UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended JUNE 27, 1998 Commission File No. 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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 978-249-3551
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Class A Common - $1.00 Per Share Par Value New York Stock Exchange
Class B Common - $1.00 Per Share Par Value Not applicable
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Yes X No
The Registrant had 5,181,967 and 1,699,050 shares, respectively, of its $1.00
par value Class A and B common stock outstanding on July 24, 1998. On that
date, the aggregate market value of the common stock held by nonaffiliates was
approximately $260,000,000.
The exhibit index is located on page 25.
Documents incorporated by reference
Proxy Statement dated August 12, 1998 - Part III
PART I
Item I - Business
The Company was founded in 1880 and incorporated in 1929 and is engaged in the
business of manufacturing industrial, professional, and consumer products. The
total number of different items made and sold by the Company exceeds 5,000.
Among the items produced are precision tools, tape measures, levels,
electronic gages, dial indicators, gage blocks, digital readout measuring
tools, granite surface plates, optical measuring projectors, coordinate
measuring machines, vises, M1 lubricant, hacksaw blades, hole saws, band saw
blades, jig saw blades, reciprocating saw blades, and precision ground flat
stock. Much of the Company's production is concentrated in hand measuring
tools (such as micrometers, steel rules, combination squares and many other
items for the individual craftsman) and precision instruments (such as vernier
calipers, height gages, depth gages and measuring instruments that
manufacturing companies buy for the use of their employees).
These tools and instruments are sold throughout the United States and Canada
and over 100 foreign countries, primarily through distributors. By far the
largest consumer of these products is the metalworking industry, but other
important consumers are automotive, aviation, marine and farm equipment shops,
do-it-your-selfers and tradesmen such as builders, carpenters, plumbers and
electricians.
Most of the Company's products are made from steel purchased from steel mills.
Forgings, castings, and a few small finished parts are purchased from other
manufacturers. Raw materials have always been readily available to the Company
and, in most cases, the Company does not rely on sole sources. In the event of
unavailability of purchased materials, the Company would be adversely
affected, as would its competitors. Similarly, the ability of the Company to
pass along raw material price increases is dependent on the competitive
situation and cannot be assured.
At June 27, 1998, the Company had 2,783 employees, approximately 70% of whom
are domestic. None of the Company's operations are subject to collective
bargaining agreements. In general, the Company considers its relations with
its employees to be excellent. Because of various stock ownership plans,
Company domestic personnel hold a large share of Company stock and this dual
role of owner-employee has been good for morale.
The Company is one of the largest producers of mechanics' hand measuring tools
and precision instruments. In the United States, there are three other major
companies and numerous small competitors in the field, including direct
foreign competitors. As a result, the industry is highly competitive. During
the fiscal year ended June 27, 1998, there were no material changes in the
Company's competitive position. During recent years, changes in the volume of
sales of the Company have, in general, corresponded with changes throughout
the industry. In saws and precision ground flat stock, the Company in the
United States competes with many manufacturers. The Company competes
principally through the high quality of its products and the service it
provides its customers.
Sales order backlog of the Company at any point in time is negligible.
The operations of the Company's foreign subsidiaries are consolidated in its
financial statements. The subsidiaries located in Brazil and Scotland, as
well as a newly established subsidiary in China, are actively engaged in the
manufacture of hacksaw and band saw blades and a limited line of precision
tools and measuring tapes. The Company expects its foreign subsidiaries to
continue to play a significant role in its overall operations. A summary of
the Company's foreign operations is contained in the footnotes to the
Company's 1998 financial statements found in item 8 of this Form 10K and is
hereby incorporated by reference.
The Company generally fills orders from finished goods inventories on hand;
total inventories amounted to approximately $73,777,000 at June 27, 1998, and
$75,846,000 at June 28, 1997. The Company uses the last-in, first-out (LIFO)
method of valuing most inventories, which results in more realistic operating
costs and profits. Inventory amounts are approximately $23,998,000 and
$24,790,000 lower, respectively, than if determined on a first-in, first-out
(FIFO) basis.
The Company does apply for patent protection on new inventions and presently
owns a number of patents. Its patents are considered important in the
operation of the business, but no single patent is of material importance when
viewed from the standpoint of its overall business. The Company relies on its
continuing product research and development efforts, with less dependence on
its present patent position. It has for many years maintained engineers and
supporting personnel engaged in research, product development, and related
activities. The expenditures for these activities during fiscal years 1998,
1997 and 1996 were approximately $3,406,000, $3,073,000 and $3,472,000,
respectively, all of which was expensed in the Company's financial statements.
The Company uses trademarks with respect to its products. All of its
important trademarks are registered.
Compliance with federal, state and local provisions that have been enacted or
adopted regulating the discharge of materials into the environment or
otherwise relating to protection of the environment is not expected to have a
material effect on the capital expenditures, earnings and competitive position
of the Company. Specifically, the Company has taken steps to reduce and
control water discharges and air emissions.
The Company's business is to some extent seasonal, with sales and earnings
generally at the lowest level during the first quarter of the fiscal year.
Item 2 - Properties
The Company's principal plant is located in Athol, Massachusetts on about 15
acres of Company-owned land. The plant consists of 25 buildings, mostly of
brick construction of varying dates, with approximately 535,000 square feet of
production and storage area.
The Webber Gage Division, Cleveland, Ohio, owns and occupies two buildings
containing approximately 50,000 square feet.
The Company-owned facility in Mt. Airy, North Carolina has approximately
252,000 square feet, including 18,000 square feet added in fiscal 1998. It is
occupied by the Company's Saw Division, Granite Surface Plate Division,
Coordinate Measuring Machine Division, Optical Comparator Division and Ground
Flat Stock Division. This plant is subject to a mortgage collateralizing a
$1,500,000 Industrial Revenue Bond.
The Company's Advanced Technology Division, located in Gardner, Massachusetts,
occupies about 9,000 square feet of leased facilities.
The Company's Evans Rule Division, located in North Charleston, South
Carolina, owns and occupies a 166,000 square foot building, including 30,000
square feet added in fiscal 1998. In addition, this division leases 45,000
square feet of manufacturing space in Mayaguez, Puerto Rico.
The Company's Exact Level Division is located in Alum Bank, Pennsylvania and
owns and occupies a 50,000 square foot building.
