10-K 1 fy0110k.txt JUNE 2001 10K 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 30, 2001 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 5,016,375 and 1,439,885 shares, respectively, of its $1.00 par value Class A and B common stock outstanding on July 27, 2001. On that date, the aggregate market value of the common stock held by nonaffiliates was approximately $128,000,000. The exhibit index is located on page 22. Documents incorporated by reference Proxy Statement dated August 17, 2001 - 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. One retailer, Sears, accounted for approximately 13% of the Company's sales in fiscal 2001. 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 30, 2001, the Company had 2,713 employees, approximately 70% of whom were 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 over the years. 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 30, 2001, 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. The operations of the Company's foreign subsidiaries are consolidated in its financial statements. The subsidiaries located in Brazil, Scotland, and China are actively engaged in the manufacture of hacksaw and band saw blades and a limited line of precision tools and measuring tapes. A subsidiary in Australia and a subsidiary in Germany are engaged in distribution of the Company's products. 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 fiscal 2001 financial statements under the caption "OPERATING DATA" 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. Sales order backlog of the Company at any point in time is negligible. Total inventories amounted to $84,834,000 at June 30, 2001, and $79,890,000 at June 24, 2000. 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 $22,685,000 and $22,683,000 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 2001, 2000 and 1999 were approximately $2,663,000, $3,111,000 and $2,860,000, 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 a small extent seasonal, with sales and earnings generally at the lowest level during the first and third quarters 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. An additional 9,000 square feet of leased space in Gardner, Massachusetts is considered part of this plant. The Webber Gage Division, Cleveland, Ohio, owns and occupies two buildings totaling approximately 50,000 square feet. The Company-owned facility in Mt. Airy, North Carolina consists of two buildings totaling approximately 356,000 square feet. It is occupied by the Company's Saw Division, Granite Surface Plate Division, Coordinate Measuring Machine and Optical Comparator Division, and Ground Flat Stock Division. The Company's Evans Rule Division, located in North Charleston, South Carolina, owns and occupies a 173,000 square foot building. In addition, this division leases 35,000 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. Two wholly owned subsidiaries in the People's Republic of China lease approximately 40,000 square feet and 2,000 square feet. In addition, the Company operates warehouses/sales-support offices in Glendale, Arizona; Elmhurst, Illinois; Atlanta, Georgia; Mississauga, Canada; Sydney, Australia; and Schmitten, Germany. 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 30, 2001. 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 27, 2001, there were 2,088 registered holders of Class A common stock and 1,699 registered holders of Class B common stock. Quarter ended Dividends High Low September 1999 $ 0.20 $ 29.44 $ 24.25 December 1999 0.20 24.88 21.25 March 2000 0.20 24.75 20.50 June 2000 0.20 24.25 18.50 September 2000 0.20 19.44 16.88 December 2000 0.20 22.94 16.69 March 2001 0.20 23.85 19.75 June 2001 0.20 22.74 17.45 Item 6 - Selected Financial Data Years ended in June ($000 except per share data) 2001 2000 1999 1998 1997 Net sales $225,857 $235,169 $232,385 $262,340 $250,503 Net earnings 8,097 11,489 16,696 23,009 19,859 Basic earnings per share 1.26 1.73 2.44 3.34 2.84 Diluted earnings per share 1.25 1.73 2.44 3.33 2.84 Long-term debt 7,000 3,000 3,300 3,900 6,500 Total assets 248,532 250,418 245,728 250,263 238,746 Dividends per share 0.80 0.80 0.80 0.77 0.72 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS SALES Sales decreased 4% in fiscal 2001 following a 1% increase in fiscal 2000. The decrease is both domestic and foreign, 5% and 1%, respectively, before eliminations, although foreign sales were actually up 7% in fiscal 2001 when measured in local currencies. In fiscal 2000, the 1% increase all came on the domestic side, with foreign sales being flat. For the past three years, sales of our Scotland subsidiary have been