UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the quarterly period ended |
September 30, 2014 |
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OR | ||
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from |
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to |
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Commission file number |
1-367 |
THE L. S. STARRETT COMPANY |
(Exact name of registrant as specified in its charter) |
MASSACHUSETTS |
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04-1866480 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
121 CRESCENT STREET, ATHOL, MASSACHUSETTS |
01331-1915 |
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code |
978-249-3551 |
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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. | |
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YES ☒ NO ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One): | |
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Large Accelerated Filer ☐ Accelerated Filer ☒ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | |
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YES ☐ NO ☒ |
Common Shares outstanding as of |
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October 31, 2014 |
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Class A Common Shares |
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6,188,480 |
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Class B Common Shares |
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784,058 |
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THE L. S. STARRETT COMPANY
CONTENTS
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Page No. | |
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Part I. |
Financial Information: |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets – September 30, 2014 (unaudited) and June 30, 2014 |
3 | |
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Consolidated Statements of Operations – three months ended September 30, 2014 and September 30, 2013 (unaudited) |
4 | |
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Consolidated Statements of Comprehensive Income (Loss) – three months ended September 30, 2014 and September 30, 2013 (unaudited) |
5 | |
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Consolidated Statements of Stockholders' Equity – three months ended September 30, 2014 and September 30, 2013 (unaudited) |
6 | |
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Consolidated Statements of Cash Flows - three months ended September 30, 2014 and September 30, 2013 (unaudited) |
7 | |
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Notes to Unaudited Consolidated Financial Statements |
8-12 | |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
13-14 | |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
14 | |
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Item 4. |
Controls and Procedures |
14 | |
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Part II. |
Other Information: |
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Item 1A. |
Risk Factors |
15 | |
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Item 6. |
Exhibits |
15 | |
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SIGNATURES |
16 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE L. S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands except share data)
September 30, 2014 (unaudited) |
June 30, 2014 |
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ASSETS |
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Current assets: |
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Cash |
$ | 18,323 | $ | 16,233 | ||||
Short-term investments |
8,295 | 8,723 | ||||||
Accounts receivable (less allowance for doubtful accounts of $700 and $704, respectively) |
35,298 | 43,712 | ||||||
Inventories |
65,968 | 65,582 | ||||||
Current deferred income tax assets |
4,671 | 6,037 | ||||||
Prepaid expenses and other current assets |
8,236 | 6,615 | ||||||
Total current assets |
140,791 | 146,902 | ||||||
Property, plant and equipment, net |
48,876 | 51,537 | ||||||
Long-term taxes receivable |
3,776 | 3,775 | ||||||
Long-term deferred income tax assets, net of current portion |
16,322 | 16,537 | ||||||
Intangible assets, net |
7,565 | 7,760 | ||||||
Goodwill |
3,034 | 3,034 | ||||||
Other assets |
1,945 | 1,898 | ||||||
Total assets |
$ | 222,309 | $ | 231,443 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Notes payable and current maturities of long-term debt |
$ | 11,485 | $ | 10,548 | ||||
Accounts payable |
11,298 | 9,980 | ||||||
Accrued expenses |
6,384 | 8,516 | ||||||
Accrued compensation |
5,160 | 6,642 | ||||||
Total current liabilities |
34,327 | 35,686 | ||||||
Long-term debt, net of current portion |
10,408 | 10,804 | ||||||
Other tax obligations |
2,863 | 3,013 | ||||||
Deferred tax liabilities |
2,027 | 2,037 | ||||||
Postretirement benefit and pension obligations |
42,934 | 43,589 | ||||||
Total liabilities |
92,559 | 95,129 | ||||||
Stockholders' equity: |
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Class A Common stock $1 par (20,000,000 shares authorized; 6,182,016 outstanding at September 30, 2014 and 6,165,838 outstanding at June 30, 2014) |
6,182 | 6,166 | ||||||
Class B Common stock $1 par (10,000,000 shares authorized; 787,109 outstanding at September 30, 2014 and 794,990 outstanding at June 30, 2014) |
787 | 795 | ||||||
Additional paid-in capital |
54,235 | 54,063 | ||||||
Retained earnings |
95,941 | 95,715 | ||||||
Accumulated other comprehensive loss |
(27,395 |
) |
(20,425 |
) | ||||
Total stockholders' equity |
129,750 | 136,314 | ||||||
Total liabilities and stockholders’ equity |
