-----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, Bz6oiuxyzrZVtz1kjEZ4thVE8KuwqQ0FV4U1ueOeKMfWtbQtsq1om5mmOMbxL9O5 Bm0dqPQy1R2PvBj92EKOug== 0000093676-99-000009.txt : 19990914 0000093676-99-000009.hdr.sgml : 19990914 ACCESSION NUMBER: 0000093676-99-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990626 FILED AS OF DATE: 19990913 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-K SEC ACT: SEC FILE NUMBER: 001-00367 FILM NUMBER: 99710082 BUSINESS ADDRESS: STREET 1: 121 CRESCENT ST CITY: ATHOL STATE: MA ZIP: 01331 BUSINESS PHONE: 5082493551 10-K 1 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 26, 1999 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 5,115,250 and 1,590,025 shares, respectively, of its $1.00 par value Class A and B common stock outstanding on July 23, 1999. On that date, the aggregate market value of the common stock held by nonaffiliates was approximately $194,000,000. The exhibit index is located on page 23. Documents incorporated by reference Proxy Statement dated August 13, 1999 - 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, accounts for approximately 11% of the Company's sales. 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 26, 1999, the Company had 2,741 employees, approximately 70% of whom are domestic. None of the Company's operations are subject to collective bargaining agreements. In general, the Company considers its relations with its employees to be excellent. Because of various stock ownership plans, Company domestic personnel hold a large share of Company stock and this dual role of owner-employee has been good for morale 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 26, 1999, 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 newly established subsidiary in Australia is 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 1999 financial statements found in item 8 of this Form 10K and is hereby incorporated by reference. The Company generally fills orders from finished goods inventories on hand. Sales order backlog of the Company at any point in time is negligible. Total inventories amounted to approximately $78,041,000 at June 26, 1999, and $73,777,000 at June 27, 1998. The Company uses the last-in, first-out (LIFO) method of valuing most inventories, which results in more realistic operating costs and profits. Inventory amounts are approximately $23,521,000 and $23,998,000 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 1999, 1998 and 1997 were approximately $2,860,000, $3,406,000 and $3,073,000, respectively, all of which was expensed in the Company's financial statements. The Company uses trademarks with respect to its products. All of its important trademarks are registered. Compliance with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to protection of the environment is not expected to have a material effect on the capital expenditures, earnings and competitive position of the Company. Specifically, the Company has taken steps to reduce and control water discharges and air emissions. The Company's business is to some extent seasonal, with sales and earnings generally at the lowest level during the first quarter of the fiscal year. Item 2 - Properties The Company's principal plant is located in Athol, Massachusetts on about 15 acres of Company-owned land. The plant consists of 25 buildings, mostly of brick construction of varying dates, with approximately 535,000 square feet of production and storage area. 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 containing approximately 50,000 square feet. The Company-owned facility in Mt. Airy, North Carolina has approximately 320,000 square feet, including 64,000 square feet added in fiscal 1999. It is occupied by the Company's Saw Division, Granite Surface Plate Division, Coordinate Measuring Machine Division, Optical Comparator Division and Ground Flat Stock Division. This plant is subject to a mortgage collateralizing a $900,000 Industrial Revenue Bond. The Company's Evans Rule Division, located in North Charleston, South Carolina, owns and occupies a 166,000 square foot building. In addition, this division leases 45,000 square feet of manufacturing space in Mayaguez, Puerto Rico. The Company's Exact Level Division is located in Alum Bank, Pennsylvania and owns and occupies a 50,000 square foot building. The Company's Brazil subsidiary owns and occupies several buildings totaling 209,000 square feet. The Company's Scotland subsidiary owns and occupies a 187,000 square foot building and also a 33,000 square foot building in Skipton, England, where its wholly owned subsidiary manufactures optical measuring projectors. A second wholly owned subsidiary located in Skipton performs calibration services and leases about 4,000 square feet. A wholly owned subsidiary in the People's Republic of China leases approximately 40,000 square feet. In addition, the Company operates warehouses/sales-support offices in Glendale, Arizona; Elmhurst, Illinois; Atlanta, Georgia; Mississauga, Canada; and Sydney, Australia. 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 26, 1999. 