-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FI/u4awUSfDXYxhrpPCySz+ZiTOGIB6WzKf7DppmDfUQ5LX4c40KjytIHyaKyjgK 5ZUzV4MkmTbVxuLNf1S+xQ== 0000093676-00-000003.txt : 20000208 0000093676-00-000003.hdr.sgml : 20000208 ACCESSION NUMBER: 0000093676-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARRETT L S CO CENTRAL INDEX KEY: 0000093676 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 042756926 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00367 FILM NUMBER: 525163 BUSINESS ADDRESS: STREET 1: 121 CRESCENT ST CITY: ATHOL STATE: MA ZIP: 01331 BUSINESS PHONE: 5082493551 10-Q 1 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 25, 1999 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 25, 1999 : Class A Common Shares 5,158,608 Class B Common Shares 1,553,374 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 twenty-six weeks ended December 25, 1999 and December 26, 1998 (unaudited) 3 Consolidated Balance Sheets - December 25, 1999 (unaudited) and June 26, 1999 4 Consolidated Statements of Stockholders' Equity - twenty-six weeks ended December 25, 1999 and December 26, 1998 (unaudited) 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 Part II. Other information: 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 26 Weeks Ended EARNINGS 12/25/99 12/26/98 12/25/99 12/26/98 Net sales 61,245 60,889 119,657 119,253 Cost of goods sold (43,050) (42,194) (85,317) (83,415) Selling and general (12,627) (12,617) (24,471) (24,508) Other income and expense (12) 477 4 986 Earnings before income taxes 5,556 6,555 9,873 12,316 Provision for federal, foreign and state income taxes 1,739 2,042 3,181 3,887 Net earnings 3,817 4,513 6,692 8,429 Basic earnings per share .57 .65 1.00 1.22 Average shares used 6,696 6,884 6,697 6,890 Diluted earnings per share .57 .65 1.00 1.22 Average shares used 6,702 6,888 6,704 6,898 Dividends per share .20 .20 .40 .40 CASH FLOWS Cash flows from operating activities: Net earnings 3,817 4,513 6,692 8,429 Noncash expenses: Depreciation and amortization 2,976 3,012 5,952 5,966 Deferred taxes 406 (273) 817 (66) Working capital changes: Receivables 249 1,834 (6,256) 3,044 Inventories (1,309) (970) (151) 61 Other assets and liabilities 1,433 2,108 2,563 623 Prepaid pension cost and other (835) (357) (1,740) (1,120) Net cash from operations 6,737 9,867 7,877 16,937 Cash flows from investing activities: Additions to plant and equipment (2,894) (4,445) (6,142) (9,780) Change in short-term investments (1,072) (142) 392 (3,359) Net cash used in investing (3,966) (4,587) (5,750) (13,139) Cash flows from financing activities: Short-term borrowings, net 366 2,781 (401) Long-term debt repayments (300) (300) (300) (300) Common stock issued 962 1,253 1,916 2,093 Treasury shares purchased (694) (2,156) (1,899) (3,017) Dividends (1,340) (1,373) (2,679) (2,751) Net cash used in financing (1,006) (2,576) (181) (4,376) Translation rate change effect on cash 5 (52) (23) (14) Net increase (decrease) in cash 1,770 2,652 1,923 (592) Cash, beginning of period 424 461 271 3,705 Cash, end of period 2,194 3,113 2,194 3,113 See notes to consolidated financial statements Page 3 of 9 THE L. S. STARRETT COMPANY Consolidated Balance Sheets (in thousands of dollars) Dec. 25 June 26 1999 1999 ASSETS (unaudited) Current assets: Cash 2,194 271 Investments 16,387 16,933 Accounts receivable (less allowance for doubtful accounts of $2,487,000 and $2,361,000) 41,841 36,004 Inventories: Finished goods 32,090 31,964 Goods in process and finished parts 29,414 31,589 Raw materials and supplies 15,415 14,488 76,919 78,041 Prepaid expenses and other current assets 3,263 6,173 Total current assets 140,604 137,422 Property, plant and equipment, at cost (less accumulated depreciation of $73,761,000 and $69,685,000) 73,435 73,854 Cost in excess of net assets acquired (less accumulated amortization of $4,456,000 and $4,266,000) 6,901 7,094 Prepaid pension cost 27,967 26,212 Other assets 1,181 1,146 250,088 245,728 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities 6,381 3,600 Accounts payable and accrued expenses 14,322 13,783 Accrued salaries and wages 4,555 6,026 Taxes payable 383 484 Employee deposits for stock purchase plan 434 429 Total current liabilities 26,075 24,322 Deferred income taxes 