$ | 222,309 | $ | 231,443 |
See Notes to Unaudited Consolidated Financial Statements
THE L. S. STARRETT COMPANY
Consolidated Statements of Operations
(in thousands except per share data) (unaudited)
3 Months Ended |
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9/30/2014 |
9/30/2013 |
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Net sales |
$ | 60,172 | $ | 57,487 | ||||
Cost of goods sold |
41,029 | 39,678 | ||||||
Gross margin |
19,143 | 17,809 | ||||||
% of Net sales |
31.8 |
% |
31.0 |
% | ||||
Selling, general and administrative expenses |
18,077 | 17,073 | ||||||
Operating income |
1,066 | 736 | ||||||
Other income |
675 | 109 | ||||||
Income before income taxes |
1,741 | 845 | ||||||
Income tax expense |
818 | 629 | ||||||
Net income |
$ | 923 | $ | 216 | ||||
Basic and diluted income per share |
$ | 0.13 | $ | 0.03 | ||||
Weighted average outstanding shares used in per share calculations: |
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Basic |
6,965 | 6,895 | ||||||
Diluted |
6,999 | 6,931 | ||||||
Dividends per share |
$ | .10 | $ | .10 |
See Notes to Unaudited Consolidated Financial Statements
THE L. S. STARRETT COMPANY
Consolidated Statements of Comprehensive Income (Loss)
(in thousands) (unaudited)
3 Months Ended |
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9/30/2014 |
9/30/2013 |
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Net income |
$ | 923 | $ | 216 | ||||
Other comprehensive income (loss), net of tax: |
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Translation (loss) gain |
(6,948 |
) |
1,175 | |||||
Pension and postretirement plans |
(22 |
) |
(15 |
) | ||||
Other comprehensive (loss) income |
(6,970 |
) |
1,160 | |||||
Total comprehensive (loss) income |
$ | (6,047 |
) |
$ | 1,376 |
THE L. S. STARRETT COMPANY
Consolidated Statements of Stockholders' Equity
For the Three Months Ended September 30, 2014 and September 30, 2013
(in thousands except per share data) (unaudited)
Common Stock Outstanding |
Additional Paid-in |
Retained |
Accumulated Other Comprehensive |
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Class A |
Class B |
Capital |
Earnings |
Loss |
Total |
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Balance June 30, 2013 |
$ | 6,077 | $ | 750 | $ | 52,613 | $ | 91,778 | $ | (24,476 |
) |
$ | 126,742 | |||||||||||
Total comprehensive income |
216 | 1,160 | 1,376 | |||||||||||||||||||||
Dividends ($0.10 per share) |
(691 |
) |
(691 |
) | ||||||||||||||||||||
Issuance of stock under 1984 ESOP |
7 | 62 | 69 | |||||||||||||||||||||
Issuance of stock under 2013 ESOP |
76 | 697 | 773 | |||||||||||||||||||||
Issuance of stock for length of service awards |
5 | 54 | 59 | |||||||||||||||||||||
Stock-based compensation |
55 | 55 | ||||||||||||||||||||||
Conversion of class B to class A |
10 | (10 |
) |
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Balance September 30, 2013 |
$ | 6,099 | $ | 816 | $ | 53,481 | $ | 91,303 | $ | (23,316 |
) |
$ | 128,383 | |||||||||||
Balance June 30, 2014 |
$ | 6,166 | $ | 795 | $ | 54,063 | $ | 95,715 | $ | (20,425 |
) |
$ | 136,314 | |||||||||||
Total comprehensive income (loss) |
923 | (6,970 |
) |
(6,047 |
) | |||||||||||||||||||
Dividends ($0.10 per share) |
(697 |
) |
(697 |
) | ||||||||||||||||||||
Repurchase of shares |
(1 |
) |
(10 |
) |
(11 |
) | ||||||||||||||||||
Issuance of stock under 1984 ESOP |
4 | 62 | 66 | |||||||||||||||||||||
Issuance of stock for length of service awards |
5 | 71 | 76 | |||||||||||||||||||||
Stock-based compensation |
49 | 49 | ||||||||||||||||||||||
Conversion of class B to class A |
7 | (7 |
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- | ||||||||||||||||||||
Balance September 30, 2014 |
$ | 6,182 | $ | 787 | $ | 54,235 | $ | 95,941 | $ | (27,395 |
) |
$ | 129,750 | |||||||||||
Accumulated balance consists of: |
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Translation loss |
$ | (25,259 |
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Pension and postretirement plans, net of taxes |
(2,136 |
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$ | (27,395 |
) |
See Notes to Unaudited Consolidated Financial Statements
THE L. S. STARRETT COMPANY
Consolidated Statements of Cash Flows
(in thousands of dollars) (unaudited)
3 Months Ended |
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9/30/2014 |
9/30/2013 |
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Cash flows from operating activities: |
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Net income |
$ | 923 | $ | 216 | ||||
Non-cash operating activities: |
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Depreciation |
1,996 | 2,023 | ||||||
Amortization |
317 | 289 | ||||||
Stock-based compensation |
49 | 55 | ||||||
Issuance of stock for length of service awards |
76 | 59 | ||||||
Deferred taxes |
1,343 | 480 | ||||||
Unrealized transaction gain |
(1 |
) |
(5 |
) | ||||
Income on equity method investment |
(47 |
) |
(94 |
) | ||||
Working capital changes: |
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Accounts receivable |
5,825 | 4,481 | ||||||
Inventories |
(3,457 |
) |
(1,133 |
) | ||||
Other current assets |
(1,970 |
) |
(1,074 |
) | ||||
Other current liabilities |
(1,012 |
) |
(733 |
) | ||||
Postretirement benefit and pension obligations |
(6 |
) |
443 | |||||
Other |
799 | 230 | ||||||
Net cash provided by operating activities |
4,835 | 5,237 | ||||||
Cash flows from investing activities: |
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Additions to property, plant and equipment |
(1,584 |
) |
(1,451 |
) | ||||
Purchase of investments |
(28 |
) |
(26 |
) | ||||
Net cash used in investing activities |
(1,612 |
) |
(1,477 |
) | ||||
Cash flows from financing activities: |