The Company's Brazil subsidiary owns and occupies several buildings totaling
209,000 square feet. The Company's Scotland subsidiary owns and occupies a
187,000 square foot building and also a 33,000 square foot building in
Skipton, England, where its wholly owned subsidiary manufactures optical
measuring projectors. A second wholly owned subsidiary located in Skipton
performs calibration services and leases about 4,000 square feet. A subsidiary
in Mississauga, Canada owns and occupies a 25,000 square foot building. A
wholly owned subsidiary established in the People's Republic of China during
fiscal 1998 leases approximately 40,000 square feet.
In addition, the Company owns and operates warehouses/sales offices in
Glendale, Arizona and Elmhurst, Illinois; and leases a 6,000 square foot sales
support office in Atlanta, Georgia.
In the Company's opinion, all of its property, plant and equipment is in good
operating condition, well maintained and adequate for its needs.
Item 3 - Legal Proceedings
The Company is not involved in any material pending legal proceedings.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 27, 1998.
Executive Officers of the Registrant
The information under the caption Executive Officers of the Registrant in item
10 of this Form 10K is hereby incorporated by reference.
PART II
Item 5 - Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Class A common stock is traded on the New York Stock Exchange.
Quarterly dividend and high/low closing market price information is presented
in the table below. The Registrant's Class B common stock is generally
nontransferable, except to lineal descendants and thus has no established
trading market, but it can be converted into Class A common stock at any time.
The Class B common stock was issued on October 5, 1988, and the Registrant has
paid the same dividends thereon as have been paid on the Class A common stock
since that date. At July 24, 1998, there were 2,328 registered holders of
Class A common stock and 1,745 registered holders of Class B common stock.
Quarter ended Dividends High Low
September 1996 0.18 $ 25.75 $ 22.75
December 1996 0.18 29.00 23.75
March 1997 0.18 31.25 27.50
June 1997 0.18 32.00 28.13
September 1997 0.19 36.56 30.25
December 1997 0.19 39.94 36.00
March 1998 0.19 40.13 32.56
June 1998 0.20 40.81 37.06
Item 6 - Selected Financial Data
Years ended in June ($000 except per share data)
1998 1997 1996 1995 1994
Net sales $262,340 $250,503 $235,467 $214,215 $180,178
Net earnings 23,009 19,859 17,331 13,487 9,041
Basic earnings per share 3.34 2.84 2.45 1.91 1.28
Diluted earnings per share 3.33 2.84 2.45 1.91 1.28
Long-term debt 3,900 6,500 7,100 8,700 10,843
Total assets 250,263 238,746 227,312 213,940 198,032
Dividends per share 0.77 0.72 0.72 0.69 0.68
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
SALES
Sales increased 5% in fiscal 1998 following a 6% increase in fiscal 1997.
Domestic sales accounted for most of the increase in the current as well as
the prior year as a result of continued good economic conditions in our
industry. Foreign sales, however, have increased only slightly during the past
two years. The strong British pound has been adversely affecting Scotland's
business both in terms of export pricing and domestic import competition. In
Brazil, high real interest rates and a recessionary economy have held sales
back, particularly in the current year. The weakening of Brazil's currency
caused the local currency sales increase to be reduced by about 10 percentage
points in both 1998 and 1997 after conversion to U.S. dollars.
EARNINGS BEFORE TAXES
Pretax earnings are up 14% for the year. This follows a 15% increase in 1997.
Cost of sales was about 67.5% in 1998, 68% in 1997, and 68.5% in 1996. The
improvement in these rates is consistent with added manufacturing efficiencies
and increased production levels, particularly in domestic operations where
pretax earnings are up 26% this year and were up 15% last year. On the foreign
side, the strong pound mentioned above had a significant negative effect on
margins and was primarily responsible for a 20% drop in foreign pretax
earnings. In 1997, reductions in selling and general wages in Brazil enabled
our foreign pretax earnings to increase 14% despite level sales.
INCOME TAXES
The effective tax rate is 33% in 1998 compared to 34% in both 1997 and 1996.
Tax-exempt interest on short-term investments in municipal bonds, Puerto Rico
tax incentives and somewhat lower foreign income tax rates all contribute to
an overall effective tax rate that is slightly lower than the combined U.S.
state and federal statutory rate. However, as taxable income has increased in
the past several years, the effect of these items has diminished. In addition,
the overall effective rate has been favorably impacted by lower rates in
Brazil starting in 1996. Although the statutory rate in Brazil is now
comparable to the U.S. federal rate, nonrecurring permanent differences
between book and taxable income for dividends paid to the U.S. in 1998 and
1997 and local monetary correction adjustments in 1996 reduced the Brazilian
effective tax rate substantially when reported in U.S. dollars.
NET EARNINGS
As a result of the above, net earnings were up 16% in fiscal 1998 when
compared to 1997 and 1997 net earnings were up 15% when compared to 1996.
MARKET RISK
Market risk is the potential change in a financial instrument's value caused
by fluctuations in interest and currency exchange rates and equity and
commodity prices. The Company's operating activities expose it to many risks
that are continually monitored, evaluated, and managed. Proper management of
these risks helps reduce the likelihood of earnings volatility. At June 1997
and 1998, the Company was not a party to any derivative arrangement and the
Company does not engage in trading, market-making or other speculative
activities in the derivatives markets.
The Company does not engage in regular hedging activities to minimize the
impact of foreign currency fluctuations. Net monetary assets in Scotland and
Brazil are approximately $11 million and $2 million, respectively. Inflation
in Brazil has decreased to less than 10% today from over 2000% in 1994 when
their current economic plan was initiated. As a consequence, their economy
ceased to be considered hyperinflationary as of January 1998.
YEAR 2000
The well publicized year 2000 problem, which is common to most corporations,
is associated with the inability of computer systems to process date related
information beyond the year 2000. The Company does not currently anticipate
any material disruption of its operations as a result of any failure by the
Company to be year 2000 compliant. If, however, the Company, its customers
or its suppliers are unable to achieve year 2000 compliance, the potential
exists for the Company's business and results of operations to be adversely
affected.
Worldwide, the Company has four major computer systems that are used in the
areas of manufacturing, sales and accounting. Two use third party packages
that the Company believes are or, through vendor upgrades, will be year 2000
compliant. The other two systems are in the process of being converted to
third party packages that the Company believes are already compliant. The
Company expects to complete the reasonably necessary remediation of its
significant systems by the end of fiscal 1999 and has not incurred, and does
not expect to incur, significant additional separately identifiable costs in
order to make its computer systems year 2000 compliant. In the event the
Company's planned upgrades and modifications fail to bring any of these
major systems into Year 2000 compliance or fail to do so in a timely manner,
the Company will have to adopt contingency plans to deal with any resulting
disruptions in its business.