adversely affected by the weak euro, which hurts business in terms of export pricing and import price competition. In addition, the flat foreign sales in fiscal 2000 disguise the fact that Brazil overcame a significant currency devaluation in January 1999 with increased unit volume. The decrease in domestic sales reflects the continued weakened demand for our industrial products, particularly during the third quarter, as well as weak consumer demand during the second quarter holiday season. Last year's slight increase in domestic sales was largely a result of product mix. EARNINGS BEFORE TAXES Pretax earnings are down 34% for the current year and were down 27% in fiscal 2000. Cost of sales was 71.1% in 2001, 71.7% in 2000, and 69.3% in 1999. Changes in these rates are mainly impacted by the manufacturing efficiencies that are gained or lost as a result of increased or decreased production levels, but also by pricing, product mix, and overhead spending. In 2001, Brazil wage increase and domestic employee benefit expense increases kept the cost of sales rate from improving. Product mix played an important part in the increase in the cost of sales percent in 2000. The decrease in pretax earnings in fiscal 2001 is also attributable to an increase in our selling and general expenses to 23% of sales compared to 21% in 2000 and 1999. This is a result of increased expenditures on advertising, data processing, and employee benefits. In addition, the weakness in Brazil's currency compared to the dollar resulted in losses on their dollar denominated debts during fiscal 2001. INCOME TAXES The effective income tax rate was 29% in 2001 compared to 33% in 2000 and 29% in 1999. 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 rate. Nonrecurring permanent differences between book and taxable income for dividends paid from Brazil to the U.S. in all years, but particularly in 1999, have reduced their effective tax rate substantially when reported in U.S. dollars. Higher than usual foreign tax credits and a refund of prior year state taxes is causing the 2001 overall rate to be lower than in 2000. EARNINGS PER SHARE As a result of the above, earnings per share were down 27% in fiscal 2001 when compared to 2000, and 2000 earnings per share were down 29% when compared to 1999. 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 2001 and 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. In addition, the Company does not enter into long-term supply contracts with either fixed prices or quantities. 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 $3 million. Inflation in Brazil has decreased to about 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. 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 $5,400,000 and debt of $12,000,000 at June 30, 2001) 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 $4,800,000 by $200,000. LIQUIDITY AND CAPITAL RESOURCES Years ended In June ($000) 2001 2000 1999 Cash provided by operations $12,499 $18,822 $16,309 Cash used in investing activities (9,496) (9,267) (10,278) Cash used in financing activities (3,138) (7,892) (9,389) Effect of translation rate changes on cash 72 74 (76) Increase (decrease) in cash $ (63) $ 1,737 $(3,434) Cash flows from operating activities decreased $6 million from 2000, and in 2000 increased $3 million from 1999. Increasing inventories was the main reason for the reduced cash flow from operations in 2001. 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 $13 million in 2001 and $14 million in 2000 are less than the $20 million experienced in 1999, but are more normal than 1999, which contained a major building expansion. 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 $3.8 million in 2001 compared to $9.0 million in 2000 and $9.9 million in 1999. The Company maintains sufficient liquidity and has the resources to fund its operations under current business conditions. The Company maintains a line of credit as discussed in the notes to the financial statements. The Company has not made significant borrowings under this line during the past three years. The Company continues to maintain a strong financial position with a working capital ratio of 5.4 to 1 as of June 30, 2001 and 4.7 to 1 as of June 24, 2000. 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. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This document and the 2001 Annual Report, including the Chairman's letter to stockholders, include forward-looking statements about the Company's business, sales, expenditures, 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 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. There can be no assurance, however, that there will not be unforeseen economic effects of this change that affect the Company's business. Indeed, the current weakness of the euro as compared to the British pound and U.S. dollar has had an adverse impact on the Company's sales and margins on business done with Euro countries. Risks Related to Foreign Operations: For the period ended June 30, 2001, approximately a third of the Company's sales and net assets relate to foreign operations. 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. Risks Related to Cyclical Nature of the Industry: The market for most of the Company's products is subject to economic conditions affecting the industrial manufacturing sector, including the level of capital spending by industrial companies. Accordingly, economic weakness in the industrial manufacturing sector will result in decreased demand for the Company's products and will adversely affect performance. Economic weakness in the consumer market also impacts the Company's 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 9 Consolidated Statements of Earnings and Cash Flows 10 Consolidated Balance Sheets 11 Consolidated Statements of Stockholders' Equity 12 Notes to Consolidated Financial Statements 13-19 INDEPENDENT AUDITORS' REPORT 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 30, 2001 and June 24, 2000, 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 30, 2001. 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 auditing standards generally accepted in the United States of America. 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 30, 2001 and June 24, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. S/DELOITTE & TOUCHE LLP Boston, Massachusetts August 3, 2001 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) 2001 2000 1999 EARNINGS Net sales $225,857 $235,169 $232,385 Cost of goods sold (160,562) (168,648) (160,984) Selling, general and administrative expense (52,223) (49,788) (49,393) Other income and expense (1,640) 496 1,618 Earnings before income taxes 11,432 17,229 23,626 Income taxes 3,335 5,740 6,930 Net earnings $ 8,097 $ 11,489 $ 16,696 Basic earnings per share, based on average outstanding shares of 6,446,457, 6,645,019 and 6,840,283 $ 1.26 $ 1.73 $ 2.44 Diluted earnings per share, based on average outstanding shares of 6,457,554, 6,652,796 and 6,846,406 $ 1.25 $ 1.73 $ 2.44 CASH FLOWS Cash flows from operating activities: Net earnings $ 8,097 $ 11,489 $ 16,696 Noncash expenses: Depreciation and amortization 11,662 11,380 11,207 Deferred taxes 97 2,108 2,058 Unrealized translation losses 748 Working capital changes: Receivables 707 (1,189) 2,809 Inventories (9,261) (3,357) (9,110) Other current assets and liabilities 1,665 1,293 (2,824) Prepaid pension and other (1,216) (2,902) (4,527) Net cash from operating activities 12,499 18,822 16,309 Cash flows from investing activities: Additions to plant and equipment (13,198) (13,974) (20,319) Decrease in investments 3,702 4,707 10,041 Net cash used in investing activities (9,496) (9,267) (10,278) Cash flows from financing activities: Short-term borrowing, net (1,645) 3,090 2,599 Debt repayments, net 4,000 (300) (600) Common stock issued 3,444 3,665 3,968 Treasury shares purchased (3,792) (9,045) (9,894) Dividends (5,145) (5,302) (5,462) Net cash used in financing activities (3,138) (7,892) (9,389) Effect of translation rate changes on cash 72 74 (76) Net increase (decrease) in cash (63) 1,737 (3,434) Cash beginning of year 2,008 271 3,705 Cash end of year $ 1,945 $ 2,008 $ 271 Supplemental cash flow information: Interest paid $ 950 $ 844 $ 577 Taxes paid $ 1,688 $ 4,190 $ 5,822 See notes to consolidated financial statements THE L.S. STARRETT COMPANY Consolidated Balance Sheets (in thousands of dollars) June 30 June 24 ASSETS 2001 2000 Current assets: Cash $ 1,945 $ 2,008 Investments 8,238 12,043 Accounts receivable (less allowance for doubtful accounts of $1,976,000 and $1,790,000) 34,080 36,509 Inventories 84,834 79,890 Prepaid expenses and other current assets 5,830 7,269 Total current assets 134,927 137,719 Property, plant and equipment, at cost: Land 1,902 1,764 Buildings (less accumulated depreciation of $16,469,000 and $15,855,000) 23,272 25,301 Machinery and equipment (less accumulated depreciation of $57,142,000 and $54,613,000) 50,031 48,618 Total property, plant and equipment 75,205 75,683 Cost in excess of net assets acquired (less accumu- lated amortization of $3,947,000 and $4,534,000) 6,354 6,667 Prepaid pension cost 30,953 29,238 Other assets 1,093 1,111 $248,532 $250,418 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities $ 5,045 $ 6,690 Accounts payable