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Proceeds from short-term borrowings |
921 | - | ||||||
Short-term debt repayments |
- | (15 |
) | |||||
Long-term debt repayments |
(379 |
) |
(1,887 |
) | ||||
Proceeds from common stock issued |
66 | 69 | ||||||
Shares purchased |
(11 |
) |
- | |||||
Dividends paid |
(697 |
) |
(691 |
) | ||||
Net cash used in financing activities |
(100 |
) |
(2,524 |
) | ||||
Effect of exchange rate changes on cash |
(1,033 |
) |
157 | |||||
Net increase in cash |
2,090 | 1,393 | ||||||
Cash, beginning of period |
16,233 | 19,755 | ||||||
Cash, end of period |
$ | 18,323 | $ | 21,148 | ||||
Supplemental cash flow information: |
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Interest paid |
$ | 187 | $ | 239 | ||||
Income taxes paid, net |
897 | 1,840 | ||||||
Supplemental disclosure of non-cash activities: |
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Issuance of stock under 2013 ESOP |
$ | - | $ | 773 |
See Notes to Unaudited Consolidated Financial Statements
THE L. S. STARRETT COMPANY
Notes to Unaudited Consolidated Financial Statements
September 30, 2014
Note 1: Basis of Presentation and Summary of Significant Account Policies
The balance sheet as of June 30, 2014, which has been derived from audited financial statements, and the unaudited interim financial statements have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2014. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year.
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes. Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2014 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.
Note 2: Recent Accounting Pronouncements
In May 2014, the FASB issued a new standard related to the “Revenue from Contracts with Customers” which amends the existing accounting standards for revenue recognition. The standard requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This standard is applicable for fiscal years beginning after December 15, 2016 and for interim periods within those years and early adoption is not permitted. The Company expects to adopt this standard on July 1, 2017. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
Accounting Standards Update 2013-11, Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists was approved by the FASB in July 2013 and requires that companies report their tax reserves net of the impact of tax loss and credit carryforwards by its year beginning after December 15, 2013. The Company has implemented this pronouncement in the first quarter of fiscal 2015 with retrospective application as permitted by the standard. Amounts presented for prior periods have been reclassified to conform. There is no effect on tax expense and net income. On the balance sheet, there is a reduction in deferred tax assets of $7.8 million and a reduction in Other Tax Obligations of $7.8M for all periods presented.
Note 3: Stock-based Compensation
On September 5, 2012, the Board of Directors adopted The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”). The 2012 stock plan was approved by shareholders October 17, 2012. The 2012 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2012 Stock Plan provides for the issuance of up to 500,000 shares of common stock.
Options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of September 30, 2014, there were 20,500 stock options and 44,967 restricted stock units outstanding. In addition, there were 431,800 shares available for grant under the 2012 Stock Plan as of September 30, 2014.
For the stock option grant the fair value of each grant was estimated at the date of grant using the Binomial Options pricing model. The Binomial Options pricing model utilizes assumptions related to stock volatility, the risk-free interest rate, the dividend yield and employee exercise behavior. Expected volatilities utilized in the model are based on the historic volatility of the Company’s stock price. The risk free interest rate is derived from the U.S. Treasury Yield curve in effect at the time of the grant. The expected life is determined using the average of the vesting period and contractual term of the options (Short-cut method).
The fair value of stock options issued during the 3 months ended September 30, 2014 of $3.82 was estimated using the following assumptions:
Risk-free interest rate |
1.0 |
% | ||
Expected life (years) |
6.0 | |||
Expected stock volatility |
52.3 |
% | ||
Expected dividend yield |
4.0 |
% |
The weighted average contractual term for stock options outstanding as of September 30, 2014 was 8.25 years. The aggregate intrinsic value of stock options outstanding as of September 30, 2014 was $0.1 million. Stock options exercisable as of September 30, 2014 were 6,833.
The Company accounts for RSU awards by recognizing the expense of the fair value ratably over vesting periods generally ranging from one year to three years. The related expense is included in selling, general and administrative expenses.
There were 39,500 RSU awards issued during the three months ended September 30, 2014. No RSUs vested during the three months ended September 30, 2014. The aggregate intrinsic value of RSU awards outstanding as of September 30, 2014 was $0.8 million. RSU awards granted and vested as of September 30, 2014 were 2,733.
On February 5, 2013, the Board of Directors adopted The L.S. Starrett Company 2013 Employee Stock Ownership Plan (the “2013 ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income. The plan is intended as an employee stock ownership plan within the meaning of Section 4975 (e) (7) of the Internal Revenue Code of 1986, as amended. U.S. employees who have completed a year of service as of December 31, 2012 were eligible to participate.