The Company employs certain manufacturing processes that utilize computer
controlled manufacturing equipment. The Company believes such equipment is
year 2000 compliant to the extent reasonably necessary but has not completed
its testing of such equipment. In the event the Company determines that such
equipment cannot readily be made year 2OOO compliant, it believes it can
revert to the manual processes previously employed or outsource such work.
The Company is also in the process of investigating the status of other
systems with respect to year 2000 compliance such as phone, fax, heating/air
conditioning, and electricity and believes they will be year 2000 compliant
to the extent reasonably necessary before the end of 1999. The Company is
utilizing internal resources for this purpose and does not expect to incur
significant separately identifiable costs.
In addition to reviewing its own systems, the Company has polled or is in
the process of polling its significant customers and vendors to get
assurance that they are year 2000 compliant and to attempt to identify
potential issues. To the extent such assurance is not received, appropriate
contingency plans will be developed and implemented. At this time, the
Company is not aware of significant problems. If the Company's customers and
vendors do not achieve year 2000 compliance before the end of 1999, the
Company could experience a variety of problems that might have a material
adverse effect on the Company's business and results of operations. For
example, customers might lose EDI capability or vendors might fail to
deliver, but most foreseeable problems can be overcome by reverting to
phone, fax, mail and other manual procedures. It should be noted that the
Company outsources very little other than raw steel and is not dependent on
single source suppliers. In addition it has no customer accounting for more
than ten percent of sales.
LIQUIDITY AND CAPITAL RESOURCES
Years ended In June ($000)
1998 1997 1996
Cash provided by operations $28,713 $23,516 $15,171
Cash used in investing activities (15,838) (13,310) (10,744)
Cash used in financing activities (12,203) (8,563) (5,588)
Effect of translation rate
changes on cash (20) (7) (11)
Increase (decrease) in cash $ 652 $ 1,636 $(1,172)
Cash flows from operating activities increased $5 million in 1998 primarily
due to the increase in net earnings of $3 million, and increases in levels of
non cash charges for depreciation, amortization and deferred taxes of $3
million. In total, the change in prepaid pension and other assets and the
components of working capital remained about the same in 1998, whereas 1997
saw a considerable slowdown in the rate of inventory increase as compared to
1996.
The Company's investing activities consist mainly of expenditures for
property, plant and equipment and the investment of cash not immediately
needed for operations. Plant expenditures of $16.1 million in 1998 are ahead
of the $14.0 million and $11.6 million experienced in 1997 and 1996, which are
more typical years, but the Company anticipates similar levels of capital
expenditures in the near term due to startup operations in China and major
system software and hardware changes.
Cash flows from financing activities are primarily the payment of dividends,
which tend to be quite steady from year to year. The Company requires little
debt to finance day to day operations and the proceeds from the sale of stock
under the various stock plans tend to be used to purchase treasury shares.
Treasury share purchases were $5.3 million in 1998 compared to $7.1 million in
1997 and $4.7 million in 1996.
The Company maintains sufficient liquidity and has the resources to fund its
operations under current business conditions. The Company maintains two lines
of credit as discussed in the notes to the financial statements. The Company
has not made significant borrowings under these lines during the past three
years. The lines were used primarily to finance acquisitions. The Company
continues to maintain a strong financial position with a working capital ratio
of 5.9 to l as of June 27, 1998 and 5.3 to 1 as of June 28, 1997. Cash not
immediately required for working capital is invested in high grade money
market instruments with maturities generally less than one year (however, see
the notes to the financial statements regarding investments in Puerto Rico).
Certain cash and investment balances of foreign subsidiaries may not be
repatriated without adverse tax consequences and in certain cases may be
subject to regulatory restriction.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." Comprehensive income includes, in addition to net income, several
other items that current accounting standards require to be recognized outside
of net income such as unrealized investment gains and losses and currency
translation adjustments. The standard requires disclosure of the components of
comprehensive income as well as their accumulated balances. The Company
intends to display comprehensive income in the Consolidated Statements of
Stockholders' Equity beginning in fiscal 1999.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," replacing SFAS No.14 and its
amendments. The new standard requires disclosure of information about
operating segments, products, major customers and activities in different
geographic areas. The basis for determining operating segments is the same as
is used by the Company's chief operating decision maker. The Company intends
to adopt SFAS No.131 in fiscal 1999.
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
This Item, as well as other portions of this document and the 1998 Annual
Report, including the Chairman's letter to stockholders, include forward-
looking statements about the Company's business, sales, expenditures, Year
2000 compliance, environmental regulatory compliance, foreign operations, debt
service, liquidity and capital resources, and other operating and capital
requirements. In addition, forward-looking statements 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,
including the following risk factors:
Risks Related to Year 2000 Issues: The Company continues to explore whether
and to what extent its computer and other systems will be disrupted at the
turn of the century as a result of the widely-publicized dating system flaw
inherent in many computer systems. While the Company is in the process of
upgrading and modifying its systems in order to address the Year 2000 issue,
there can be no assurance that the Company's existing systems will be upgraded
or modified in time to remedy the Year 2000 issue or that the Company's
computer systems will not be disrupted upon the turn of the century. Any
disruption of the Company's business due to the Year 2000 issue, whether
caused by the Company's systems or those of any of its suppliers, customers,
banks, lenders, or insurers, could have a material adverse effect on the
Company's financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Year
2000."
Risks Related to Technology: Although the Company's strategy includes
significant investment in research and development of new and innovative
products to meet technology advances, there can be no assurance that the
Company will be successful in competing against new technologies developed by
competitors.
Risks Related to Adoption of the Euro: Beginning January 1, 1999, a new
currency (the Euro) will be created and will generally be required to be used
to conduct business in Europe . The eleven participating European countries
will phase in the use of the Euro until June 30, 2002 at which time the
national currencies of the participating countries will cease to exist and all
transactions will be settled in the Euro. Although the United Kingdom is not
currently a Euro country, the Company's Scottish subsidiary does a significant
amount of business with Euro countries. Management believes it has the
necessary systems and business processes to deal with what is, in effect, one
more foreign currency, but there can be no assurance that there will not be
unforeseen economic effects of this change that might affect the Company's
sales or margins on business done with Euro countries.
