-----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, PZD0K8dGcTPyeK4Vcb9MY2F4mUlOMEftnDwotUF2QeLu6kOB7LijDq3fHOtss4/A mtG0F9uzXvrIvCxf2DJgzw== 0000093676-00-000008.txt : 20000509 0000093676-00-000008.hdr.sgml : 20000509 ACCESSION NUMBER: 0000093676-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000325 FILED AS OF DATE: 20000508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARRETT L S CO CENTRAL INDEX KEY: 0000093676 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 041866480 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00367 FILM NUMBER: 621692 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 March 25, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission file number 1-367 THE L. S. STARRETT COMPANY (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-1866480 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 121 CRESCENT STREET, ATHOL, MASSACHUSETTS 01331-1915 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 978-249-3551 Former name, address and fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. YES X NO Common Shares outstanding as of March 25, 2000 : Class A Common Shares 5,071,221 Class B Common Shares 1,523,856 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 25, 2000 and March 27, 1999 (unaudited) 3 Consolidated Balance Sheets - March 25, 2000 (unaudited) and June 26, 1999 4 Consolidated Statements of Stockholders' Equity - thirty-nine weeks ended March 25, 2000 and March 27, 1999 (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 39 Weeks Ended EARNINGS 3/25/00 3/27/99 3/25/00 3/27/99 Net sales 58,860 57,074 178,517 176,327 Cost of goods sold (43,107) (40,369) (128,424)(123,784) Selling and general (12,402) (11,882) (36,873) (36,390) Other income and expense 168 403 172 1,389 Earnings before income taxes 3,519 5,226 13,392 17,542 Provision for federal, foreign and state income taxes 1,068 1,640 4,249 5,527 Net earnings 2,451 3,586 9,143 12,015 Basic earnings per share .37 .53 1.37 1.75 Average shares used 6,658 6,833 6,684 6,871 Diluted earnings per share .37 .53 1.37 1.75 Average shares used 6,667 6,838 6,692 6,878 Dividends per share .20 .20 .60 .60 CASH FLOWS Cash flows from operating activities: Net earnings 2,451 3,586 9,143 12,015 Noncash expenses: Depreciation and amortization 2,863 2,814 8,815 8,780 Deferred taxes (30) 163 787 97 Working capital changes: Receivables 3,291 (3,359) (2,965) (315) Inventories 1,521 (540) 1,370 (479) Other assets and liabilities (1,220) (147) 1,343 476 Prepaid pension cost and other (139) (1,197) (1,879) (2,317) Net cash from operations 8,737 1,320 16,614 18,257 Cash flows from investing activities: Additions to plant and equipment (3,406) (4,050) (9,548) (13,830) Change in short-term investments (2,690) 3,987 (2,298) 628 Net cash used in investing (6,096) (63) (11,846) (13,202) Cash flows from financing activities: Short-term borrowings, net 894 3,675 (401) Long-term debt repayments (1,000) (1,300) (300) Common stock issued 923 831 2,839 2,924 Treasury shares purchased (3,618) (2,895) (5,517) (5,912) Dividends (1,325) (1,366) (4,004) (4,117) Net cash used in financing (4,126) (3,430) (4,307) (7,806) Effect of translation rate changes on cash 68 (165) 45 (179) Net increase (decrease) in cash (1,417) (2,338) 506 (2,930) Cash, beginning of period 2,194 3,113 271 3,705 Cash, end of period 777 775 777 775 See notes to consolidated financial statements Page 3 of 9 THE L. S. STARRETT COMPANY Consolidated Balance Sheets (in thousands of dollars) March 25 June 26 2000 1999 ASSETS (unaudited) _______ Current assets: Cash 777 271 Investments 19,125 16,933 Accounts receivable (less allowance for doubtful accounts of $2,395,000 and $2,361,000) 38,852 36,004 Inventories: Finished goods 32,339 31,964 Goods in process and finished parts 27,460 31,589 Raw materials and supplies 16,398 14,488 76,197 78,041 Prepaid expenses and other current assets 4,264 6,173 Total current assets 139,215 137,422 Property, plant and equipment, at cost (less accumulated depreciation of $76,943,000 and $69,685,000) 74,522 73,854 Cost in excess of net assets acquired (less accumulated amortization of $4,541,000 and $4,266,000) 6,804 7,094 Prepaid pension cost 28,212 26,212 Other assets 1,158 1,146 249,911 245,728 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities 7,275 3,600 Accounts payable and accrued expenses 15,031 13,783 Accrued salaries and wages 4,529 6,026 Taxes payable (749) 484 Employee deposits for stock purchase plan 525 429 Total current liabilities 26,611 24,322 Deferred income taxes 13,448 11,919 Long-term debt 2,000 3,300 Accumulated postretirement medical benefit obligation 16,253 16,151 Stockholders' equity: Class A Common $1 par (20,000,000 shrs. auth.; 5,071,221 outstanding 3/00, excluding 1,345,390 held in treasury; 5,109,173 outstanding 6/99, excluding 1,243,158 held in treasury) 5,071 5,109 Class B Common $1 par (10,000,000 shrs. auth.; 1,523,856 outstanding 3/00, excluding 301,280 held in treasury; 1,596,748 outstanding 6/99, excluding 288,642 held in treasury) 1,524 1,597 Additional paid-in capital 43,733 42,730 Retained earnings reinvested and employed in the business 156,918 155,349 Accumulated other comprehensive income (15,647) (14,749) Total stockholders' equity 191,599 190,036 249,911 245,728 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 25, 2000 and March 27, 1999 (in thousands of dollars) (unaudited) Common Addi- Accumulated Stock Out- tional Other standing Paid-in Retained Comprehensive ($1 Par) Capital Earnings Income Total Balance June 27, 1998 6,897 41,263 151,317 (4,183) 195,294 Comprehensive income: Net earnings 12,015 12,015 Unrealized net gains on investments 94 94 Translation loss, net (12,936) (12,936) Total comprehensive income (827) Dividends ($.60) (4,117) (4,117) Treasury