and accrued expenses 14,358 16,315 Accrued salaries and wages 4,827 5,590 Taxes payable 291 285 Employee deposits for stock purchase plan 625 518 Total current liabilities 25,146 29,398 Deferred income taxes 15,218 13,969 Long-term debt 7,000 3,000 Accumulated postretirement benefit obligation 16,347 16,029 Stockholders' equity: Class A common stock $1 par (20,000,000 shrs. auth.; 5,017,569 outstanding in 2001, excluding 1,470,544 held in treasury; 4,978,276 outstanding in 2000, excluding 1,461,002 held in treasury) 5,018 4,978 Class B common stock $1 par (10,000,000 shrs. auth.; 1,440,006 outstanding in 2001, excluding 325,688 held in treasury; 1,495,474 outstanding in 2000, excluding 308,284 held in treasury) 1,440 1,495 Additional paid-in capital 45,112 43,273 Retained earnings reinvested and employed in the business 156,626 155,846 Accumulated other comprehensive income (loss) (23,375) (17,570) Total stockholders' equity 184,821 188,022 $248,532 $250,418 See notes to consolidated financial statements THE L.S. STARRETT COMPANY Consolidated Statements of Stockholders' Equity For the years ended in June, 1999 through 2001 (in thousands) Common Addi- Accumulated Stock Out- tional Other Com- standing Paid-in Retained prehensive ($1 Par) Capital Earnings Income Total Balance, June 27, 1998 $ 6,897 $ 41,263 $151,317 $ (4,183) $195,294 Comprehensive income: Net earnings 16,696 16,696 Unrealized net loss on investments (123) (123) Translation loss, net (10,443) (10,443) Total comprehensive income 6,130 Dividends ($0.80) (5,462) (5,462) Treasury shares: Purchased (329) (2,363) (7,202) (9,894) Issued 118 3,368 3,486 Options exercised 20 462 482 Balance, June 26, 1999 6,706 42,730 155,349 (14,749) 190,036 Comprehensive income: Net earnings 11,489 11,489 Unrealized net loss on investments (113) (113) Translation loss, net (2,708) (2,708) Total comprehensive income 8,668 Dividends ($0.80) (5,302) (5,302) Treasury shares: Purchased (399) (2,956) (5,690) (9,045) Issued 161 3,400 3,561 Options exercised 5 99 104 Balance, June 24, 2000 6,473 43,273 155,846 (17,570) 188,022 Comprehensive income: Net earnings 8,097 8,097 Unrealized net loss on investments (38) (38) Translation loss, net (5,767) (5,767) Total comprehensive income 2,292 Dividends ($0.80) (5,145) (5,145) Treasury shares: Purchased (192) (1,428) (2,172) (3,792) Issued 166 3,078 3,244 Options exercised 11 189 200 Balance, June 30, 2001 $ 6,458 $ 45,112 $156,626 $(23,375) $184,821 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. Since the Company's fiscal year ends on the last Saturday in June, the 2001 fiscal year contains 53 weeks compared to 52 weeks in 2000 and 1999. The fiscal years of the Company's major foreign subsidiaries end in May. Financial instruments and derivatives: The Company's financial instruments consist primarily of current assets, except inventory, current liabilities, and long-term debt. Current assets and liabilities, except investments, are stated at cost, which approximates fair market value. Long-term debts, which are at current market interest rates, also approximate fair market value. Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," was effective June 25, 2000 and requires all derivatives and any hedging assets or liabilities to be accounted for at fair value. The effect of adopting SFAS No. 133 was not significant. 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 30, 2001 is $4.8 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 eight 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, computer hardware and software 3 to 7 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 $52,799,000 and $46,584,000 at the end of 2001 and 2000, respectively, such amounts being $22,685,000 and $22,683,000 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 2001 $38,346 $27,811 $18,677 $84,834 2000 $36,121 $26,752 $17,017 $79,890 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 $40,000,000 at June 2001) 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: $2,663,000 in 2001, $3,111,000 in 2000 and $2,860,000 in 1999. Earnings per share (EPS): 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 11,097, 7,777 and 6,123 of additional potential common shares in 2001, 2000 and 1999 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 items are translated at rates in effect on transaction dates. The resulting differences due to changing exchange rates are charged or credited directly to the "accumulated other comprehensive income" account included as part of stockholders' equity. Use of accounting estimates: The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. 