Risks Related to Foreign Operations: For the period ended June 27, 1998,
approximately 30% of the Company's sales were derived from foreign operations
and, as of June 27, 1998, approximately 30% of the Company's net assets were
located outside the United States. Foreign operations are subject to special
risks that can materially affect the sales, profits, cash flows, and financial
position of the Company, including taxes and other restrictions on
distributions and payments, currency exchange rate fluctuations, political and
economic instability in emerging markets, inflation, minimum capital
requirements, and exchange controls. In particular, the Company's Brazilian
operations, which constitute over half of the Company's revenues from foreign
operations, can be very volatile, changing from year to year due to the
political situation and economy. As a result, the future performance of the
Brazilian operations is inherently unpredictable.
Risks Related to Cyclical Nature of the Industry: The market for the Company's
products is subject to general economic conditions, including the level of
capital spending by industrial companies. As such, recessionary forces
decrease demand for the Company's products and adversely affect performance.
Risks Related to Competition: The Company's business is subject to direct and
indirect competition from both domestic and foreign firms. In particular,
low-wage foreign sources have created severe competitive pricing pressures.
Under certain circumstances, including significant changes in U.S. and foreign
currency relationships, such pricing pressures might reduce unit sales and/or
adversely affect the Company's margins.
Item 8 - Financial Statements and Supplementary Data
Contents: Page
Report of Independent Auditors 11
Consolidated Statements of Earnings and Cash Flows 12
Consolidated Balance Sheets 13
Consolidated Statements of Stockholders' Equity 14
Notes to Consolidated Financial Statements 15-21
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Directors of
The L.S. Starrett Company
We have audited the accompanying consolidated balance sheets of The L.S.
Starrett Company and subsidiaries as of June 27, 1998 and June 28, 1997, and
the related consolidated statements of earnings, cash flows and changes in
stockholders' equity for each of the three years in the period ended June 27,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and subsidiaries as
of June 27, 1998 and June 28, 1997, and the results of their operations and
their cash flows for each of the three fiscal years in the period ended June
27, 1998, in conformity with generally accepted accounting principles.
S/DELOITTE & TOUCHE LLP
Boston, Massachusetts
July 31, 1998
THE L.S. STARRETT COMPANY
Consolidated Statements of Earnings and Cash Flows
For the years ended in June (in thousands of dollars except per share data)
1998 1997 1996
EARNINGS
Net sales $262,340 $250,503 $235,467
Cost of goods sold (176,591) (170,035) (161,238)
Selling, general and administrative expense (53,433) (51,941) (49,567)
Other income and expense 1,806 1,532 1,490
Earnings before income taxes 34,122 30,059 26,152
Income taxes 11,113 10,200 8,821
Net earnings $ 23,009 $ 19,859 $ 17,331
Basic earnings per share, based on
average outstanding shares of
6,888,854, 6,991,810 and 7,057,675 $ 3.34 $ 2.84 $ 2.45
Diluted earnings per share, based on
average outstanding shares of
6,902,950, 7,003,138 and 7,069,119 $ 3.33 $ 2.84 $ 2.45
CASH FLOWS
Cash flows from operating activities:
Net earnings $ 23,009 $ 19,859 $ 17,331
Noncash expenses:
Depreciation and amortization 10,727 9,799 9,268
Deferred taxes 1,945 (439) 10
Unrealized translation losses 154 134 99
Working capital changes:
Receivables (4,506) 1,619 564
Inventories 1,518 (4,821) (14,289)
Other current assets and liabilities (1,016) (1,962) 1,040
Prepaid pension and other (3,118) (673) 1,148
Net cash from operating activities 28,713 23,516 15,171
Cash flows from investing activities:
Additions to plant and equipment (16,148) (13,999) (11,609)
Decrease in investments 310 689 865
Net cash used in investing activities (15,838) (13,310) (10,744)
Cash flows from financing activities:
Short-term borrowing, net (2,609) 411 2,599
Debt repayments, net (2,600) (600) (1,600)
Common stock issued 3,590 3,691 3,130
Treasury shares purchased (5,286) (7,054) (4,656)
Dividends (5,298) (5,011) (5,061)
Net cash used in financing activities (12,203) (8,563) (5,588)
Effect of translation rate changes on cash (20) (7) (11)
Net increase (decrease) in cash 652 1,636 (1,172)
Cash beginning of year 3,053 1,417 2,589
Cash end of year $ 3,705 $ 3,053 $ 1,417
Supplemental cash flow information:
Interest paid $ 684 $ 839 $ 870
Taxes paid $ 12,519 $ 11,572 $ 9,289
See Notes to Consolidated Financial Statements
THE L.S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands of dollars)
June 27 June 28
ASSETS 1998 1997
Current assets:
Cash $ 3,705 $ 3,053
Investments 27,115 27,389
Accounts receivable (less allowance for doubtful
accounts of $2,450,000 and $1,877,000) 40,764 36,625
Inventories 73,777 75,846
Prepaid expenses and other current assets 5,335 4,682
Total current assets 150,696 147,595
Property, plant and equipment, at cost:
Land 1,862 1,945
Buildings (less accumulated depreciation of
$17,014,000 and $16,447,000) 24,314 23,499
Machinery and equipment (less accumulated
depreciation of $49,178,000 and $44,328,000) 42,642 38,657
Total property, plant and equipment 68,818 64,101
Cost in excess of net assets acquired (less accumu-
lated amortization of $3,896,000 and $3,514,000) 7,484 7,772
Prepaid pension cost 22,035 18,928
Other assets 1,230 350
$250,263 $238,746
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities $ 1,001 $ 3,610
Accounts payable and accrued expenses 14,371 13,205
Accrued salaries and wages 8,059 6,628
Taxes payable 1,475 3,927
Employee deposits for stock purchase plan 528 434
Total current liabilities 25,434 27,804
Deferred income taxes 9,367 8,247
Long-term debt 3,900 6,500
Accumulated postretirement benefit obligation 16,268 15,730
Stockholders' equity:
Class A common stock $1 par (20,000,000 shrs. auth.;
5,193,904 outstanding in 1998, excluding
1,045,731 held in treasury; 5,038,013 outstanding
in 1997, excluding 995,943 held in treasury 5,194 5,038
Class B Common Stock $1 par (10,000,000 shrs. auth.;
1,703,434 outstanding in 1998, excluding
274,283 held in treasury; 1,905,606 outstanding
in 1997, excluding 260,283 held in treasury 1,703 1,906
Additional paid-in capital 41,263 38,730
Retained earnings reinvested and employed in
the business 151,317 137,788
Foreign currency translation adjustment (4,479) (3,155)
Other equity adjustments 296 158
Total stockholders' equity 195,294 180,465
$250,263 $238,746