shares: Purchased (184) (1,320) (4,408) (5,912) Issued 84 2,504 2,588 Options exercised 14 322 336 Balance March 27, 1999 6,811 42,769 154,807 (17,025) 187,362 Balance June 26, 1999 6,706 42,730 155,349 (14,749) 190,036 Comprehensive income: Net earnings 9,143 9,143 Unrealized net losses on investments (104) (104) Translation loss, net (794) (794) Total comprehensive income 8,245 Dividends ($.60) (4,004) (4,004) Treasury shares: Purchased (233) (1,714) (3,570) (5,517) Issued 118 2,639 2,757 Options exercised 4 78 82 Balance March 25, 2000 6,595 43,733 156,918 (15,647) 191,599 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 March 25, 2000 and June 26, 1999; the results of operations and cash flows for the thirteen weeks and thirty-nine weeks ended March 25, 2000 and March 27, 1999; and changes in stockholders' equity for the thirty-nine weeks ended March 25, 2000 and March 27, 1999. 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 Thirty-nine Weeks Ended March Ended March 2000 1999 2000 1999 Interest income 378 393 926 1,357 Interest expense and commitment fees (218) (115) (639) (307) Realized exchange gains and losses 77 57 (21) 30 Other (69) 68 (94) 309 168 403 172 1,389 Approximately 70% of all inventories are valued on the LIFO method. At March 25, 2000, and June 26, 1999, total inventories are $24,021,000 and $23,521,000 less, respectively, than if determined on a FIFO basis. Long-term debt is comprised of the following (in thousands): March June 2000 1999 Industrial revenue bond 600 900 Revolving credit agreement 2,000 3,000 2,600 3,900 Less current portion 600 600 2,000 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 March quarter are up 3% and for the nine month comparison are up 1%. The increase in the quarter all comes from foreign operations, particularly Brazil. The year to date increase is all domestic because foreign sales were down in the first two quarters. Foreign sales decreases in the first two quarters of the year, which were the result of the Brazil currency devaluation that took place in January 1999, have been overcome by increased unit volume, but the strong pound in the U.K. continues to adversely affect Scotland's overall business because of export and import price competition. The year to date increase in domestic sales referred to above is mostly due to product mix. The industrial manufacturing sector where we do most of our business continues flat. Earnings Before Taxes Pretax earnings are down 33% in the March quarter and 24% year to date. The negative comparison in the quarter comes from the domestic side where margins are being adversely affected by product mix, lower factory overhead absorption, increased fringe benefit costs, particularly pension and medical, and our data processing conversion. In addition, advertising costs are up and net interest income is down. The international pricing pressures referred to above resulting from the strong British pound are also contributing to the negative comparisons. Income Taxes The effective income tax rate is 30% for the quarter and 32% year to date. The rates were 31% and 32% in corresponding prior periods. The main reason for the quarter versus year to date decrease is the favorable tax treatment of dividends paid from Brazil in both years. The current year effect is a little more significant because Brazil is contributing more of the overall pretax earnings and carries a lower effective tax rate than the rest of the company. 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 March 2000, 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 $8 million. Inflation in Brazil has decreased to under 20% today from over 2000% in 1994 when their current economic plan was initiated. Brazil's 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 variable rate financial instruments (primarily short term money market investments of $13,000,000 and debt of $9,000,000 at March 25, 2000) 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. Page 7 of 9 LIQUIDITY AND CAPITAL RESOURCES 13 Weeks Ended 39 Weeks Ended 3/25/00 3/27/99 3/25/00 3/27/99 Cash provided by operations 8,737 1,320 16,614 18,257 Cash used in investing activities (6,096) (63) (11,846) (13,202) Cash used in financing activities (4,126) (3,430) (4,307) (7,806) Cash effect of translation rate changes 68 (165) 45 (179) Net increase (decrease) in cash (1,417) (2,338) 506 (2,930) The drop in net earnings is the primary cause of the reduction in year to date cash flow. The increase in the quarter comparison is due to the fact that working capital (primarily accounts receivable) was increasing in the prior period and decreasing in the current period. Cash used in investing is down year to date due to lower fixed asset additions. The increase in the current quarter comes from increased cash investments as a result of the decreasing working capital mentioned above. Short-term borrowing in Brazil in the second quarter is the major reason for the year to date decrease in cash used in 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 5.2 to 1 as of March 25, 2000 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 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 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, Page 8 of 9 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 May 8, 2000 S/R.U.WELLINGTON, JR. R. U. Wellington, Jr. (Treasurer and Chief Financial Officer) Date May 8, 2000 S/S.G.THOMSON S. G. Thomson (Chief Accounting Officer) Page 9 of 9 EX-27 2
5 1,000 9-MOS JUN-24-2000 MAR-25-2000 777 19,125 41,247 2,395 76,197 139,215 151,465 76,943 249,911 26,611 2,000 0 0 6,595 185,004 249,911 178,517 178,517 128,424 128,424 0 0 639 13,392 4,249 9,143 0 0 0 9,143 1.37 1.37
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