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. ACCOUNTING PRONOUNCEMENTS The Company is considering the early adoption of SFAS 142 as of July 1, 2001. SFAS 142 requires goodwill no longer be amortized, but instead tested for impairment. Any goodwill impairment loss at transition is recognized as the cumulative effect of a change in accounting principle. The Company has net goodwill of $6.4 million and related annual amortization expense of $268,000. OTHER INCOME AND EXPENSE Other income and expense consists of the following (in thousands): 2001 2000 1999 Interest income, net $ 131 $ 660 $ 1,366 Realized and unrealized translation gains and (losses) (1,859) (101) 112 Other 88 (63) 140 $(1,640) $ 496 $ 1,618 INCOME TAXES The provision for income taxes consists of the following (in thousands): 2001 2000 1999 Current: Federal $ 1,600 $ 1,581 $ 2,851 Foreign 1,271 1,582 1,337 State 367 469 684 Deferred 97 2,108 2,058 $ 3,335 $ 5,740 $ 6,930 Pretax domestic income as reportable to the IRS was $9,000,000, $7,704,000 and $22,840,000 in 2001, 2000 and 1999, respectively. A reconciliation of expected tax expense at the U.S. statutory rate to actual tax expense is as follows (in thousands): 2001 2000 1999 Expected tax expense $ 4,001 $ 6,030 $ 8,269 Increase (decrease) from: State and Puerto Rico taxes, net of federal benefit (588) (210) (32) Foreign taxes, net of federal credits (17) (247) (1,161) Nontaxable investment income (21) (43) (111) Other (40) 210 (35) Actual tax expense $ 3,335 $ 5,740 $ 6,930 Deferred income taxes at year end are attributable to the following (in thousands): 2001 2000 Deferred assets: Retiree medical benefits $(6,716) $(6,587) Inventories (1,335) (1,286) Net operating loss carryforward (915) (122) Other (1,155) (1,229) (10,121) (9,224) Deferred liabilities: Prepaid pension 12,625 11,953 Other employee benefits 459 547 Depreciation 8,252 7,614 Other 1.057 990 22,393 21,104 Net deferred tax liability $12,272 $11,880 Long-term portion $15,218 $13,969 EMPLOYEE BENEFIT PLANS The Company has several pension plans, both defined benefit and defined contribution, covering all of its domestic and most 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 2001, 2000 and 1999, considering the combined projected benefits and funds of the ESOP as well as the other plans, was $(462,000), $(1,608,000) and $(2,567,000), 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 1,000,000 shares of the Company's common stock. The status of these defined benefit plans, including the ESOP, is as follows (in thousands): 2001 2000 1999 Change in benefit obligation: Benefit obligation at beginning of year $ 87,893 $ 88,088 $ 87,242 Service cost 2,887 3,263 2,672 Interest cost 5,950 6,172 6,185 Participant contributions 242 247 286 Plan amendments 481 Exchange rate changes (1,942) (1,016) (826) Benefits paid (3,393) (3,315) (3,048) Actuarial gain (8,434) (5,546) (4,904) Benefit obligation at end of year $ 83,203 $ 87,893 $ 88,088 Change in plan assets: Fair value of plan assets at beginning of year $120,861 $137,578 $148,861 Actual return on plan assets 12,213 (12,557) (7,549) Participant contributions 242 247 286 Benefits paid (3,393) (3,315) (3,048) Exchange rate changes (1,885) (1,092) (972) Fair value of plan assets at end of year $128,038 $120,861 $137,578 Reconciliation of funded status: Funded status $ 44,835 $ 32,968 $ 49,490 Unrecognized actuarial gain (14,555) (3,858) (22,861) Unrecognized transition asset (3,869) (4,818) (5,774) Unrecognized prior service cost 4,542 4,946 5,357 Prepaid pension cost $ 30,953 $ 29,238 $ 26,212 Amounts recognized in statement of financial Position: Prepaid pension cost $ 32,390 $ 30,513 $ 27,559 Accrued benefit liability (1,558) (1,397) (1,523) Intangible asset 121 122 176 Prepaid pension cost $ 30,953 $ 29,238 $ 26,212 Components of net periodic benefit cost: Service cost $ 2,887 $ 3,263 $ 2,672 Interest cost 5,950 6,172 6,185 Expected return on plan assets (9,986) (11,432) (11,241) Amortization of prior service cost 404 409 414 Amortization of transition asset (949) (956) (963) Recognized actuarial gain (20) (352) (1,250) Net periodic benefit cost $ (1,714) $ (2,896) $ (4,183) Weighted average assumptions: Discount rate 7.50% 7.75% 7.00% Expected long-term rate of return 8.50% 8.50% 8.50% Rate of compensation increase 4.00% 4.50% 5.00% 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): 2001 2000 1999 Change in benefit obligation: Benefit obligation at beginning of year $ 15,101 $ 13,668 $ 17,707 Service cost 509 457 427 Interest cost 1,122 914 911 Plan amendments (4,732) Benefits paid (1,071) (1,170) (1,135) Actuarial (gain) or loss (464) 1,232 490 Benefit obligation at end of year $ 15,197 $ 15,101 $ 13,668 Reconciliation of funded status: Funded status $(15,197) $(15,101) $(13,668) Unrecognized actuarial gain 2,523 3,098 1,896 Unrecognized prior service cost (3,673) (4,026) (4,379) Accrued benefit liability $(16,347) $(16,029) $(16,151) Components of net periodic benefit cost: Service cost $ 509 $ 457 $ 427 Interest cost 1,122 914 911 Amortization of prior service cost (353) (353) (353) Recognized actuarial gain 111 30 32 Net periodic benefit cost $ 1,389 $ 1,048 $ 1,017 Weighted average assumptions: Discount rate 7.50% 7.75% 7.00% Rate of compensation increase 4.00% 4.50% 5.00% For measurement purposes, a 10.