12,942 11,919 Long-term debt 3,000 3,300 Accumulated postretirement medical benefit obligation 16,204 16,151 Stockholders' equity: Class A Common $1 par (20,000,000 shrs. auth.; 5,158,608 outstanding in Dec.1999, excluding 1,234,625 in treasury; 5,109,173 outstanding in June 1999, excluding 1,243,158 in treasury) 5,159 5,109 Class B Common $1 par (10,000,000 shrs. auth.; 1,553,374 outstanding in Dec.1999, excluding 295,140 in treasury; 1,596,748 outstanding in June 1999, excluding 288,642 in treasury) 1,553 1,597 Additional paid-in capital 44,028 42,730 Retained earnings reinvested and employed in the business 158,075 155,349 Foreign currency translation adjustment (17,056) (14,922) Other equity adjustments 108 173 Total stockholders' equity 191,867 190,036 250,088 245,728 See Notes to Consolidated Financial Statements Page 4 of 9 THE L. S. STARRETT COMPANY Consolidated Statements of Stockholders' equity For the Twenty-six Weeks Ended December 25, 1999 and December 26, 1998 (in thousands of dollars) (unaudited) Common Addi- Accumulated Stock Out- tional Other standing Paid-in Retained Comprehensive ($1 Par) Capital Earnings Income Total Balance June 27, 1998 6,897 41,263 151,317 (4,183) 195,294 Comprehensive income: Net earnings 8,429 8,429 Unrealized net gains on investments 139 139 Translation loss, net (988) (988) Total Comprehensive income 7,580 Dividends ($.40) (2,751) (2,751) Treasury shares: Purchased (88) (641) (2,288) (3,017) Issued 54 1,703 1,757 Options exercised 14 322 336 Balance Dec. 26, 1998 6,877 42,647 154,707 (5,032) 199,199 Balance June 26, 1999 6,706 42,730 155,349 (14,749) 190,036 Comprehensive income: Net earnings 6,692 6,692 Unrealized net losses on investments (65) (65) Translation loss, net (2,134) (2,134) Total comprehensive income 4,493 Dividends ($.40) (2,679) (2,679) Treasury shares: Purchased (75) (537) (1,287) (1,899) Issued 77 1,757 1,834 Options exercised 4 78 82 Balance Dec. 25, 1999 6,712 44,028 158,075 (16,948) 191,867 See Notes to Consolidated Financial Statements Page 5 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 December 25, 1999 and June 26, 1999; the results of operations and cash flows for the thirteen weeks and twenty-six weeks ended December 25, 1999 and December 26, 1998; and changes in stockholders' equity for the twenty-six weeks ended December 25, 1999 and December 26, 1998. 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, 1999, 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 1999 1998 1999 1998 Interest income 276 465 548 964 Interest expense and com- mitment fees (209) (115) (421) (192) Realized exchange losses (16) 4 (98) (27) Other (63) 123 (25) 241 (12) 477 4 986 Approximately 70% of all inventories are valued on the LIFO method. At December 25, 1999, and June 26, 1999, total inventories are $23,621,000 and $23,521,000 less, respectively, than if determined on a FIFO basis. Long-term debt is comprised of the following (in thousands): December June 1999 1999 Industrial revenue bond 600 900 Revolving credit agreement 3,000 3,000 3,600 3,900 Less current portion 600 600 3,000 3,300 Page 6 of 9 THE L. S. STARRETT COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales Sales for the December quarter and year to date are approximately the same as the corresponding periods of a year ago. A 6% decrease in foreign sales in both the quarter and year to date comparisons is offset by increases in domestic sales. The foreign decreases are primarily a result of the Brazil currency devaluation that took place in January 1999 and the strong pound in the U.K. that continues to adversely affect Scotland's business in terms of export pricing and import price competition. Quarter and year to date foreign sales are actually up in local currency. The increase in domestic sales was mostly due to product mix, although the industrial manufacturing sector appears to have stabilized. Earnings Before Taxes Pretax earnings are down 15% in the December quarter and 20% year to date, the improvement in the comparisons coming mostly on the domestic side. The single largest factor causing these decreases is the international pricing pressure resulting from the strong British pound. On the domestic side, margins are being adversely affected by product mix and fringe benefit costs, particularly pension and medical. Income Taxes The effective income tax rate is 31% for the quarter and 32% year to date. The rates were approximately the same in the corresponding periods in the prior year. The main cause of the decrease is the favorable tax treatment of dividends paid from Brazil in the second quarter of both years. 