officer)
Date May 8, 1998 S/S.G.THOMSON
S. G. Thomson (Chief Accounting Officer)
Page 8 of 8
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> MAR-28-1998
<CASH> 832
<SECURITIES> 34,026
<RECEIVABLES> 42,447
<ALLOWANCES> 2,269
<INVENTORY> 71,903
<CURRENT-ASSETS> 148,865
<PP&E> 136,266
<DEPRECIATION> 68,424
<TOTAL-ASSETS> 246,641
<CURRENT-LIABILITIES> 26,537
<BONDS> 4,200
0
0
<COMMON> 6,890
<OTHER-SE> 184,195
<TOTAL-LIABILITY-AND-EQUITY> 246,641
<SALES> 195,046
<TOTAL-REVENUES> 195,046
<CGS> 131,168
<TOTAL-COSTS> 131,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 628
<INCOME-PRETAX> 25,268
<INCOME-TAX> 8,469
<INCOME-CONTINUING> 16,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,799
<EPS-PRIMARY> 2.43
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</TABLE>
