-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, hpN3d27JItbPOQGTO16pWkjyWsQtrcGjbUg8aTKT4fgGPeF2AQqeAFJH+zL2/1An cFIv7je2Kw9hax7x4RkiNw== 0000093676-94-000004.txt : 19940518 0000093676-94-000004.hdr.sgml : 19940518 ACCESSION NUMBER: 0000093676-94-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940326 FILED AS OF DATE: 19940509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARRETT L S CO CENTRAL INDEX KEY: 0000093676 STANDARD INDUSTRIAL CLASSIFICATION: 3420 IRS NUMBER: 042756926 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00367 FILM NUMBER: 94526567 BUSINESS ADDRESS: STREET 1: 121 CRESCENT ST CITY: ATHOL STATE: MA ZIP: 01331 BUSINESS PHONE: 5082493551 10-Q 1 10QMAR94 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 26, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission file number 1-367 THE L. S. STARRETT COMPANY (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-1866480 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 121 CRESCENT STREET, ATHOL, MASSACHUSETTS 01331-1915 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 508-249-3551 Former name, address and fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. YES X NO Common Shares outstanding as of March 26, 1994 : Class A Common Shares 4,796,798 Class B Common Shares 2,267,543 Page 1 of 9 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 26, 1994 and March 27, 1993 (unaudited) 3 Consolidated Balance Sheets - March 26, 1994 (unaudited) and June 26, 1993 4 Consolidated Statements of Stockholders' Equity - thirty-nine weeks ended March 26, 1994 and March 27, 1993 (unaudited) 5 Calculation of Shares for Computation of Consolidated Earnings per Share - thirteen and thirty-nine weeks ended March 26, 1994 and March 27, 1993 (unaudited) 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other information: Item 1. Legal proceedings 9 Item 6. Exhibits and reports on Form 8-K 9 Page 2 of 9 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 3/26/94 3/27/93 3/26/94 3/27/93 Net sales 43,671 39,901 132,980 129,895 Cost of goods sold (31,202) (28,223) (95,714) (92,797) Selling and general (9,731) (8,817) (28,180) (26,931) Other income and expense (785) (576) (1,516) (1,410) Earnings before income taxes 1,953 2,285 7,570 8,757 Provision for federal, foreign and state income taxes 561 259 1,903 2,344 Net earnings 1,392 2,026 5,667 6,413 Earnings per share .20 .29 .80 .92 CASH FLOWS Cash flows from operating activities: Net earnings 1,392 2,026 5,667 6,413 Noncash expenses: Depreciation and amortization 2,214 2,135 6,557 6,330 Deferred taxes (130) (159) 366 853 Unrealized translation losses 1,871 1,222 4,701 3,824 Working capital changes: Receivables 117 2,361 (5,269) 567 Inventories (1,436) (666) 487 2,450 Other assets and liabilities 2,495 (194) 5,109 2,392 Prepaid pension cost and other (619) (487) (1,525) (1,225) Net cash from operations 5,904 6,238 16,093 21,604 Cash flows from investing activities: Additions to plant and equipment (1,455) (1,750) (5,027) (5,130) Increase in short-term investments (2,242) (3,111) (7,060) (12,345) Net cash used in investing (3,697) (4,861) (12,087) (17,475) Cash flows from financing activities: Long-term debt repayments (2,000) (1,000) (2,300) (1,300) Common stock issued 568 579 1,334 2,419 Treasury shares purchased (365) (459) (1,390) (1,059) Dividends (1,201) (1,195) (3,600) (3,569) Net cash used in financing (2,998) (2,075) (5,956) (3,509) Effect of translation rate changes on cash (7) (51) (74) (245) Net increase (decrease) in cash (798) (749) (2,024) 375 Cash, beginning of period 1,619 1,917 2,845 793 Cash, end of period 821 1,168 821 1,168 See notes to consolidated financial statements Page 3 of 9 THE L.S. STARRETT COMPANY Consolidated Balance Sheets (in thousands of dollars) Mar. 26 June 26 1994 1993 ASSETS (unaudited) Current assets: Cash 821 2,845 Short-term investments 30,398 23,478 Accounts receivable (less allowance for doubtful accounts of $1,061,000 and $1,001,000) 27,303 29,057 Inventories: Finished goods 22,110 21,324 Goods in process and finished parts 18,643 19,189 Raw materials and supplies 11,728 13,054 52,481 53,567 Prepaid expenses and other current assets 1,161 3,355 Total current assets 112,164 112,302 Property, plant and equipment, at cost (less accumulated depreciation of $49,280,000 and $43,641,000) 58,024 59,618 Cost in excess of net