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 1999 and December 1999, 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 total approximately $5 million. Inflation in Brazil has decreased to approximately 20% 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. A 10% change in interest rates would not have a significant impact on the aggregate net fair value of the Company's interest rate sensitive financial instruments (primarily variable rate investments of $11,000,000 and debt of $9,000,000 at December 25, 1999) or the cash flows or future earnings associated with those financial instruments. A 10% change in interest rates would impact the fair value of the Company's fixed rate investments of approximately $6,800,000 by $300,000. Year 2000 The Company has not experienced any material disruption of its operations as a result of any failure by the Company, its customers, or its suppliers to be year 2000 compliant. The potential still exists, however, for the Company's Page 7 of 9 business and results of operations to be adversely affected if its customers or suppliers are unable to achieve year 2000 compliance, although no such problems are known to exist at this time. 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. The Company has not incurred significant separately identifiable costs related to year 2000 compliance. LIQUIDITY AND CAPITAL RESOURCES 13 Weeks Ended 26 Weeks Ended 12/25/99 12/26/98 12/25/99 12/26/98 Cash provided by operations 6,737 9,867 7,877 16,937 Cash used in investing activities (3,966) (4,587) (5,750) (13,139) Cash used in financing activities (1,006) (2,576) (181) (4,376) Cash effect of translation rate changes 5 (52) (23) (14) Net increase (decrease) in cash 1,770 2,652 1,923 (592) The drop in net earnings along with changes in working capital components (particularly accounts receivable increases in the first quarter of 1999) caused cash flow provided by operations to decrease compared to the prior year's quarter and year to date. Lower fixed asset additions and less cash available for investment caused the drop in investing activity. Short-term borrowing in Brazil and less treasury share purchases are the major reasons for the changes in cash from financing activities. 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 25, 1999 and 5.7 to 1 as of June 26, 1999. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This quarterly report, as well as the 1999 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, interest rate sensitivity, 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: 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: The new European currency (the Euro) began being used by the eleven participating European countries January 1, 1999. Although the United Kingdom is not currently a Euro country, the Company's Scottish subsidiary does a significant amount of business with Euro Page 8 of 9 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: Approximately a third of the Company's sales are derived from foreign operations and approximately a third of the Company's net assets are 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, 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. See Management's Discussion (SALES) regarding the recent devaluation of the Brazilian currency. 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. PART II. OTHER INFORMATION 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 February 7, 1999 S/R.U.WELLINGTON, JR. R. U. Wellington, Jr. (Treasurer and Chief Financial Officer) Date February 7, 1999 S/S.G.THOMSON S. G. Thomson (Chief Accounting Officer) Page 9 of 9 EX-27 2
5 1,000 6-MOS JUN-24-2000 DEC-25-1999 2,194 16,387 44,328 2,487 76,919 140,604 147,196 73,761 250,088 26,075 3,000 0 0 6,712 185,155 250,088 119,657 119,657 85,317 85,317 0 0 421 9,873 3,181 6,692 0 0 0 6,692 1.00 1.00
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