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 23, 1999, there were 2,253 registered holders of Class A common stock and 1,743 registered holders of Class B common stock. Quarter ended Dividends High Low September 1997 0.19 $ 36.56 $ 30.25 December 1997 0.19 39.94 36.00 March 1998 0.19 40.13 32.56 June 1998 0.20 40.81 37.06 September 1998 0.20 39.06 34.25 December 1998 0.20 37.75 29.81 March 1999 0.20 34.25 25.75 June 1999 0.20 30.69 25.13 Item 6 - Selected Financial Data Years ended in June ($000 except per share data) 1999 1998 1997 1996 1995 Net sales $232,385 $262,340 $250,503 $235,467 $214,215 Net earnings 16,696 23,009 19,859 17,331 13,487 Basic earnings per share 2.44 3.34 2.84 2.45 1.91 Diluted earnings per share 2.44 3.33 2.84 2.45 1.91 Long-term debt 3,300 3,900 6,500 7,100 8,700 Total assets 245,728 250,263 238,746 227,312 213,940 Dividends per share 0.80 0.77 0.72 0.72 0.69 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS SALES Sales decreased 11% in fiscal 1999 following a 5% increase in fiscal 1998. Domestic sales were down 9% in the current year, reflecting a downturn in the industrial manufacturing sector, and foreign sales were down 15%. The foreign decrease was due mostly to the 40% devaluation of Brazil's currency in January 1999. In terms of local currency, foreign sales were down only 3%. Domestic sales accounted for most of the increase in the prior year as a result of continued good economic conditions in our industry through the end of fiscal 1998. For the past two years, the strong British pound has been adversely affecting Scotland's business both in terms of export pricing and domestic import competition; and, in Brazil, high real interest rates and a recessionary economy have held sales back. The weakening of Brazil's currency in 1998 and the devaluation in 1999 had the effect of reducing the local currency year to year sales change by 10 percentage points in 1998 and 20 percentage points in 1999, after conversion to U.S. dollars. EARNINGS BEFORE TAXES Pretax earnings are down 31% for the year. This follows a 14% increase in 1998. Cost of sales was 69.3% in 1999, 67.3% in 1998 and 67.9% in 1997. The changes in these rates are consistent with the manufacturing efficiencies that are gained or lost as a result of increased or decreased production levels, particularly in domestic operations where pretax earnings were up 26% last year but are down 34% this year. On the foreign side, the strong pound mentioned above has had a significant negative effect on margins for the past two years. In Brazil, although the currency devaluation has reduced the absolute amount of pretax profits, its effect on importers with whom we compete has allowed our operation to improve margins in the current year. INCOME TAXES The effective tax rate is 29% in 1999 compared to 33% in 1998 and 34% in 1997. Tax-exempt interest on short-term investments in municipal bonds, Puerto Rico tax incentives and somewhat lower foreign income tax rates all contribute to an overall effective tax rate that is slightly lower than the combined U.S. state and federal statutory rate. Nonrecurring permanent differences between book and taxable income for dividends paid from Brazil to the U.S. in 1998 and particularly in 1999 have reduced their effective tax rate substantially when reported in U.S. dollars. NET EARNINGS As a result of the above, net earnings were down 27% in fiscal 1999 when compared to 1998 and 1998 net earnings were up 16% when compared to 1997. 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 1998 and 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 are approximately $5 million and $4 million, respectively. Inflation in Brazil has decreased to less than 10% today from over 2000% in 1994 when their current economic plan was initiated. As a consequence, their economy ceased to be considered hyperinflationary as of January 1998. 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 $10,000,000 and debt of $6,900,000 at June 26, 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 does not currently anticipate any material disruption of its operations as a result of failure by the Company to be year 2000 compliant. If, however, the Company, its customers or its suppliers are unable to achieve year 2000 compliance, the potential exists for the Company's business and results of operations to be adversely affected. Worldwide, the Company has four major computer systems that are used in the areas of manufacturing, sales and accounting. Two use third party packages that the Company believes are or, through vendor upgrades, will be year 2000 compliant. The other two systems are in the process of being converted to third party packages that the Company believes are already compliant. The Company expects to complete the reasonably necessary remediation of its significant systems by the end of calendar 1999 and has not incurred, and does not expect to incur, significant additional separately identifiable costs in order to make its computer systems year 2000 compliant. If it begins to appear that the Company's planned upgrades and modifications might fail to bring any of these major systems into year 2000 compliance or fail to do so in a timely manner, the Company will have to adopt, and for one system has actually adopted, contingency plans to deal with any resulting disruptions in its business. The Company employs certain manufacturing processes that utilize computer controlled manufacturing equipment. The Company believes such equipment is year 2000 compliant