Compensation expense related to all stock based plans for the three month period ended September 30, 2014 and September 30, 2013 was $0.1 million and $0.1 million respectively. As of September 30, 2014, there was $0.7 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. The cost is expected to be recognized over a weighted average period of 2.34 years.
Note 4: Inventories
Inventories consist of the following (in thousands):
9/30/2014 |
6/30/2014 |
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Raw material and supplies |
$ | 31,960 | $ | 31,303 | ||||
Goods in process and finished parts |
19,400 | 19,148 | ||||||
Finished goods |
42,075 | 42,459 | ||||||
93,435 | 92,910 | |||||||
LIFO Reserve |
(27,467 |
) |
(27,328 |
) | ||||
Inventories |
$ | 65,968 | $ | 65,582 |
LIFO inventories were $14.9 million and $14.1 million at September 30, 2014 and June 30, 2014, respectively, or approximately $ 27.5 million and $ 27.3 million, respectively, less than their balances accounted for on a FIFO basis. The use of LIFO, as compared to FIFO, resulted in a $0.1 million increase in cost of sales for the three months ended September 30, 2014 compared to a $0.2 million decrease in the three months ended September 30, 2013.
Note 5: Goodwill and Intangible Assets
The Company’s acquisition of Bytewise in 2011 gave rise to a goodwill asset balance. The Company performed a qualitative analysis in accordance with ASU 2011-08 for its October 1, 2013 annual assessment of goodwill (commonly referred to as “Step Zero”). From a qualitative perspective, in evaluating whether it is more likely than not that the fair value of the reporting unit exceeds its respective carrying amount, relevant events and circumstances were taken into account, with greater weight assigned to events and circumstances that most affect the fair value or the carrying amounts of its assets. Items that were considered included, but were not limited to, the following: macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in management or key personnel. After assessing these and other factors the Company determined that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount as of October 1, 2013.
Amortizable intangible assets consist of the following (in thousands):
9/30/2014 |
6/30/2014 |
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Non-compete agreement |
$ | 600 | $ | 600 | ||||
Trademarks and trade names |
1,480 | 1,480 | ||||||
Completed technology |
2,358 | 2,358 | ||||||
Customer relationships |
4,950 | 4,950 | ||||||
Software development |
1,129 | 1,007 | ||||||
Other intangible assets |
325 | 325 | ||||||
Total |
10,842 | 10,720 | ||||||
Accumulated amortization |
(3,277 |
) |
(2,960 |
) | ||||
Total net balance |
$ | 7,565 | $ | 7,760 |
Amortizable intangible assets are being amortized on a straight-line basis over the period of expected economic benefit.
The estimated useful lives of the intangible assets subject to amortization are 14 years for trademarks and trade names, 8 years for non-compete agreements, 10 years for completed technology, 8 years for customer relationships and 5 years for software development.
The estimated aggregate amortization expense for the remainder of fiscal 2015 and for each of the next five years and thereafter, is as follows (in thousands):
2015 (Remainder of year) |
$ | 996 | ||
2016 |
1,328 | |||
2017 |
1,327 | |||
2018 |
1,258 | |||
2019 |
1,180 | |||
2020 |
626 | |||
Thereafter |
850 |
Note 6: Pension and Post-retirement Benefits
Net periodic benefit costs for the Company's defined benefit pension plans consist of the following (in thousands):
Three Months Ended |
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9/30/2014 |
9/30/2013 |
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Service cost |
$ | 694 | $ | 709 | ||||
Interest cost |
1,690 | 1,715 | ||||||
Expected return on plan assets |
(1,740 |
) |
(1,562 |
) | ||||
Amortization of prior service cost |
- | 29 | ||||||
Amortization of net loss |
7 | 3 | ||||||
$ | 651 | $ | 894 |
Net periodic benefit costs for the Company's postretirement medical plan and life insurance consists of the following (in thousands):
Three Months Ended |
||||||||
9/30/2014 |
9/30/2013 |
|||||||
Service cost |
$ | 28 | $ | 88 | ||||
Interest cost |
61 | 133 | ||||||
Amortization of prior service credit |
(200 |
) |
(126 |
) | ||||
$ | (111 | ) | $ | 95 |
The Company’s pension plans use fair value as the market-related value of plan assets and recognize net actuarial gains or losses in excess of ten percent (10%) of the greater of the market-related value of plan assets or of the plans’ projected benefit obligation in net periodic (benefit) cost as of the plan measurement date, which is the same as the fiscal year end of the Company. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of the accumulated other comprehensive income (loss).
Effective December 31, 2013, the Company terminated the eligibility of employees ages 55 -64 years old to enter into the Postretirement Medical Plan.