assets acquired (less accumu- lated amortization of $2,291,000 and $2,034,000) 8,902 9,205 Prepaid pension cost 14,617 12,870 Other assets 449 441 194,156 194,436 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities 1,111 1,311 Accounts payable and accrued expenses 11,818 11,276 Accrued salaries and wages 3,518 4,042 Taxes payable 2,530 2,360 Employee deposits for stock purchase plan 860 433 Total current liabilities 19,837 19,422 Deferred income taxes 6,767 6,101 Long-term debt 11,414 14,527 Accumulated postretirement medical benefit obligation 13,264 12,964 Stockholders' equity: Class A Common $1 par (10,000,000 shrs. auth.) 4,797 4,640 Class B Common $1 par (10,000,000 shrs. auth.) 2,268 2,425 Additional paid-in capital 31,055 30,023 Retained earnings reinvested and employed in the business 111,238 110,259 ESOP guaranteed bank loan (814) (1,627) Foreign currency translation adjustment (5,670) (4,298) Total stockholders' equity 142,874 141,422 194,156 194,436 See Notes to Consolidated Financial Statements Page 4 of 9 THE L.S. STARRETT COMPANY Consolidated Statements of Stockholders' Equity For the Thirty-nine Weeks Ended March 26, 1994 and March 27, 1993 (in thousands of dollars) (unaudited) Equity Adjustments Common Addi- Stock Out- tional Currency standing Paid-in Retained Trans- ($1 Par) Capital Earnings ESOP lation Total Balance June 27,1992 (1,357,654 Class A and 94,790 Class B shares in treasury) 6,945 26,782 107,313 (2,712) 524 138,852 Net earnings 6,413 6,413 Dividends ($.51) (3,569) (3,569) Treasury shares: Purchased (44) (177) (838) (1,059) Issued 48 1,102 1,150 Options exercised 75 1,194 1,269 ESOP loan repayments 813 813 Translation loss (6,788) (6,788) Balance Mar. 27, 1993 (1,339,909) Class A and 108,535 Class B shares in treasury) 7,024 28,901 109,319 (1,899) (6,264) 137,081 Balance June 26, 1993 (1,303,954 Class A and 111,482 Class B shares in treasury) 7,065 30,023 110,259 (1,627) (4,298) 141,422 Net earnings 5,667 5,667 Dividends ($.51) (3,600) (3,600) Treasury shares: Purchased (57) (245) (1,088) (1,390) Issued 48 1,117 1,165 Options exercised 9 160 169 ESOP loan repayments 813 813 Translation loss (1,372) (1,372) Balance Mar. 26, 1994 (1,294,287 Class A and 130,354 Class B shares in treasury) 7,065 31,055 111,238 (814) (5,670) 142,874 See Notes to Consolidated Financial Statements Page 5 of 9 THE L.S. STARRETT COMPANY Calculation of Shares for Computation of Consolidated Earnings per Share (unaudited) 13 Weeks Ended 39 Weeks Ended 3/26/94 3/27/93 3/26/94 3/27/93 Average number of shares outstanding during the period 7,060,172 7,022,703 7,059,970 6,991,343 Incremental shares computed on the assumption that dilutive stock options had been exercised with the proceeds used to purchase treasury stock 8,930 10,891 8,509 14,420 Average common and common equivalent shares outstanding 7,069,102 7,033,594 7,068,479 7,005,763 See Notes to Consolidated Financial Statements Page 6 of 9 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 26, 1994 and June 26, 1993; the results of operations and cash flows for the thirteen weeks and thirty-nine weeks ended March 26, 1994 and March 27, 1993; and changes in stockholders' equity for the thirty-nine weeks ended March 26, 1994 and March 27, 1993. 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 26, 1993, and these financial statements should be read in conjunction with said annual report. Other income (expense) is comprised of the following (in thousands): Thirteen Weeks Thirty-nine Weeks Ended March Ended March 1994 1993 1994 1993 Interest income 253 324 736 825 Interest expense and com- mitment fees (153) (201) (492) (647) Realized and unrealized ex- change gains and losses (965) (666) (2,078) (1,600) Other 80 (33) 318 12 (785) (576) (1,516) (1,410) The net effect of changes in foreign currency exchange rates includes realized exchange gains and losses from foreign currency transactions along with unrealized translation gains and losses from our subsidiary in Brazil, a country with a hyperinflationary economy. Translation gains and losses on short-term borrowings and marketable securities in Brazil are netted against the related interest charged or earned. Similar losses on accounts receivable are treated as sales discounts and are netted against sales. Approximately 80% of all inventories are valued on the LIFO method. At March 