to the extent reasonably necessary but has not completed its testing of such equipment. In the event the Company determines that such equipment cannot readily be made year 2000 compliant, it believes it can revert to the manual processes previously employed or outsource such work. The Company is also in the process of investigating the status of other systems with respect to year 2000 compliance such as phone, fax, heating/air conditioning, and electricity and believes they will be year 2000 compliant to the extent reasonably necessary before the end of 1999. The Company is utilizing internal resources for this purpose and does not expect to incur significant separately identifiable costs. In addition to reviewing its own systems, the Company has polled or is in the process of polling its significant customers and vendors to get assurance that they are year 2000 compliant and to attempt to identify potential issues. To the extent such assurance is not received, appropriate contingency plans will be developed and implemented. At this time, the Company is not aware of significant problems. If the Company's customers and vendors do not achieve year 2000 compliance before the end of 1999, the Company could experience a variety of problems that might have a material adverse effect on the Company's business and results of operations. For example, customers might lose EDI capability or vendors might fail to deliver, but most foreseeable problems can be overcome by reverting to phone, fax, mail and other manual procedures. It should be noted that the Company outsources very little other than raw steel and is not dependent on single source suppliers. LIQUIDITY AND CAPITAL RESOURCES Years ended In June ($000) 1999 1998 1997 Cash provided by operations $16,309 $28,713 $23,516 Cash used in investing activities (10,278) (15,838) (13,310) Cash used in financing activities (9,389) (12,203) (8,563) Effect of translation rate changes on cash (76) (20) (7) Increase (decrease) in cash $(3,434) $ 652 $ 1,636 Cash flows from operating activities decreased $12 million in 1999 primarily due to the decrease in net earnings of $6 million, and increases in inventory levels offset somewhat by a decrease in receivables, both of which are consistent with reduced sales volume. Just the opposite effect was experienced in 1998. 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 $20 million in 1999 are ahead of the $16 million and $14 million experienced in 1998 and 1997, which are more typical years, because of a major building expansion and continued investment in system software and hardware changes. Cash flows from financing activities are primarily the payment of dividends, which tend to be quite steady from year to year. The Company requires little debt to finance day to day operations and the proceeds from the sale of stock under the various stock plans tend to be used to purchase treasury shares. Treasury share purchases were $9.9 million in 1999 compared to $5.3 million in 1998 and $7.1 million in 1997. The Company maintains sufficient liquidity and has the resources to fund its operations under current business conditions. The Company maintains two lines of credit as discussed in the notes to the financial statements. The Company has not made significant borrowings under these lines during the past three years. The lines were used primarily to finance acquisitions. The Company continues to maintain a strong financial position with a working capital ratio of 5.7 to 1 as of June 26, 1999 and 5.9 to 1 as of June 27, 1998. Cash not immediately required for working capital is invested in high grade money market instruments with maturities generally less than one year (however, see the notes to the financial statements regarding investments in Puerto Rico). Certain cash and investment balances of foreign subsidiaries may not be repatriated without adverse tax consequences and in certain cases may be subject to regulatory restriction. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 provides guidance for accounting for all derivative instruments, as defined. This standard requires all derivatives and any hedging assets or liabilities to be accounted for at fair value and will be required to be implemented during fiscal 2000. The Company is currently analyzing the impact of adopting SFAS No. 133. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996 This document and 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: The Company continues to explore whether and to what extent its computer and other systems will be disrupted at the turn of the century as a result of the widely-publicized dating system flaw inherent in many computer systems. While the Company is in the process of upgrading and modifying its systems in order to address the Year 2000 issue, there can be no assurance that the Company's existing systems will be upgraded or modified in time to remedy the Year 2000 issue or that the Company's computer systems will not be disrupted upon the turn of the century. Any disruption of the Company's business due to the Year 2000 issue, whether caused by the Company's systems or those of any of its suppliers, customers, banks, lenders, or insurers, could have a material adverse effect on the Company's financial condition or results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Year 