Note 7: Debt
Debt, including capitalized lease obligations, is comprised of the following (in thousands):
9/30/2014 |
6/30/2014 |
|||||||
Notes payable and current maturities of long term debt |
||||||||
Loan and Security Agreement |
$ | 11,326 | $ | 10,410 | ||||
Capitalized leases |
159 | 138 | ||||||
11,485 | 10,548 | |||||||
Long-term debt |
||||||||
Loan and Security Agreement |
10,364 | 10,726 | ||||||
Capitalized leases |
44 | 78 | ||||||
10,408 | 10,804 | |||||||
$ | 21,893 | $ | 21,352 |
The Company executed an amendment to its Loan and Security Agreement (Line of Credit) as of April 25, 2012. The Line of Credit is effective for three years commencing April 25, 2012 and expires on April 30, 2015 at which time the Company intends to negotiate an extension of the agreement. The agreement continues the previous line of $23.0 million, of which $12.2 million is available as of September 30, 2014, and interest rate of LIBOR plus 1.5%.
On May 9, 2013, the Company further amended the agreement to adjust the covenant for the current funded debt to EBITDA ratio from 1.45 to 1, to 2.25 to 1 for the fourth quarter of fiscal 2013 and the first quarter of fiscal 2014. Thereafter, and through the end of the agreement on April 30, 2015, the funded debt to EBITDA covenant returned to 1.45 to 1.
On December 23, 2013, the Company amended the loan agreement to reverse the portion of the May 9, 2013 agreement that called for the funded debt to EBITDA ratio to revert back to 1.45 to 1 from 2.25 to 1, beginning with the second quarter of fiscal 2014. Under this new agreement the maximum ratio of funded debt to EBITDA will remain 2.25 to 1 for the remaining term of the loan.
The material financial covenants of the amended Loan and Security Agreement are now: 1) funded debt to EBITDA, excluding non-cash and retirement benefit expenses (“maximum leverage”), not to exceed 2.25 to 1, 2) annual capital expenditures not to exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1 and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time.
The effective interest rate on the Line of Credit under the Loan and Security Agreement for the three months ended September 30, 2014 and 2013 was 2.0% and 2.0%, respectively.
On November 22, 2011, in conjunction with the Bytewise acquisition, the Company entered into a $15.5 million term loan (the “Term Loan”) under the existing Loan and Security Agreement with TD Bank N.A. The term loan is a ten year loan bearing a fixed interest rate of 4.5% and is payable in fixed monthly payments of principal and interest of $160,640. The term loan, which had a balance of $11.8 million at September 30, 2014, is subject to the same financial covenants as the Loan and Security Agreement.
The Company was in compliance with its debt covenants as of September 30, 2014.
Note 8: Income Tax
The Company is subject to U.S. federal income tax and various state, local and foreign income taxes in numerous jurisdictions. The Company’s domestic and foreign tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.
The Company provides for income taxes on an interim basis based on an estimate of the effective tax rate for the year. This estimate is reassessed on a quarterly basis. Discrete tax items are accounted for in the quarterly period in which they occur.
The tax expense for the first quarter of fiscal 2015 was $818,000 on a profit before tax of $1,741,000 (an effective tax rate of 47.0%). The tax expense for the first quarter of fiscal 2014 was $629,000 on a profit before tax for the quarter of $845,000 (an effective tax rate of 74.4%). The tax rate is higher than the U.S. statutory rate in part due to losses in some foreign jurisdictions for which no tax benefit is recognized. In the first quarter of fiscal 2015, there was a discrete reduction to tax expense of $75,000 related to use of tax loss carryforwards and the reduction of the tax liability for audits related to the expiration of the statute of limitations. In the first quarter of fiscal 2014 there was a discrete tax expense of $278,000 for the effect of a tax rate change in the UK applied to the net deferred tax assets in that jurisdiction.
U.S. Federal tax returns through fiscal 2010 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from years before fiscal 2011 are still subject to adjustment. As of September 30, 2014, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the years 2009 – 2014. The Company has identified no new uncertain tax positions during the three month period ended September 30, 2014 for which it is currently likely that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.
Accounting for income taxes requires estimates of future benefits and tax liabilities. Due to the temporary differences in the timing of recognition of items included in income for accounting and tax purposes, deferred tax assets or liabilities are recorded to reflect the impact arising from these differences on future tax payments. With respect to recorded tax assets, the Company assesses the likelihood that the asset will be realized by addressing the positive and negative evidence to determine whether realization is more likely than not to occur. If realization is in doubt because of uncertainty regarding future profitability, the Company provides a valuation allowance related to the asset to the extent that it is more likely than not that the deferred tax asset will not be realized. Should any significant changes in the tax law or the estimate of the necessary valuation allowance occur, the Company would record the impact of the change, which could have a material effect on our financial position.
No valuation allowance has been recorded for the Company’s domestic federal net operating loss (NOL) carry forwards. The Company continues to believe that due to forecasted future taxable income and certain tax planning strategies available, it is more likely than not that it will be able to utilize the U.S. federal NOL carryforwards. In certain other countries where company operations are in a loss position, the deferred tax assets for tax loss carryforwards and other temporary differences are fully offset by a valuation allowance.