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. The rate was assumed to decrease gradually to 5.0% for 2008 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects (in thousands): 1% 1% Increase Decrease Effect on total of service and interest cost $ 86 $ (78) Effect on postretirement benefit obligation 575 (533) DEBT At year end, long-term debt consists of the following (in thousands): 2001 2000 Industrial revenue bond $ 300 Note payable due 12/03, 8.3% $ 4,000 Revolving credit agreement 3,000 3,000 7,000 3,300 Less current maturities 300 $ 7,000 $ 3,000 The revolving credit agreement is for $25,000,000 and expires June 13, 2004. The credit agreement requires commitment fees of .25%. Interest rates vary, but approximate LIBOR plus .50% (4.6% as of June 30, 2001). All debt agreements contain financial covenants, the most restrictive of which is that at June 30, 2001 the Company must have tangible net worth of $164,000,000. Annual principal payments on debt are required as follows: 2004, $7,000,000. Current notes payable carry interest at a rate of LIBOR plus 1 - 4%. Interest expense, prior to capitalization of interest on self-constructed assets was $973,000, $877,000 and $465,000 in 2001, 2000 and 1999. COMMON STOCK Class B common ctock 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 ctock 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 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 2010. 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 2001, 2000, or 1999. A summary of option activity is as follows: Weighted Average Exercise Shares Shares Price Available On Option At Grant For Grant Balance, June 27, 1998 45,800 $27.96 778,346 Options granted 55,474 24.97 (55,474) Options exercised ($23.17 and $25.03) (20,369) 23.70 Options canceled (29,102) 25,325 Balance, June 26, 1999 51,803 24.63 748,197 Options granted 69,122 19.56 (69,122) Options exercised ($20.30 and $17.00) (5,315) 19.50 Options canceled (43,632) 43,632 Balance, June 24, 2000 71,978 20.26 722,707 Options granted 53,285 17.14 (53,285) Options exercised ($15.52 and $18.96) (10,771) 18.55 Options canceled (41,156) 41,156 Balance, June 30, 2001 73,336 $18.22 710,578 At June 30, 2001, a total of 783,914 shares of common stock are reserved for issuance under the plan. The following information relates to outstanding options as of June 30, 2001: Weighted average remaining life 1.5 years Weighted average fair value on grant date of options granted in: 1999 $7.50 2000 6.00 2001 5.50 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 - 16% to 28%, interest - 4.3% to 6.5%, and expected lives - 2 years. The pro forma, after tax effect of any compensation costs related to use of SFAS No. 123, "Accounting for Stock Based Compensation," is as follows: 2001 $170,000, 2000 $200,000 and 1999 $150,000, or approximately $.03, $.03, and $.02 per share. In addition 218,371 shares of common stock are reserved for the Company's 401(k) plan at June 30, 2001. Since inception in 1986, 1,279,938 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 30, 2001. Trade receivables are dispersed among a large number of retailers, distributors and industrial accounts in many countries. One customer accounted for approximately 13% of sales in 2001 and 2000, and 11% in 1999. The Company is engaged in the single business segment of producing and marketing industrial, professional and consumer products. It manufactures over 5,000 items, including precision measuring tools, tape measures, gages and saw blades. Operating segments are identified as components of an enterprise about which separate discrete financial information is used by the chief operating decision maker in how to allocate assets and assess performance of the Company. The Company's operations are primarily in North America, Brazil, and the United Kingdom. Geographic information about the Company's sales and long- lived assets are as follows: 2001 2000 1999 Sales: North America $ 164,572 $ 172,542 $ 171,176 