2000." Risks Related to Technology: Although the Company's strategy includes significant investment in research and development of new and innovative products to meet technology advances, there can be no assurance that the Company will be successful in competing against new technologies developed by competitors. Risks Related to Adoption of the Euro: 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: For the period ended June 26, 1999, approximately 30% of the Company's sales were derived from foreign operations and, as of June 26, 1999, approximately 30% of the Company's net assets were located outside the United States. Foreign operations are subject to special risks that can materially affect the sales, profits, cash flows, and financial position of the Company, including taxes and other restrictions on distributions and payments, currency exchange rate fluctuations, political and economic instability, 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. Item 8 - Financial Statements and Supplementary Data Contents: Page Report of Independent Auditors 10 Consolidated Statements of Earnings and Cash Flows 11 Consolidated Balance Sheets 12 Consolidated Statements of Stockholders' Equity 13 Notes to Consolidated Financial Statements 14-20 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 26, 1999 and June 27, 1998, 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 26, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries as of June 26, 1999 and June 27, 1998, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 26, 1999, in conformity with generally accepted accounting principles. S/DELOITTE & TOUCHE LLP Boston, Massachusetts July 30, 1999 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) 1999 1998 1997 EARNINGS Net sales $232,385 $262,340 $250,503 Cost of goods sold (160,984) (176,591) (170,035) Selling, general and administrative expense (49,393) (53,433) (51,941) Other income and expense 1,618 1,806 1,532 Earnings before income taxes 23,626 34,122 30,059 Income taxes 6,930 11,113 10,200 Net earnings $ 16,696 $ 23,009 $ 19,859 Basic earnings per share, based on average outstanding shares of 6,840,283, 6,888,854 and 6,991,810 $ 2.44 $ 3.34 $ 2.84 Diluted earnings per share, based on average outstanding shares of 6,846,406, 6,902,950 and 7,003,138 $ 2.44 $ 3.33 $ 2.84 CASH FLOWS Cash flows from operating activities: Net earnings $ 16,696 $ 23,009 $ 19,859 Noncash expenses: Depreciation and amortization 11,207 10,727 9,799 Deferred taxes 2,058 1,945 (439) Unrealized translation losses 154 134 Working capital changes: Receivables 2,809 (4,506) 1,619 Inventories (9,110) 1,518 (4,821) Other current assets and liabilities (2,824) (1,016) (1,962) Prepaid pension and other (4,527) (3,118) (673) Net cash from operating activities 16,309 28,713 23,516 Cash flows from investing activities: Additions to plant and equipment (20,319) (16,148) (13,999) Decrease in investments 10,041 310 689 Net cash used in investing activities (10,278) (15,838) (13,310) Cash flows from financing activities: Short-term borrowing, net 2,599 (2,609) 411 Debt repayments, net (600) (2,600) (600) Common stock issued 3,968 3,590 3,691 Treasury shares purchased (9,894) (5,286) (7,054) Dividends (5,462) (5,298) (5,011) Net cash used in financing activities (9,389) (12,203) (8,563) Effect of translation rate changes on cash (76) (20) (7) Net increase (decrease) in cash (3,434) 652 1,636 Cash beginning of year 3,705 3,053 1,417 Cash end of year $ 271 $ 3,705 $ 3,053 Supplemental cash flow information: Interest paid $ 577 $ 684 $ 839 Taxes paid $ 5,822 $ 12,519 $ 11,572 See Notes to Consolidated Financial Statements THE L.S. STARRETT COMPANY Consolidated Balance Sheets (in thousands of dollars) June 26 June 27 ASSETS 1999 1998 Current assets: Cash $ 271 $ 3,705 Investments 16,933 27,115 Accounts receivable (less allowance for doubtful accounts of $2,361,000 and $2,450,000) 36,004 40,764 Inventories 78,041 73,777 Prepaid expenses and other current assets 6,173 5,335 Total current assets 137,422 150,696 Property, plant and equipment, at cost: Land 1,775 1,862 Buildings (less accumulated depreciation of $16,496,000 and $17,014,000) 25,131 24,314 Machinery and equipment (less accumulated depreciation of $53,148,000 and $49,178,000) 46,948 42,642 Total property, plant and equipment 73,854 68,818 Cost in excess of net assets acquired (less accumu- lated amortization of $4,266,000 and $3,896,000) 7,094 7,484 Prepaid pension cost 26,212 22,035 Other assets 1,146 1,230 $245,728 $250,263 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities $ 3,600 $ 1,001 Accounts payable and accrued expenses 13,783 14,371 Accrued salaries and wages 6,026 8,059 Taxes payable 484 1,475 Employee deposits for stock purchase plan 429 528 Total current liabilities 24,322 25,434 Deferred income taxes 11,919 9,367 Long-term debt 3,300 3,900 Accumulated postretirement benefit obligation 16,151 16,268 Stockholders' equity: Class A common stock $1 par (20,000,000 shrs. auth.; 5,109,173 outstanding in 1999, excluding 1,243,158 held in treasury; 5,193,904 outstanding in 1998, excluding 1,045,731 held in treasury) 5,109 5,194 Class B Common Stock $1 par (10,000,000 shrs. auth.; 1,596,748 outstanding in 1999, excluding 288,642 held in treasury; 1,703,434 outstanding in 