See Notes to Consolidated Financial Statements
THE L.S. STARRETT COMPANY
Consolidated Statements of Stockholders' Equity
For the years ended in June, 1996 through 1998
(in thousands)
Common Addi- Equity Adjustments
Stock Out- tional Currency
standing Paid-in Retained Trans-
($1 Par) Capital Earnings lation Other Total
Balance, 6/24/95 $ 7,117 $34,610 $119,506 $(4,147) $ (257) $156,829
Net earnings 17,331 17,331
Dividends ($0.72) (5,061) (5,061)
Treasury shares:
Purchased (197) (955) (3,504) (4,656)
Issued 120 2,730 2,850
Options exercised 15 265 280
Unrealized net gains on
investments 281 281
Translation loss,net (569) (569)
Balance, 6/29/96 7,055 36,650 128,272 (4,716) 24 167,285
Net earnings 19,859 19,859
Dividends ($0.72) (5,011) (5,011)
Treasury shares:
Purchased (255) (1,467) (5,332) (7,054)
Issued 116 3,057 3,173
Options exercised 28 490 518
Unrealized net gains on
investments 134 134
Translation gain,net 1,561 1,561
Balance, 6/28/97 6,944 38,730 137,788 (3,155) 158 180,465
Net earnings 23,009 23,009
Dividends ($0.77) (5,298) (5,298)
Treasury shares:
Purchased (152) (952) (4,182) (5,286)
Issued 88 3,144 3,232
Options exercised 17 341 358
Unrealized net gains on
investments 138 138
Translation loss,net (1,324) (1,324)
Balance, 6/27/98 $ 6,897 $41,263 $151,317 $(4,479) $ 296 $ 195,294
See Notes to Consolidated Financial Statements
THE L. S. STARRETT COMPANY
Notes to Consolidated Financial Statements
SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include
the accounts of The L. S. Starrett Company and subsidiaries, a manu-
facturer of industrial, professional and consumer products. All
subsidiaries are wholly-owned and all significant intercompany items have
been eliminated. The Company's fiscal year ends on the last Saturday in
June. Results for fiscal 1996 include 53 weeks compared to 52 weeks in
1997 and 1998. The fiscal years of the Company's foreign subsidiaries end
in May.
Fair market value of financial instruments: The Company's financial
instruments consist primarily of current assets, current liabilities, and
long-term debt. Current assets, except inventories (see Inventories) and
except short-term investments, and current liabilities are stated at cost,
which approximates fair market value; long-term debts, which are at current
market interest rates, also approximate fair market value. The Company does
not purchase derivative financial instruments.
Investments: Investments consist primarily of marketable securities, including
treasury bills, certificates of deposit and municipal securities. The
Company considers all its investments "available for sale." As such, these
investments are carried at market, which approximates cost, with unrealized
temporary gains and losses recorded as a component of stockholders' equity.
Included in investments at June 27, 1998 is $7.9 million of liquid AAA
rated Puerto Rico debt obligations. These investments were made for the
purpose of reducing repatriation taxes and have maturities of up to ten
years. Most other investments have maturities of less than one year.
Long-lived assets: Buildings and equipment are depreciated using straight-line
and accelerated methods over estimated useful lives as follows: buildings
15 to 50 years, building improvements 10 to 40 years, machinery and
equipment 5 to 12 years, motor vehicles 3 to 5 years. Costs in excess of
net assets acquired are being amortized on a straight-line basis over 5 to
40 years.
Inventories: Inventories are stated at the lower of cost or market. For
approximately 70% of all inventories, cost is determined on a last-in,
first-out (LIFO) basis. For all other inventories, cost is determined on a
first-in, first-out (FIFO) basis. LIFO inventories are $44,397,000 and
$44,743,000 at the end of 1998 and 1997, respectively, such amounts being
$23,998,000 and $24,790,000 less than if determined on a FIFO basis. Total
inventories at year end are as follows (in thousands):
Goods in Pro-
cess and Raw Materials
Finished Goods Finished Parts and Supplies Total
1998 $30,199 $25,825 $17,753 $73,777
1997 32,374 26,698 16,774 75,846
Income taxes: Deferred tax expense results from differences in the timing of
certain transactions for financial reporting and tax purposes. Deferred
taxes have not been recorded on undistributed earnings of foreign
subsidiaries (approximately $50,000,000 at June 1998) or the related
unrealized translation adjustments because such amounts are considered
permanently invested and, if remitted, the resulting taxes would be offset
by foreign tax credits.
Research and development: Research and development costs were expensed as
follows: $3,406,000 in 1998, $3,073,000 in 1997 and $3,472,000 in 1996.
Earnings per share: The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per share," in fiscal 1998. Basic EPS
excludes dilution and is computed by dividing earnings available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution by securities
that could share in the earnings. The Company had 14,096, 11,328 and
11,444 of additional potential common shares in 1998, 1997 and 1996
resulting from shares issuable under its stock option plan.
Translation of foreign currencies: Assets and liabilities are translated at
exchange rates in effect on reporting dates, and income and expenses are
translated at rates in effect on transaction dates. The resulting
differences due to changing exchange rates are charged or credited directly
to the "foreign currency translation adjustment" account included as part of
stockholders' equity. Prior to January 1, 1998, the translation method used
by the Company's subsidiary in Brazil, which until then had been considered
a hyperinflationary country, was the same except that inventories and plant
and the related charges to cost of sales and depreciation expense were
translated at rates in effect at the time the assets were purchased, and the
resulting translation gains and losses were included in the determination of
net earnings.
Use of accounting estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting period. Amounts
ultimately realized could differ from those estimates.
OTHER INCOME AND EXPENSE
Other income and expense consists of the following (in thousands):
1998 1997 1996
Interest income $ 2,747 $ 2,118 $ 1,889
Interest expense and commitment fees (820) (784) (917)
Realized and unrealized translation gains
and losses (339) (225) (140)
Other 218 423 658
$ 1,806 $ 1,532 $ 1,490
INCOME TAXES
The provision for income taxes consists of the following (in thousands):
1998 1997 1996
Current:
Federal $ 5,780 $ 6,146 $ 5,058
Foreign 2,454 2,926 2,385
State 934 1,567 1,368
Deferred 1,945 (439) 10
$11,113 $10,200 $ 8,821
Pretax domestic income was $26,876,000, $22,096,000 and $19,169,000 in 1998,
1997 and 1996, respectively.