26, 1994, and June 26, 1993, total inventories are $25,448,000 and $25,757,000 less, respectively, than if determined on a FIFO basis. Long-term debt is comprised of the following (in thousands): March June 1994 1993 Industrial revenue bond 4,200 4,500 ESOP guaranteed bank loan 814 1,627 Revolving credit agreement 7,000 9,000 12,014 15,127 Less current portion 600 600 11,414 14,527 Page 7 of 9 THE L. S. STARRETT COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales Sales are up 9% for the quarter and 2% for the nine months compared to a year ago. The increase in the quarterly comparison occurs pretty much in all locations. Exchange rate changes in Scotland during the early part of the year have adversely affected the nine month comparison. Earnings Before Taxes Pretax earnings are down 15% for the quarter and 14% for the nine month comparison. Heavy expenses associated with retooling and the introduction of new products adversely affected the third quarter. This followed an improved second quarter comparision that was helped by increases in domestic volume and overhead absorption. In addition to the effect of the third quarter, the nine month comparison is pulled down by the first quarter, where exchange rates in Scotland and a relatively strong prior year quarter in Brazil played a part. Income Taxes The overall effective income tax rate is 29% for the quarter and 25% for the nine months. This compares to 11% and 27% in the prior year. The year to date change relates mainly to the change in the contribution to overall pretax income during the early part of the year from Brazil, where the effective tax rate is higher than elsewhere in the Company. An unusual mix of operating earnings from Brazil and Puerto Rico, where the tax rate is low, along with the favorable tax treatment of a dividend from Scotland caused the low effective tax rate in the third quarter of the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company continues to maintain a strong financial position with a working capital ratio of 5.7 to one on March 26, 1994 and 5.8 to one on June 26, 1993. Cash and short-term investments are up almost $5 million compared to June 1993. June tends to be a low point, but continued reduction of domestic inventories as well as other current assets has also contributed to this increase in cash and short-term investments. The fact that the changes in receivables and payables in the Statement of Cash Flows do not exactly match the changes in the related balance sheet accounts is because of the high inflation in Brazil. These differences should not be interpreted as uses and sources of cash, but rather as noncash adjustments to net income to arrive at cash generated from operations. Also, these differences tend to be offset by unrealized exchange gains and losses. Borrowings under the Company's $20 million revolving credit agreement have been used to finance acquisitions. The Company believes that existing cash balances, funds generated from operations and available funds under its credit line will be sufficient to meet foreseeable cash needs. Cash not immediately required for working capital needs is invested in short-term government securities and other money market investments. Page 8 of 9 THE L. S. STARRETT COMPANY PART II. OTHER INFORMATION ITEM 1. Legal proceedings. The investigation by the Environmental Protection Agency referred to in the Company's report on Form 10-K for the year ended June 26, 1993 has been resolved. In March 1994, the Company and the EPA entered into and filed with the U.S. District Court a consent decree by which the Company agreed to pay a civil penalty of $325,000 for alleged violations of the Clean Water Act. The consent decree provided that its execution was not an admission of liability. The Company has brought its pre-treatment system into compliance with the relevant laws and will provide periodic reports as necessary. The court decree will not be final until approved by the court; action on such approval is anticipated in the near future. ITEM 6. Exhibits and Reports on Form 8-K. None 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 9, 1994 S/ R. U. WELLINGTON, JR. R. U. Wellington, Jr. (Treasurer and Chief Financial Officer) Date May 9, 1994 S/ S. G. THOMSON S. G. Thomson (Chief Accounting Officer) Page 9 of 9 -----END PRIVACY-ENHANCED MESSAGE-----