1998, excluding 274,283 held in treasury) 1,597 1,703 Additional paid-in capital 42,730 41,263 Retained earnings reinvested and employed in the business 155,349 151,317 Accumulated other comprehensive income (14,749) (4,183) Total stockholders' equity 190,036 195,294 $245,728 $250,263 See Notes to Consolidated Financial Statements THE L.S. STARRETT COMPANY Consolidated Statements of Stockholders' Equity For the years ended in June, 1997 through 1999 (in thousands) Common Addi- Accumulated Stock Out- tional Other Com- standing Paid-in Retained prehensive ($1 Par) Capital Earnings Income Total Balance, June 29, 1996 $ 7,055 $ 36,650 $128,272 $ (4,692) $167,285 Comprehensive income: Net earnings 19,859 19,859 Unrealized net gains on investments 134 134 Translation gain, net 1,561 1,561 Total comprehensive income 21,554 Dividends ($0.72) (5,011) (5,011) Treasury shares: Purchased (255) (1,467) (5,332) (7,054) Issued 116 3,057 3,173 Options exercised 28 490 518 Balance, June 28, 1997 6,944 38,730 137,788 (2,997) 180,465 Comprehensive income: Net earnings 23,009 23,009 Unrealized net gains on investments 138 138 Translation loss, net (1,324) (1,324) Total comprehensive income 21,823 Dividends ($0.77) (5,298) (5,298) Treasury shares: Purchased (152) (952) (4,182) (5,286) Issued 88 3,144 3,232 Options exercised 17 341 358 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 See Notes to Consolidated Financial Statements THE L. S. STARRETT COMPANY Notes to Consolidated Financial Statements SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation: The consolidated financial statements include the accounts of The L. S. Starrett Company and subsidiaries, a manu- facturer of industrial, professional and consumer products. All subsidiaries are wholly-owned and all significant intercompany items have been eliminated. The Company's fiscal year ends on the last Saturday in June. The fiscal years of the Company's foreign subsidiaries end in May. Fair market value of financial instruments: The Company's financial instruments consist primarily of current assets, current liabilities, and long-term debt. Current assets, except inventories (see Inventories) and except investments, and current liabilities are stated at cost, which approximates fair market value. Long-term debts, which are at current market interest rates, also approximate fair market value. The Company does not purchase derivative financial instruments. Investments: Investments consist primarily of marketable securities, including treasury bills, certificates of deposit and municipal securities. The Company considers all its investments "available for sale." As such, these investments are carried at market, which approximates cost, with unrealized temporary gains and losses recorded as a component of stockholders' equity. Included in investments at June 26, 1999 is $6.8 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 ten years. Most other investments have maturities of less than one year. Long-lived assets: Buildings and equipment are depreciated using straight-line and accelerated methods over estimated useful lives as follows: buildings 15 to 50 years, building improvements 10 to 40 years, machinery and equipment 5 to 12 years, motor vehicles 3 to 5 years. Costs in excess of net assets acquired are being amortized on a straight-line basis over 5 to 40 years. Inventories: Inventories are stated at the lower of cost or market. For approximately 70% of all inventories, cost is determined on a last-in, first-out (LIFO) basis. For all other inventories, cost is determined on a first-in, first-out (FIFO) basis. LIFO inventories are $47,858,000 and $44,397,000 at the end of 1999 and 1998, respectively, such amounts being $23,521,000 and $23,998,000 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 1999 $31,964 $31,589 $14,488 $78,041 1998 30,199 25,825 17,753 73,777 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 1999) 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: $2,860,000 in 1999, $3,406,000 in 1998 and $3,073,000 in 1997. Earnings per share (EPS): Basic EPS excludes dilution and is computed by di- viding earnings available to common shareholders by the weighted average num- ber of common shares outstanding for the period. Diluted EPS reflects the potential dilution by securities that could share in the earnings. The Company had 6,123, 14,096 and 11,328 of additional potential common shares in 1999, 1998 and 1997 resulting from shares issuable under its stock option plan. Translation of foreign currencies: Assets and liabilities are translated at exchange rates in effect on reporting dates, and income and expenses are translated at rates in effect on transaction dates. The resulting differences due to changing exchange rates are charged or credited directly to the "accumulated other comprehensive income" account included as part of stockholders' equity. Prior to January 1, 1998, the translation method used by the Company's subsidiary in Brazil, which until then had been considered a hyperinflationary country, was the same except that inventories and plant and the related charges to cost of sales and depreciation expense were translated at rates in effect at the time the assets were purchased, and the resulting translation gains and losses were included in the determination