A reconciliation of expected tax expense at the U.S. statutory rate to actual
tax expense is as follows (in thousands):
1998 1997 1996
Expected tax expense $11,943 $10,520 $ 9,153
Increase (decrease) from:
State and Puerto Rico taxes, net
of federal benefit 108 178 219
Foreign taxes, net of federal credits (604) (476) (437)
Nontaxable investment income (120) (115) (151)
Other (214) 93 37
Actual tax expense $11,113 $10,200 $ 8,821
Deferred income taxes at year end are attributable to the following (in
thousands):
1998 1997
Deferred assets:
Retiree medical benefits $(6,643) $(6,425)
Inventories (1,296) (1,799)
Other (1,366) (1,431)
(9,305) (9,655)
Deferred liabilities:
Prepaid pension 9,059 7,771
Other employee benefits 659 511
Depreciation 6,087 6,164
Other 884 761
16,689 15,207
Current portion (1,983) (2,695)
Long-term portion $ 9,367 $ 8,247
EMPLOYEE BENEFIT PLANS
The Company has several pension plans, both defined benefit and defined
contribution, covering all of its domestic and approximately half of its
nondomestic employees. In addition, certain domestic employees participate in
an Employee Stock Ownership Plan (ESOP). Ninety percent of the actuarially
determined annuity value of their ESOP shares is used to offset retirement
benefits otherwise due under the domestic noncontributory defined benefit
pension plan. The total cost (benefit) of all such plans for 1998, 1997 and
1996, considering the combined projected benefits and funds of the ESOP as
well as the other plans, was $(1,588,000), $(405,000) and $(87,000),
respectively.
Under both domestic and foreign defined benefit plans, benefits are based on
years of service and final average earnings. Plan assets, including those of
the ESOP, consist primarily of investment grade debt obligations, marketable
equity securities and approximately 1,050,000 shares of the Company's common
stock. The cost of these defined benefit plans, including the ESOP, consists
of the following components (in thousands):
1998 1997 1996
Cost of benefits earned during current year $ 2,389 $ 2,376 $ 2,238
Interest on projected benefit obligation 5,771 5,425 3,330
Actual return on assets (22,500) (17,834) (12,349)
Net amortization and deferral 11,241 8,291 5,830
$(3,099) $(1,742) $ (951)
The plans' funded status at year end is as follows (in thousands):
1998 1997
Vested accumulated benefit obligation $78,912 $72,500
Nonvested accumulated benefit obligation 277 164
Effect of future compensation increases 8,053 8,265
Projected benefit obligation 87,242 80,929
Plan assets at fair market value 148,861 129,292
Funded status 61,619 48,363
Unrecognized portion of net assets 39,584 29,435
Prepaid pension cost $22,035 $18,928
The assumed discount rate and rate of increase in compensation used in
determining the projected benefit obligation are 7% and 5%, respectively,
for the domestic plan and 8.5% and 6.5% for the foreign plan. The assumed
long-term rate of return on plan assets is 7.5% for the domestic plan and
8.5% for the foreign plan. Less than 25% of the assets and obligations
reflected in the table above relate to the foreign plan.
The Company provides certain medical and life insurance benefits for most
retired employees in the United States. The status of these plans at year end
is as follows (in thousands):
1998 1997
Accumulated postretirement benefit obligation:
Retirees $ 6,614 $ 6,506
Active plan participants 11,083 9,614
Unrecognized loss (1,429) (390)
Accumulated postretirement benefit obligation
accrued $16,268 $15,730
Postretirement benefit expense consists of the following (in thousands):
1998 1997 1996
Service cost $ 498 $ 494 $ 490
Interest cost 1,170 1,126 1,096
Amortization cost 27
$ 1,668 $ 1,620 $ 1,613
The Company's portion of the annual rate of increase in the per capita cost of
covered benefits is assumed to be 2%. A one percentage point increase in the
assumed cost escalation rate would increase the accumulated benefit obligation
by $1.2 million and the annual expense by $150,000. A discount rate of 7.5%
was used in determining the accumulated benefit obligation.
DEBT
At year end, long-term debt consists of the following (in thousands):
1998 1997
Industrial revenue bond $ 1,500 $ 2,100
Revolving credit agreement 3,000 5,000
4,500 7,100
Less current maturities 600 600
$ 3,900 $ 6,500
The industrial revenue bond is collateralized by the Company's plant in Mt.
Airy, North Carolina. Principal is payable in semiannual installments of
$300,000. Interest is at 92% of the 90 day CD rate (5.1% at June 27, 1998).
The revolving credit agreement consists of a $10,000,000 line due March 30,
1999 under which there were no borrowings at June 27, 1998 and a $10,000,000
line due March 30, 2000. The credit agreement is with two banks and requires
commitment and other fees of .3%. Interest rates vary, but approximate LIBOR
plus .33% (5.9% as of June 27, 1998). All debt agreements contain financial
covenants, the most restrictive of which is that at June 27, 1998 the Company
must have tangible net worth of $152,000,000. Annual principal payments on
debt are required as follows: 1999, $600,000; 2000, $3,600,000; 2001
$300,000. Current notes payable carry interest at a rate of LIBOR plus 4%.
COMMON STOCK
Class B Common Stock is identical to Class A except that it has 10 votes per
share, is generally nontransferable except to lineal descendants, cannot
receive more dividends than Class A, and can be converted to Class A at any
time. Class A Common Stock is entitled to elect 25% of the directors to be
elected at each meeting with the remaining 75% being elected by Class A and
Class B voting together. In addition, the Company has a stockholder rights
plan, adopted in 1990, to protect stockholders from attempts to acquire the
Company on unfavorable terms not approved by the Board of Directors. Under
certain circumstances, the plan entitles each Class A or Class B share to
additional shares of the Company or an acquiring company, as defined, at a 50%
discount to market. Generally, the rights will be exercisable if a person or
group acquires 15% or more of the Company's outstanding shares. The rights
trade together with the underlying common stock. They can be redeemed by the
Company for $.01 per right and expire in the year 2000.