Note 9: Contingencies
The Company is involved in certain legal matters which arise in the normal course of business. These matters are not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months Ended September 30, 2014 and September 30, 2013
Overview
The Company experienced strong revenue growth in North America and modest improvement in Europe while economic and political issues resulted in declines in South America. The Company is a multi-national whose financial performance is impacted by the geopolitical and economic issues around the world The Company’s diverse product lines and dispersed geographic locations tend to minimize the financial volatility in any one specific region or market. Net sales increased $2.7 million or 5%. Operating income improved $0.3 million as a $1.3 million gross margin improvement was partially offset by a $1.0 million increase in selling, general and administrative expenses. Net income improved from a $0.2 million or $0.03 per share to income of $0.9 million or $0.13 per share.
Net Sales
North American sales increased $3.4 million or 11% from $30.9 million in fiscal 2014 to $34.3 million in fiscal 2015. A 17% increase in precision measuring tools coupled with continued growth in vision, optical and laser system equipment shipments were the principal drivers for the North American sales performance. International sales declined $0.7 million or 3% from $26.6 million in fiscal 2014 to $25.9 million in fiscal 2015. An economic slowdown in Brazil and a weakening Brazilian Real more than offset gains in Europe and Asia.
Gross Margin
Gross margin improved $1.4 million with higher revenue representing growth of $0.8 million and margin improvement accounting for $0.6 million. North American fiscal 2015 gross margin of $10.5 million was a $1.6 million gain compared with fiscal 2014 principally due to lower costs for precision tools and a favorable product mix related to sales growth in higher margin metrology systems. International gross margins declined $0.2 million to $8.7 million primarily due to a weakening Brazilian Real.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.0 million or 6% as a result of strategic investments in selling and marketing expenses in key growth markets. North American expenses increased $0.3 million due to the addition of sales personnel to support the growth in our laser systems business. International selling expenses increased $0.7 million to support continued growth in our capital equipment and saw product lines in the domestic Chinese market.
Other Income
Other Income improved $0.6 million from $0.1 million in fiscal 2014 to $0.7 million in fiscal 2015 principally due to the stronger U. S. dollar as foreign subsidiaries dollar denominated assets, primarily accounts receivables related to export sales, translated higher balances in local currency.
Net Income (loss)
The Company recorded net income of $0.9 million or $0.13 per share in the first quarter of fiscal 2015 compared to a net income of $0.2 million or $0.03 per share in fiscal 2014 principally due to higher revenue and improved gross margins offsetting increased selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows (in thousands) |
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Three months Ended |
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|
9/30/2014 |
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|
9/30/2013 |
| ||
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|
|
|
|
| |||
Cash provided by operating activities |
|
$ |
4,835 |
|
$ |
5,237 |
||
Cash used in investing activities |
|
|
(1,612 |
) |
|
|
(1,477 |
) |
Cash used in financing activities |
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|
(100 |
) |
|
|
(2,524 |
) |
Effect of exchange rate changes on cash |
|
|
(1,033 |
) |
|
|
157 |
|
|
|
|
|
|
| |||
Net increase in cash |
|
$ |
2,090 |
|
$ |
1,393 |
Net cash increased $2.1 million as profits and improved working capital management were sufficient to offset outflows for capital equipment, debt, dividends and unfavorable currency exchanges rates. The $0.7 million improvement in cash flow compared to the same period one year ago was primarily due to improved profitability and reduced debt repayments.
Liquidity and Credit Arrangements
The Company believes it has sufficient liquidity and has the resources to fund its operations. In addition to its cash and investments, the Company maintains a $23 million line of credit in connection with its Loan and Security Agreement, of which, $9.9 million was outstanding as of September 30, 2014. Availability under the agreement is further reduced by open letters of credit totaling $0.6 million. The Loan and Security Agreement matures in April of 2015. The Loan and Security Agreement contains financial covenants with respect to leverage, tangible net worth, and interest coverage, and also contains customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions and fundamental corporate changes, and certain customary events of default. As of September 30, 2014, the Company was in compliance with all debt covenants related to its loan and Security Agreement. The Loan and Security Agreement expires on April 30, 2015 and the Company plans to negotiate an extension to the Agreement.
The effective interest rate on the short term borrowings under the Loan and Security Agreement during the three months ended September 30, 2014 was 2.0%.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in qualitative and quantitative disclosures about market risk from what was reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, under the supervision and with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, has evaluated the Company's disclosure controls and procedures as of September 30, 2014, and they have concluded that our disclosure controls and procedures were effective as of such date. All information required to be filed in this report was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on management’s evaluation of controls at our Bytewise subsidiary at June 30, 2014, management concluded that the Company did not design and maintain effective controls over revenue transactions and information technology system at that subsidiary. Therefore, material weaknesses in the design and operating effectiveness of the internal control over revenue transactions and information technology system at Bytewise exist. As a result, management has concluded that the Company’s internal control over financial reporting was not effective as of June 30, 2014 and continues to be not effective as of September 30, 2014.