United Kingdom 30,520 33,064 33,249 Brazil 43,421 41,926 40,104 Eliminations and other (12,656) (12,363) (12,144) Total $ 225,857 $ 235,169 $ 232,385 Long-lived assets: North America $ 97,656 $ 95,343 United Kingdom 7,655 8,054 Brazil 6,037 7,028 Other 2,257 2,274 Total $ 113,605 $ 112,699 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 1999 $58,412 $16,145 $ 4,317 $ 2,875 $ 0.43 December 1999 61,245 18,195 5,556 3,817 0.57 March 2000 58,860 15,753 3,519 2,451 0.37 June 2000 56,652 16,428 3,837 2,346 0.36 $235,169 $66,521 $17,229 $11,489 $ 1.73 September 2000 $58,842 $17,101 $ 4,234 $ 2,895 $ 0.45 December 2000 60,650 17,121 3,664 2,583 0.40 March 2001 50,637 14,201 1,622 950 0.15 June 2001 55,728 16,872 1,912 1,669 0.26 $225,857 $65,295 $11,432 $ 8,097 $ 1.26 In the fourth quarter of fiscal 2001, the Company recorded a benefit related primarily to prior year state taxes and foreign tax credits. 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 5 in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 19, 2001, and is hereby incorporated by reference. Executive Officers of the Registrant Held Present Name Age Office Since Position Douglas R. Starrett 81 1995 Chairman and CEO and Director Douglas A. Starrett 49 1995 President and Director George B. Webber 80 1962 Vice President Webber Gage Division and Director Anthony M. Aspin 48 2000 Vice President Sales Roger U. Wellington, Jr. 60 1984 Treasurer and Chief Financial Officer and Director Steven A. Wilcox 46 1997 Clerk Douglas R. Starrett, Douglas A. Starrett (son of Douglas R. Starrett), George B. Webber and Roger U. Wellington, Jr. have served in the same capacities as listed above for at least the past five years. Anthony M. Aspin was previously a divisional sales manager with 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 6 through 11 in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 19, 2001 and, except for the information under the captions "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 19, 2001, 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 through 4 of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 19, 2001, 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 30, 2001 Consolidated Balance Sheets at June 30, 2001 and June 24, 2000 Consolidated Statements of Stockholders' Equity for the Three Years in the Period Ended June 30, 2001 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. (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. (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 16, 1999, filed with Form 10-Q for the quarter ended September 24, 1999, 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 May 23, 2000, between the Company and Fleet National Bank, as Rights Agent, including Form of Common Stock Purchase Rights Certificate, filed on May 23, 2000 with the Company's Form 8-A, is hereby incorporated by reference. (10a) $25,000,000 Revolving Credit Agreement dated as of June 13, 2000, among The L.S. Starrett Company and Fleet National Bank filed with Form 10-K for the year ended June 24, 2000 is hereby incorporated by reference. (21) Subsidiaries of the Registrant. See page 23. (23) Independent Auditors' Consent. See page 24. Exhibit 21 THE L.S. STARRETT COMPANY AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT JUNE 30, 2001 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 Starrett Tools (Shanghai) Co., Ltd. Incorporated in Dec. 31 China The L.S. Starrett Company of Incorporated in June 30 Australia Pty. Ltd. Australia Exhibit 23 INDEPENDENT AUDITORS' CONSENT The L.S. Starrett Company We consent to the incorporation by reference in the Registration Statements No. 33-55623, No. 333-12997 and No. 333-89965 of The L.S. Starrett Company, all on Form S-8, of our report dated August 3, 2001, appearing in the Annual Report on Form 10-K of The L.S. Starrett Company for the year ended June 30, 2001. S/DELOITTE & TOUCHE LLP Boston, Massachusetts September 19, 2001 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 19, 2001 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. 19, 2001 Douglas A. Starrett, Sept. 19, 2001 Chairman and CEO and Director President and Director S/THOMAS E. MAHONEY S/WILLIAM S. HURLEY Thomas E. Mahoney, Sept. 19, 2001 William S. Hurley, Sept. 19, 2001 Director Director S/RICHARD B. KENNEDY S/GEORGE B. WEBBER Richard B. Kennedy, Sept. 19, 2001 George B. Webber, Sept. 19, 2001 Director Vice President Webber Gage Division and Director S/STEVEN G. THOMSON S/ROGER U. WELLINGTON, JR. Steven G. Thomson, Sept. 19, 2001 Roger U. Wellington,Jr.,Sept.19, 2001 Chief Accounting Officer Treasurer and Chief Financial Officer and Director