The Company accounts for stock based compensation under the provisions of
Accounting Principles Board Opinion No. 25. Under the Company's stock
purchase plans, the purchase price of the optioned stock is 85% of the lower
of the market price on the date the option is granted or the date it is
exercised. Options become exercisable exactly two years from the date of
grant and expire if not exercised. Therefore, no options are exercisable at
the end of 1998, 1997, or 1996. A summary of option activity is as follows:
Weighted
Average
Exercise Shares
Shares Price Available
On Option At Grant For Grant
Balance, June 24, 1995 59,911 $18.90 711,857
Options granted 32,793 20.56 (32,793)
Options exercised ($19.34 and $19.02) (14,548) 19.18
Options canceled (15,804) 15,804
Balance, June 29, 1996 62,352 19.45 694,868
Options granted 38,709 24.21 (38,709)
Options exercised ($17.75 and ($19.55)(28,368) 18.29
Options canceled (19,359) 19,359
Balance, June 28, 1997 53,334 22.92 675,518
Options authorized 800,000
Options granted 26,457 32.14 (26,457)
Options exercised ($19.45 and $21.89) (17,507) 20.49
Options canceled (16,484) (670,715)
Balance, June 27, 1998 45,800 $27.96 778,346
At June 27, 1998, a total of 824,146 shares of common stock are reserved for
issuance under the plans. The following information relates to outstanding
options as of June 27, 1998
Weighted Average Exercise Price $27.96
Weighted Average Remaining Life 1.1 years
Weighted Average fair value on grant date
of options granted in:
1996 $6.00
1997 7.50
1998 9.50
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted average
assumptions: volatility - 14% to 17%, interest - 5.5% to 6.2%, and expected
lives - 2 years. The pro forma, after tax effect of any compensation costs
related to implementation of and ongoing use of SFAS No. 123, "Accounting
for Stock Based Compensation," is as follows: 1998 $150,000, 1997 $125,000
and 1996 $75,000, or approximately $.02, $.02, and $.01 per share.
In addition 632,641 shares of common stock are reserved for the Company's
401(k) plan at June 27, 1998. Since inception in 1986, 865,668 Class A and
44,155 Class B shares have been issued under this plan.
OPERATING DATA
The Company believes it has no significant concentration of credit risk as of
June 27, 1998. Trade receivables are disbursed among a large number of
retailers, distributors and industrial accounts in many countries.
The Company is engaged in the single business segment of producing and
marketing industrial, professional and consumer products. Revenues, operating
income and identifiable assets of the Company's domestic and foreign
operations are summarized in the table below. Operating income is computed
exclusive of other income and expense and income taxes. Transfers are recorded
at normal selling price for finished goods and at cost plus a percentage to
cover expenses for finished parts, work in process and raw materials.
Eliminations relate to investments in subsidiaries and intercompany
transactions and balances.
Elimina- Consoli-
Domestic Foreign tions dated
1998:
Sales $185,407 $ 76,933 $262,340
Intercompany transfers 2,518 9,632 $(12,150)
Revenues 187,925 86,565 (12,150) 262,340
Operating income 26,002 6,314 32,316
Identifiable assets 189,969 71,098 (10,804) 250,263
Net assets 142,278 60,800 (7,784) 195,294
1997:
Sales $174,801 $ 75,702 $250,503
Intercompany transfers 2,439 8,862 $(11,301)
Revenues 177,240 84,564 (11,301) 250,503
Operating income 20,268 8,259 28,527
Identifiable assets 176,754 71,058 (9,066) 238,746
Net assets 128,739 57,804 (6,078) 180,465
1996:
Sales $161,175 $ 74,292 $235,467
Intercompany transfers 2,076 8,320 $(10,396)
Revenues 163,251 82,612 (10,396) 235,467
Operating income 17,034 7,628 24,662
Identifiable assets 167,015 70,699 (10,402) 227,312
Net assets 120,227 53,745 (6,687) 167,285
The significant foreign operations of the Company are located in Scotland and
Brazil. These two locations accounted for approximately the following
percentages of the indicated foreign information listed above:
1998 1997 1996
Scotland Brazil Scotland Brazil Scotland Brazil
Revenues 38% 62% 40% 60% 41% 59%
Operating income 38% 66% 62% 38% 69 31%
Identifiable assets 52% 46% 51% 49% 46% 54%
QUARTERLY FINANCIAL DATA (UNAUDITED)(in thousands except per share data)
Earnings Basic
Before Earnings
Net Gross Income Net Per
Quarter Ended Sales Profit Taxes Earnings Share
September 1996 $58,636 $18,066 $ 6,185 $ 4,042 $ 0.57
December 1996 64,587 20,689 8,486 5,678 0.81
March 1997 60,489 18,439 6,328 4,251 0.61
June 1997 66,791 23,274 9,060 5,888 0.85
$250,503 $80,468 $30,059 $19,859 $ 2.84
September 1997 $65,213 $20,734 $ 8,400 $ 5,413 $ 0.78
December 1997 68,637 23,266 9,432 6,392 0.93
March 1998 61,195 19,878 7,437 4,994 0.72
June 1998 67,295 21,871 8,853 6,210 0.91
$262,340 $85,749 $34,122 $23,009 $ 3.34
The Company's Class A Common Stock is traded on the New York Stock Exchange.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company had no such changes in or disagreements with its independent
auditors.
PART III
Item 10 - Directors and Executive Officers of the Registrant
Directors
The information concerning the Directors of the Registrant is contained on
pages 1 through 4 in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on September 16, 1998, and is hereby
incorporated by reference.
Executive Officers of the Registrant
Held Present
Name Age Office Since Position
Douglas R. Starrett 78 1995 Chairman and CEO and
Director
Douglas A. Starrett 46 1995 President and Director
George B. Webber 77 1962 Vice President
Webber Gage Division
and Director
James S. Carey 47 1997 Vice President Sales
Roger U. Wellington, Jr. 57 1984 Treasurer and Chief
Financial Officer and
Director
Steven A. Wilcox 43 1998 Clerk
George B. Webber and Roger U. Wellington, Jr. have served in the same
capacities as listed above for at least the past five years. Douglas R.
Starrett was previously President of the Company. Douglas A. Starrett (son of
Douglas R. Starrett) was previously Executive Vice President of the Company.
James S. Carey was previously Midwest Sales Manager of the Company. Except in
the case of Steven Wilcox, the positions listed above represent their
principal occupations and employment during the last five years. Steven
Wilcox, elected clerk in 1997, has been a partner in Ropes & Gray, counsel for
the Company, throughout that period.