of net earnings. Use of accounting estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Amounts ultimately realized could differ from those estimates. OTHER INCOME AND EXPENSE Other income and expense consists of the following (in thousands): 1999 1998 1997 Interest income $ 1,831 $ 2,747 $ 2,118 Interest expense and commitment fees (465) (820) (784) Realized and unrealized translation gains and losses 112 (339) (225) Other 140 218 423 $ 1,618 $ 1,806 $ 1,532 INCOME TAXES The provision for income taxes consists of the following (in thousands): 1999 1998 1997 Current: Federal $ 2,851 $ 5,780 $ 6,146 Foreign 1,337 2,454 2,926 State 684 934 1,567 Deferred 2,058 1,945 (439) $ 6,930 $11,113 $10,200 Pretax domestic income was $25,809,000, $26,876,000 and $22,096,000 in 1999, 1998 and 1997, respectively. A reconciliation of expected tax expense at the U.S. statutory rate to actual tax expense is as follows (in thousands): 1999 1998 1997 Expected tax expense $ 8,269 $11,943 $10,520 Increase (decrease) from: State and Puerto Rico taxes, net of federal benefit (32) 108 178 Foreign taxes, net of federal credits (1,161) (604) (476) Nontaxable investment income (111) (120) (115) Other (35) (214) 93 Actual tax expense $ 6,930 $11,113 $10,200 Deferred income taxes at year end are attributable to the following (in thousands): 1999 1998 Deferred assets: Retiree medical benefits $(6,595) $(6,643) Inventories (1,242) (1,296) Other (1,247) (1,366) (9,084) (9,305) Deferred liabilities: Prepaid pension 10,778 9,059 Other employee benefits 251 659 Depreciation 6,846 6,087 Other 892 884 18,767 16,689 Current portion 2,236 1,983 Long-term portion $11,919 $ 9,367 EMPLOYEE BENEFIT PLANS The Company has several pension plans, both defined benefit and defined contribution, covering all of its domestic and approximately half of its nondomestic employees. In addition, certain domestic employees participate in an Employee Stock Ownership Plan (ESOP). Ninety percent of the actuarially determined annuity value of their ESOP shares is used to offset retirement benefits otherwise due under the domestic noncontributory defined benefit pension plan. The total cost (benefit) of all such plans for 1999, 1998 and 1997, considering the combined projected benefits and funds of the ESOP as well as the other plans, was $(2,567,000), $(1,588,000) and $(405,000), 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): 1999 1998 1997 Change in benefit obligation: Benefit obligation at beginning of year $ 87,242 $ 80,929 $ 71,307 Service cost 2,672 2,389 2,376 Interest cost 6,185 5,771 5,425 Plan amendments 481 Exchange rate changes (826) (91) 931 Benefits paid (3,048) (2,901) (2,677) Actuarial (gain) or loss (4,618) 1,145 3,567 Benefit obligation at end of year $ 88,088 $ 87,242 $ 80,929 Change in plan assets: Fair value of plan assets at beginning of year $148,861 $129,292 $112,832 Actual return on plan assets (7,549) 22,364 17,558 Employer contributions 103 Participant contributions 286 239 224 Benefits paid (3,048) (2,901) (2,677) Exchange rate changes (972) (133) 1,252 Fair value of plan assets at end of year $137,578 $148,861 $129,292 Reconciliation of funded status: Funded status $ 49,490 $ 61,619 $ 48,363 Unrecognized actuarial gain (22,861) (38,143) (27,400) Unrecognized transition asset (5,774) (6,737) (7,701) Unrecognized prior service cost 5,357 5,296 5,666 Prepaid benefit $ 26,212 $ 22,035 $ 18,928 Components of net periodic benefit cost: Service cost $ 2,672 $ 2,389 $ 2,376 Interest cost 6,185 5,771 5,425 Expected return on plan assets (11,241) (9,694) (8,398) Amortization of prior service cost 414 376 372 Amortization of transition asset (963) (964) (960) Recognized actuarial gain (1,250) (977) (557) Net periodoc benefit cost $ (4,183) $ (3,099) $ (1,742) Weighted average assumptions: Discount rate 7.0% 7.0% 7.5% Expected long-term rate of return 7.5% 7.5% 7.5% Rate of compensation increase 5.0% 5.0% 5.0% 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): 1999 1998 1997 Change in benefit obligation: Benefit obligation at beginning of year $ 17,707 $ 16,269 $ 16,308 Service cost 427 498 494 Interest cost 911 1,170 1,126 Plan amendments (4,732) Benefits paid (1,135) (1,129) (963) Actuarial (gain) or loss 490 899 (696) Benefit obligation at end of year $ 13,668 $ 17,707 $ 16,269 Reconciliation of funded status: Funded status $ 13,668 $ 17,707 $ 16,269 Unrecognized actuarial loss (1,896) (1,439) (539) Unrecognized prior service cost 4,379 Accrued benefit $ 16,151 $ 16,268 $ 15,730 Components of net periodic benefit cost: Service cost $ 427 $ 498 $ 494 Interest cost 911 1,170 1,126 Amortization of prior service cost (353) Recognized actuarial gain 32 Net periodic benefit cost $ 1,017 $ 1,668 $ 1,620 Weighted average assumptions: Discount rate 7.0% 7.0% 7.5% Rate of compensation increase 5.0% 5.0% 5.0% For measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to decrease gradually to 5.0% for 2005 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: 1% 1% Increase Decrease Effect on total of service and interest cost $ 166 $ (136) Effect on postretirement benefit obligation 1,413 (1,188) DEBT At year end, long-term debt consists of the following (in thousands): 1999 1998 Industrial revenue bond $ 900 $ 1,500 Revolving credit agreement 3,000 3,000 3,900 4,500 Less current