Management’s remediation of the material weakness that existed as of June 30, 2014, and which was noted in Item 9A of the Company’s 2014 Annual Report on Form 10-K filed on September 10, 2014, is not complete as of September 30, 2014.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q contains forward-looking statements about the Company’s business, competition, sales, expenditures, foreign operations, plans for reorganization, 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 securities analysts and investors. The Company is subject to risks that could cause actual events to vary materially from such forward-looking statements. You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Form 10-K for the year ended June 30, 2014. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2014.
ITEM 6. EXHIBITS
31a |
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. |
31b |
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. |
32 |
Certifications of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
10.1 |
The L.S. Starrett Company 2012 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.2 to The L.S. Starrett Company’s Registration Statement on Form S-8 (File No. 333-184934) filed November 14, 2012). |
10.2 |
Form of Restricted Stock Unit Agreement under The L.S. Starrett Company 2012 Long-Term Incentive Plan |
101 |
The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders' Equity, (v)the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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THE L. S. STARRETT COMPANY (Registrant) |
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Date |
November 5, 2014 |
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/S/R. Douglas A. Starrett |
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Douglas A. Starrett - President and CEO (Principal Executive Officer) |
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Date |
November 5, 2014 |
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/S/R. Francis J. O’Brien |
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Francis J. O’Brien - Treasurer and CFO (Principal Accounting Officer) |
16
EXHIBIT 10.2
Name: |
[ ] |
Number of Restricted Stock Units: |
[ ] |
Date of Grant: |
[ ] |
The L.S. Starrett Company
2012 Long-Term Incentive Plan
Restricted stock unit Agreement
This Restricted Stock Unit Agreement (the “Agreement”), is made, effective as of the [ ] day of [ ] (the “Grant Date”) between The L.S. Starrett Company (the “Company”), and [ ] (the “Participant”).
1. Restricted Stock Unit Award. The Participant is hereby awarded, pursuant to The L.S. Starrett Company 2012 Long-Term Incentive Plan (as amended from time to time, the “Plan”), and subject to its terms, a Restricted Stock Unit award (the “Award”) giving the Participant the conditional right to receive, without payment but subject to the conditions and limitations set forth in this Agreement and in the Plan, [ ] shares of common stock of the Company, par value $1.00 per share (the “Shares”), subject to adjustment pursuant to Section 7 of the Plan in respect of transactions occurring after the date hereof.
2. Vesting. Unless earlier terminated, relinquished or expired, the Award will vest in accordance with the terms of Schedule A attached hereto. Notwithstanding anything contained in Schedule A attached hereto, immediately prior to a “Change of Control,” as such term is defined in the Change of Control Agreement between the Participant and the Company, dated July 15, 2010, the Award shall be fully vested.
3. Delivery of Shares. The Company shall, as soon as practicable upon the vesting of any portion of the Award (but in no event later than March 15 of the year following such vesting) effect delivery of the Shares with respect to such vested portion to the Participant (or, in the event of the Participant’s death, to the Beneficiary). No Shares will be issued pursuant to this Award unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Administrator.
4. Dividends; Other Rights. The Award shall not be interpreted to bestow upon the Participant any equity interest or ownership in the Company or any Affiliate prior to the date on which the Company delivers Shares to the Participant. The Participant is not entitled to vote any Shares by reason of the granting of this Award or to receive or be credited with any dividends declared and payable on any Share prior to the date on which such Shares are delivered to the Participant hereunder. The Participant shall have the rights of a shareholder only as to those Shares, if any, that are actually delivered under this Award.
5. Recovery of Compensation.
(a) The Administrator may cancel, rescind, withhold or otherwise limit or restrict the Award at any time if the Participant is not in compliance with all applicable provisions of this Agreement and the Plan.
(b) The Award is subject to Section 6(a)(5) of the Plan. The Shares acquired hereunder are subject to forfeiture, termination and rescission, and the Participant will be obligated to return to the Company the value received with respect to the Shares (including any gain realized on any subsequent sale or disposition of Shares) (i) in accordance with Company policy relating to the recovery of erroneously-paid incentive compensation, as such policy may be amended and in effect from time to time, or (ii) as otherwise required by law or applicable stock exchange listing standards, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act.
6. Certain Tax Matters. The Participant expressly acknowledges that because this Award consists of an unfunded and unsecured promise by the Company to deliver Shares in the future, subject to the terms hereof, it is not possible to make a so-called “83(b) election” with respect to the Award. The Participant expressly acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued Shares upon the vesting and settlement of the Award (or any portion thereof), are subject to the Participant’s promptly paying, or in respect of any later requirement of withholding being liable promptly to pay at such time as such withholdings are due, to the Company in cash (or by such other means as may be acceptable to the Administrator in its discretion, including, without limitation, if permitted by applicable law and Company policy and if approved by the Compensation Committee of the Company, withholding of Shares from the Shares otherwise deliverable to the Participant, up to the greatest number of whole Shares with an aggregate fair market value not exceeding the minimum required withholding applicable to the amount so vesting) all taxes required to be withheld, if any. No Shares will be required to be transferred pursuant to the vesting and settlement of the Award (or any portion thereof) unless and until the Participant or the person then holding the Award has remitted to the Company an amount in cash sufficient to satisfy any federal, state, or local requirements with respect to tax withholdings then due and has committed (and by holding this Award the Participant shall be deemed to have committed) to pay in cash all tax withholdings required at any later time in respect of the transfer of such Shares, or has made other arrangements satisfactory to the Administrator with respect to such taxes. The Participant also authorizes the Company and its subsidiaries to withhold such amounts from any amounts otherwise owed to the Participant, but nothing in this sentence shall be construed as relieving the Participant of any liability for satisfying his or her obligations under the preceding provisions of this Section.