The President, Treasurer and Clerk hold office until the first meeting of the
directors following the next annual meeting of stockholders and until their
respective successors are chosen and qualified, and each other officer holds
office until the first meeting of directors following the next annual meeting
of stockholders, unless a shorter period shall have been specified by the
terms of his election or appointment or, in each case, until he sooner dies,
resigns, is removed or becomes disqualified.
There have been no events under any bankruptcy act, no criminal proceedings
and no judgments or injunctions material to the evaluation of the ability and
integrity of any director or executive officer during the past five years.
Item 11 - Executive Compensation
The information concerning management remuneration is contained on pages 4
through 10 in the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on September 16, 1998 and, except for the
information under the caption "Compensation Committee Report," is hereby
incorporated by reference.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
(a) Security ownership of certain beneficial owners:
The information concerning a more than 5% holder of any class of the
Company's voting shares is contained on page 4 of the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be
held on September 16, 1998, and is hereby incorporated by reference.
(b) Security ownership of management:
The information concerning the beneficial ownership of each class of
equity securities by all directors, and all directors and officers of
the Company as a group, is contained on pages 2 and 3 of the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be
held on September 16, 1998, and is hereby incorporated by reference.
(c) The Company knows of no arrangements that may, at a subsequent date,
result in a change in control of the Company.
Item 13 - Certain Relationships and Related Transactions
(a) Transactions with management and others:
None
(b) Certain business relationships:
Not applicable
(c) Indebtedness of management:
None
(d) Transactions with promoters:
Not applicable
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1. Financial statements filed in item 8 of this annual report:
Consolidated Statements of Earnings and Cash Flows for the
Three Years in the Period ended June 27, 1998
Consolidated Balance Sheets at June 27, 1998 and June 28,1997
Consolidated Statements of Stockholders' Equity for the Three
Years in the Period Ended June 27, 1998
Notes to Consolidated Financial Statements
2. All other financial statements and schedules are omitted because
they are inapplicable, not required under the instructions, or the
information is reflected in the financial statements or notes
thereto.
3. See Exhibit Index below on page 25.
(b) There were no reports on Form 8-K filed in the last quarter of the
period covered by this report.
(c) See Exhibit Index below on page 25.
(d) Not applicable.
THE L.S. STARRETT COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
(3i) Restated Articles of Organization dated December 20, 1989, filed
with Form 10-Q for the quarter ended December 23, 1989, are hereby
incorporated by reference.
(3ii) Bylaws as amended September 21, 1994, filed with Form 10-K for the
year ended June 24, 1995, are hereby incorporated by reference.
(4a) Loan Agreement and related documents, relative to $7,500,000
Industrial Revenue Bond financing dated as of September 1, 1985,
between The Surry County Industrial Facilities and Pollution
Control Financing Authority and The L.S. Starrett Company will be
furnished to the Commission upon request.
(4b) Common Stock Rights Agreement, dated as of June 6, 1990, between
the Company and The First National Bank of Boston, as Rights
Agent, including Form of Common Stock Purchase Rights Certificate
and Summary Common Stock Purchase Rights, filed on June 13, 1990
with the Company's Form 8-A, are hereby incorporated by reference.
(10a) $20,000,000 Amended and Restated Credit Agreement dated as of
March 31, 1995, among The L.S. Starrett Company, The First
National Bank of Boston and Wachovia Bank of Georgia, N.A. will be
furnished to the Commission upon request.
(21) Subsidiaries of the Registrant. See page 26.
(23) Independent Auditors' Consent. See page 27.
(27) Financial Data Schedule submitted herewith in electronic format.
Exhibit 21
THE L.S. STARRETT COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
JUNE 27, 1998
The parent company, The L.S. Starrett Company, incorporated in Massachusetts,
has the following subsidiaries, all of which are wholly owned:
Fiscal
Year End
Starrett Securities Corporation Incorporated in Last Sat
Massachusetts in June
Evans Rule Company, Inc. Incorporated in Last Sat.
New Jersey in June
The L.S. Starrett Co. of Canada Incorporated in Last Sat.
Limited Canada in June
The L.S. Starrett International Incorporated in Last Sat.
Company Barbados in June
The L.S. Starrett Company Incorporated in May 31
Limited Scotland
Starrett Industria e Incorporated in May 31
Comercio Ltda. Brazil
Level Industries, Inc. Incorporated in Last Sat.
Massachusetts in June
Starrett Tools (Suzhou) Co., Ltd. Incorporated in Dec. 31
China
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The L.S. Starrett Company
We consent to the incorporation by reference in the Registration Statements
No. 33-55623 and No. 333-12997 of The L.S. Starrett Company, both on Form S-8,
of our report dated July 31, 1998, appearing in the Annual Report on Form 10-K
of The L.S. Starrett Company for the year ended June 27, 1998.
S/DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 16, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By S/ROGER U. WELLINGTON, JR.
Roger U. Wellington, Jr.,
Treasurer and Chief Financial Officer
Date: September 16, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
S/DOUGLAS R. STARRETT S/DOUGLAS A. STARRETT
Douglas R. Starrett, Sept. 16, 1998 Douglas A. Starrett, Sept. 16, 1998
Chairman and CEO and Director President and Director
S/ANDREW B. SIDES, JR. S/WILLIAM S. HURLEY
Andrew B. Sides, Jr., Sept. 16, 1998 William S. Hurley, Sept. 16, 1998
Director Director
S/RICHARD B. KENNEDY S/GEORGE B. WEBBER
Richard B. Kennedy, Sept. 16, 1998 George B. Webber, Sept. 16, 1998
Director Vice President Webber Gage Division
and Director
S/STEVEN G. THOMSON S/ROGER U. WELLINGTON, JR.
Steven G. Thomson, Sept. 16, 1998 Roger U. Wellington,Jr.,Sept.16, 1998
Chief Accounting Officer Treasurer and Chief Financial Officer
and Director
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<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> JUN-27-1998
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0
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<COMMON> 6,897
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<CGS> 176,591
<TOTAL-COSTS> 176,591
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 820
<INCOME-PRETAX> 34,122
<INCOME-TAX> 11,113
<INCOME-CONTINUING> 23,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,009
<EPS-PRIMARY> 3.34
<EPS-DILUTED> 3.33
</TABLE>