maturities 600 600 $ 3,300 $ 3,900 The industrial revenue bond is collateralized by the Company's plant in Mt. Airy, North Carolina. Principal is payable in semiannual installments of $300,000. Interest is at 92% of the 90 day CD rate (4.3% at June 26, 1999). The revolving credit agreement consists of a $10,000,000 line due March 30, 2000 under which there were no borrowings at June 26, 1999 and a $10,000,000 line due March 30, 2001. The credit agreement is with two banks and requires commitment and other fees of .3%. Interest rates vary, but approximate LIBOR plus .33% (5.2% as of June 26, 1999). All debt agreements contain financial covenants, the most restrictive of which is that at June 26, 1999 the Company must have tangible net worth of $161,000,000. Annual principal payments on debt are required as follows: 2000, $600,000; 2001, $3,300,000. Current notes payable carry interest at a rate of LIBOR plus 4%. COMMON STOCK Class B Common Stock is identical to Class A except that it has 10 votes per share, is generally nontransferable except to lineal descendants, cannot receive more dividends than Class A, and can be converted to Class A at any time. Class A Common Stock is entitled to elect 25% of the directors to be elected at each meeting with the remaining 75% being elected by Class A and Class B voting together. In addition, the Company has a stockholder rights plan, adopted in 1990, to protect stockholders from attempts to acquire the Company on unfavorable terms not approved by the Board of Directors. Under certain circumstances, the plan entitles each Class A or Class B share to additional shares of the Company or an acquiring company, as defined, at a 50% discount to market. Generally, the rights will be exercisable if a person or group acquires 15% or more of the Company's outstanding shares. The rights trade together with the underlying common stock. They can be redeemed by the Company for $.01 per right and expire in the year 2000. The Company accounts for stock based compensation under the provisions of Accounting Principles Board Opinion No. 25. Under the Company's stock purchase plans, the purchase price of the optioned stock is 85% of the lower of the market price on the date the option is granted or the date it is exercised. Options become exercisable exactly two years from the date of grant and expire if not exercised. Therefore, no options are exercisable at the end of 1999, 1998, or 1997. A summary of option activity is as follows: Weighted Average Exercise Shares Shares Price Available On Option At Grant For Grant Balance, June 29, 1996 62,352 $19.45 694,868 Options granted 38,709 24.21 (38,709) Options exercised ($17.75 and $19.55) (28,368) 18.29 Options canceled (19,359) 19,359 Balance, June 28, 1997 53,334 22.92 675,518 Options authorized 800,000 Options granted 26,457 32.14 (26,457) Options exercised ($19.45 and ($21.89)(17,507) 20.49 Options canceled (16,484) (670,715) Balance, June 27, 1998 45,800 27.96 778,346 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 $24.63 748,117 At June 26, 1999, a total of 800,000 shares of common stock are reserved for issuance under the plans. The following information relates to outstanding options as of June 26, 1999: Weighted Average Exercise Price $24.63 Weighted Average Remaining Life 1.6 years Weighted Average fair value on grant date of options granted in: 1997 $7.50 1998 9.50 1999 7.50 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 - 15% to 21%, interest - 4.3% to 6.2%, 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: 1999 $250,000, 1998 $150,000 and 1997 $125,000, or approximately $.04, $.02, and $.02 per share. In addition 519,916 shares of common stock are reserved for the Company's 401(k) plan at June 26, 1999. Since inception in 1986, 978,393 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 26, 1999. Trade receivables are dispersed among a large number of retailers, distributors and industrial accounts in many countries. One customer accounted for approximately 11% of sales 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: 1999 1998 1997 Sales: North America $ 171,176 $ 187,925 $ 177,240 United Kingdom 33,249 35,642 35,653 Brazil 40,104 50,923 48,911 Eliminations and other (12,144) (12,150) (11,301) Total $ 232,385 $ 262,340 $ 250,503 Long-lived assets: North America $ 90,379 $ 79,612 United Kingdom 8,433 7,292 Brazil 7,661 11,563 Other 1,833 1,100 Total $ 108,306 $ 99,567 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 1997 $65,213 $20,734 $ 8,400 $ 5,413 $ 0.78 December 1997 68,637 23,266 9,432 6,392 0.93 March 1998 61,195 19,878 7,437 4,994 0.72 June 1998 67,295 21,871 8,853 6,210 0.91 $262,340 $85,749 $34,122 $23,009 $ 3.34 September 1998 $58,364 $17,143 $ 5,761 $ 3,916 $ 0.57 December 1998 60,890 18,695 6,556 4,513 0.65 March 1999 57,073 16,705 5,226 3,586 0.53 June 1999 56,058 18,858 6,083 4,681 0.69 $232,385 $71,401 $23,626 $16,696 $ 2.44 The Company's Class A Common Stock is traded on the New York Stock Exchange. Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company had no such changes in or disagreements with its independent auditors. PART III Item 10 - Directors and Executive Officers of the Registrant Directors The information concerning the Directors of the Registrant is contained on pages 1 through 4 in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 15, 1999, and is hereby incorporated by reference. Executive Officers of the Registrant Held Present Name Age Office Since Position Douglas R. Starrett 79 1995 Chairman and CEO and Director Douglas A. Starrett 47 1995 President and Director George B. Webber 78 1962 Vice President Webber Gage Division and Director James S. Carey 48 1997 Vice President Sales Roger U. Wellington, Jr. 58 1984 Treasurer and Chief Financial Officer and Director Steven A. Wilcox 44 1998 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. James S. Carey was previously Midwest Sales Manager of the Company. Except in the case of Steven Wilcox, the positions listed above represent their principal occupations and employment during the last five years. Steven Wilcox, elected clerk in 1997, has been a partner in Ropes & Gray, counsel for the Company, throughout that period. The President, Treasurer and Clerk hold office until the first meeting of the directors following the next annual meeting of stockholders and until their respective successors are chosen and qualified, and each other officer holds office until the first meeting of directors following the next annual meeting of stockholders, unless a shorter period shall have been specified by the terms of his election or appointment or, in each case, until he sooner dies, resigns, is removed or becomes disqualified. There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the past five years. Item 11 - Executive Compensation The information concerning management remuneration is contained on pages 4 through 10 in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 15, 1999 and, except for the information under the caption "Compensation Committee Report," is hereby incorporated by reference. Item 12 - Security Ownership of Certain Beneficial Owners and Management (a) Security ownership of certain beneficial owners: The information concerning a more than 5% holder of any class of the Company's voting shares is contained on page 4 of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 15, 1999, and is hereby incorporated by reference. (b) Security ownership of management: The information concerning the beneficial ownership of each class of equity securities by all directors, and all directors and officers of the Company as a group, is contained on pages 2 and 3 of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on September 15, 1999, 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 26, 1999 Consolidated Balance Sheets at June 26, 1999 and June 27, 1998 Consolidated Statements of Stockholders' Equity for the Three Years in the Period Ended June 26, 1999 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, 1998, filed with Form 10-Q for the quarter ended September 26, 1998, are hereby incorporated by reference. (4a) Loan Agreement and related documents, relative to $7,500,000 Industrial Revenue Bond financing dated as of September 1, 1985, between The Surry County Industrial Facilities and Pollution Control Financing Authority and The L.S. Starrett Company will be furnished to the Commission upon request. (4b) Common Stock Rights Agreement, dated as of June 6, 1990, between the Company and The First National Bank of Boston, as Rights Agent, including Form of Common Stock Purchase Rights Certificate and Summary Common Stock Purchase Rights, filed on June 13, 1990 with the Company's Form 8-A, is hereby incorporated by reference. (10a) $20,000,000 Amended and Restated Credit Agreement dated as of March 31, 1995, among The L.S. Starrett Company, The First National Bank of Boston and Wachovia Bank of Georgia, N.A. will be furnished to the Commission upon request. (21) Subsidiaries of the Registrant. See page 24. (23) Independent Auditors' Consent. See page 25. (27) Financial Data Schedule submitted herewith in electronic format. Exhibit 21 THE L.S. STARRETT COMPANY AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT JUNE 26, 1999 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 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 and No. 333-12997 of The L.S. Starrett Company, both on Form S-8, of our report dated July 30, 1999, appearing in the Annual Report on Form 10-K of The L.S. Starrett Company for the year ended June 26, 1999. S/DELOITTE & TOUCHE LLP Boston, Massachusetts September 13, 1999 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 13, 1999 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. 13, 1999 Douglas A. Starrett, Sept. 13, 1999 Chairman and CEO and Director President and Director S/ANDREW B. SIDES, JR. S/WILLIAM S. HURLEY Andrew B. Sides, Jr., Sept. 13, 1999 William S. Hurley, Sept. 13, 1999 Director Director S/RICHARD B. KENNEDY S/GEORGE B. WEBBER Richard B. Kennedy, Sept. 13, 1999 George B. Webber, Sept. 13, 1999 Director Vice President Webber Gage Division and Director S/STEVEN G. THOMSON S/ROGER U. WELLINGTON, JR. Steven G. Thomson, Sept. 13, 1999 Roger U. Wellington,Jr.,Sept.13, 1999 Chief Accounting Officer Treasurer and Chief Financial Officer and Director EX-27 2
5 1,000 YEAR JUN-26-1999 JUN-26-1999 271 16,933 38,365 2,361 78,041 137,422 143,498 69,644 245,728 24,322 3,300 0 0 6,706 183,330 245,728 232,385 232,385 160,984 160,984 0 0 465 23,626 6,930 16,696 0 0 0 16,696 2.44 2.44
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