7. Nontransferability. The Award may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
8. Effect on Employment or Service Rights. Neither the grant of this Award, nor the delivery of Shares under this Award in accordance with the terms of this Agreement, shall give the Participant any right to be retained in the employ or service of the Company or its Affiliates, affect the right of the Company or its Affiliates to discharge or discipline such Participant at any time, or affect any right of such Participant to terminate his or her Employment at any time.
9. Amendments. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing.
10. Governing Law. This Agreement and all claims or disputes arising out of or based upon this Agreement or relating to the subject matter hereof will be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.
11. Definitions. Initially capitalized terms not otherwise defined herein shall have the meaning provided in the Plan, and, as used herein, the following terms shall have the meanings set forth below:
“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.
“Beneficiary” means, in the event of the Participant’s death, the beneficiary named in the written designation (in form acceptable to the Administrator) most recently filed with the Administrator by the Participant prior to the Participant’s death and not subsequently revoked, or, if there is no such designated beneficiary, the executor or administrator of the Participant’s estate. An effective beneficiary designation will be treated as having been revoked only upon receipt by the Administrator, prior to the Participant’s death, of an instrument of revocation in form acceptable to the Administrator.
“Person” shall mean any individual, partnership, corporation, association, trust, joint venture, unincorporated organization or other entity.
12. General. For purposes of this Award and any determinations to be made by the Administrator hereunder, the determinations by the Administrator shall be binding upon the Participant and any transferee.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
By acceptance of the Award, the undersigned agrees to be subject to the terms of the Plan. The Participant further acknowledges and agrees that (i) the signature to this Agreement on behalf of the Company is an electronic signature that will be treated as an original signature for all purposes hereunder and (ii) such electronic signature will be binding against the Company and will create a legally binding agreement when this Agreement is countersigned by the Participant.
Executed as of the [ ] day of [ ].
Company: |
THE L.S. STARRETT COMPANY |
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By: |
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Name: |
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Title: |
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Participant: | |||
Name: | |||
Address: |
Schedule A
Vesting Schedule
[ ] Shares of the Award will be subject to the time-based vesting provisions set out in Section I below (“Time-Based Award”) and [ ] Shares of the Award will be subject to the performance-based vesting provisions set out in Section II below (“Performance-Based Award”), in each case, in accordance with the terms of this Agreement, including Schedule A, and the Plan.
I. |
Time-Based Award. |
The Time-Based Award, unless earlier terminated or forfeited, shall vest as to one-third (1/3rd) of the total number of Shares subject to the Time-Based Award on each of the first, second, and third anniversaries of the Grant Date, subject to the Participant remaining in continuous Employment on the applicable vesting date.
II. |
Performance-Based Award. |
The Performance-Based Award, unless earlier terminated or forfeited, shall become eligible to vest upon the Company’s achievement of 100% of its targeted fiscal year 2015 operating income budget (“2015 Performance Target”), as determined by the Board in its sole discretion, and shall thereafter vest in accordance with the following schedule:
(a) |
Fifty percent (50%) of the Performance-Based Award shall vest on the date the Company files its fiscal year 2015 Annual Report on Form 10-K (the “2015 Form 10-K Filing Date”); and |
(b) |
Fifty percent (50%) of the Performance-Based Award shall vest on the one-year anniversary of the 2015 Form 10-K Filing Date; |
subject, in each case, to the Participant remaining in continuous Employment on the applicable vesting date. For the avoidance of doubt, if the Company does not achieve the 2015 Performance Target, the Performance-Based Award shall not become vested, and shall instead become cancelled with no consideration due to the Participant.
EXHIBIT 31.a
CERTIFICATIONS
I, Douglas A. Starrett, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of The L.S. Starrett Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 5, 2014 |
/S/ |
Douglas A. Starrett |
Douglas A. Starrett |
EXHIBIT 31.b
CERTIFICATIONS
I, Francis J. O’Brien, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of The L.S. Starrett Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 5, 2014 |
/S/ |
Francis J. O’Brien |
Francis J. O’Brien |
EXHIBIT 32
CERTIFICATIONS
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of The L.S. Starrett Company, a Massachusetts corporation (the "Company"), does hereby certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date |
November 5, 2014 |
/S/ Douglas A. Starrett | |
Douglas A. Starrett | |||
Date |
November 5, 2014 |
/S/ Francis J. O’Brien | |
Francis J. O’Brien |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to The L.S. Starrett Company and will be retained by The L.S. Starrett Company and furnished to the Securities and Exchange Commission or its staff upon request.
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