UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒ | 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, 2015 |
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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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| Commission file number | 1-367 |
THE L. S. STARRETT COMPANY |
(Exact name of registrant as specified in its charter) |
MASSACHUSETTS |
| 04-1866480 |
(State or other jurisdiction of incorporation or organization) |
| (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 definitions of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One): |
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 |
| October 31, 2015 |
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Class A Common Shares |
| 6,240,805 |
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Class B Common Shares |
| 777,520 |
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1
THE L. S. STARRETT COMPANY
CONTENTS
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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, 2015 (unaudited) and June 30, 2015 | 3 | |
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| Consolidated Statements of Operations – three months ended September 30, 2015 and September 30, 2014 (unaudited) | 4 | |
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| Consolidated Statements of Comprehensive Loss – three months ended September 30, 2015 and September 30, 2014 (unaudited) | 5 | |
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| Consolidated Statements of Stockholders' Equity – three months ended September 30, 2015 (unaudited) | 6 | |
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| Consolidated Statements of Cash Flows - three months ended September 30, 2015 and September 30, 2014 (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 | 12-14 | |
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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 | 14 | |
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| Item 6. | Exhibits | 15 | |
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SIGNATURES | 16 | |||
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE L. S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands except share data)
September 30, 2015 (unaudited) | June 30, 2015 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 12,939 | $ | 11,108 | ||||
Short-term investments | 7,565 | 7,855 | ||||||
Accounts receivable (less allowance for doubtful accounts of $609 and $612, respectively) | 29,172 | 40,311 | ||||||
Inventories | 60,090 | 63,003 | ||||||
Current deferred income tax assets | 4,253 | 4,554 | ||||||
Prepaid expenses and other current assets | 6,777 | 6,582 | ||||||
Total current assets | 120,796 | 133,413 | ||||||
Property, plant and equipment, net | 42,867 | 44,413 | ||||||
Income taxes receivable | 3,209 | 3,383 | ||||||
Deferred income tax assets, net of current portion | 18,715 | 18,803 | ||||||
Intangible assets, net | 6,954 | 7,125 | ||||||
Goodwill | 3,034 | 3,034 | ||||||
Other assets | 2,149 | 2,101 | ||||||
Total assets | $ | 197,724 | $ | 212,272 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable and current maturities of long-term debt | $ | 1,534 | $ | 1,552 | ||||
Accounts payable | 8,853 | 9,471 | ||||||
Accrued expenses | 5,227 | 7,011 | ||||||
Accrued compensation | 4,325 | 5,565 | ||||||
Total current liabilities | 19,939 | 23,599 | ||||||
Long-term debt, net of current portion | 18,773 | 18,552 | ||||||
Other income tax obligations | 4,785 | 4,607 | ||||||
Deferred income tax liabilities | 1,520 | 1,548 | ||||||
Postretirement benefit and pension obligations | 48,838 | 49,536 | ||||||
Total liabilities | 93,855 | 97,842 | ||||||
Stockholders' equity: | ||||||||
Class A Common stock $1 par (20,000,000 shares authorized; 6,238,575 outstanding at September 30, 2015 and 6,223,558 outstanding at June 30, 2015) | 6,238 | 6,224 | ||||||
Class B Common stock $1 par (10,000,000 shares authorized; 780,776 outstanding at September 30, 2015 and 789,069 outstanding at June 30, 2015) | 781 | 789 | ||||||
Additional paid-in capital | 54,964 | 54,869 | ||||||
Retained earnings | 97,282 | 98,164 | ||||||
Accumulated other comprehensive loss | (55,396 | ) | (45,616 | ) | ||||
Total stockholders' equity | 103,869 | 114,430 | ||||||
Total liabilities and stockholders' equity | $ | 197,724 | $ | 212,272 | ||||
See Notes to Unaudited Consolidated Financial Statements
3
THE L. S. STARRETT COMPANY
Consolidated Statements of Operations
(in thousands except per share data) (unaudited)
3 Months Ended | ||||||||
9/30/2015 | 9/30/2014 | |||||||
Net sales | $ | 51,038 | $ | 60,172 | ||||
Cost of goods sold | 35,186 | 41,029 | ||||||
Gross margin | 15,852 | 19,143 | ||||||
% of Net sales | 31.1 | % | 31.8 | % | ||||
Selling, general and administrative expenses | 15,673 | 18,077 | ||||||
Operating income | 179 | 1,066 | ||||||
Other income | 303 | 675 | ||||||
Income before income taxes | 482 | 1,741 | ||||||
Income tax expense | 660 | 818 | ||||||
Net income (loss) | $ | (178 | ) | $ | 923 | |||
Basic and diluted income (loss) per share | $ | (0.03 | ) | $ | 0.13 | |||
Weighted average outstanding shares used in per share calculations: | ||||||||
Basic | 7,014 | 6,965 | ||||||
Diluted | 7,014 | 6,999 | ||||||
Dividends per share | $ | 0.10 | $ | 0.10 | ||||
See Notes to Unaudited Consolidated Financial Statements
4
THE L. S. STARRETT COMPANY
Consolidated Statements of Comprehensive Loss
(in thousands) (unaudited)
3 Months Ended | ||||||||
9/30/2015 | 9/30/2014 | |||||||
Net income (loss) | $ | (178 | ) | $ | 923 | |||
Other comprehensive loss: | ||||||||
Translation loss | (9,780 | ) | (6,948 | ) | ||||
Pension and postretirement plans, net of tax of $0 and $22 respectively | - | (22 | ) | |||||
Other comprehensive loss | (9,780 | ) | (6,970 | ) | ||||
Total comprehensive loss | $ | (9,958 | ) | $ | (6,047 | ) | ||
5
THE L. S. STARRETT COMPANY
Consolidated Statements of Stockholders' Equity
For the Three Months Ended September 30, 2015
(in thousands except per share data) (unaudited)
Common Stock Outstanding | Addi- tional Paid-in | Retained | Accumulated Other Com-prehensive | |||||||||||||||||||||
Class A | Class B | Capital | Earnings | Loss | Total | |||||||||||||||||||
Balance June 30, 2015 | $ | 6,224 | $ | 789 | $ | 54,869 | $ | 98,164 | $ | (45,616 | ) | $ | 114,430 | |||||||||||
Total comprehensive loss | (178 | ) | (9,780 | ) | (9,958 | ) | ||||||||||||||||||
Dividends ($0.10 per share) | (704 | ) | (704 | ) | ||||||||||||||||||||
Repurchase of shares | (6 | ) | (2 | ) | (99 | ) | (107 | ) | ||||||||||||||||
Issuance of stock | 14 | 192 | 206 | |||||||||||||||||||||
Stock-based compensation | 2 | 2 | ||||||||||||||||||||||
Conversion | 6 | (6 | ) | - | ||||||||||||||||||||
Balance September 30, 2015 | $ | 6,238 | $ | 781 | $ | 54,964 | $ | 97,282 | $ | (55,396 | ) | $ | 103,869 | |||||||||||
Accumulated balance consists of: | ||||||||||||||||||||||||
Translation loss | $ | (47,080 | ) | |||||||||||||||||||||
Pension and postretirement plans, net of taxes | (8,316 | ) | ||||||||||||||||||||||
| $ | (55,396 | ) | ||||||||||||||||||||||
See Notes to Unaudited Consolidated Financial Statements
6
THE L. S. STARRETT COMPANY
Consolidated Statements of Cash Flows
(in thousands) (unaudited)
3 Months Ended | ||||||||
9/30/2015 | 9/30/2014 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (178 | ) | $ | 923 | |||
Non-cash operating activities: | ||||||||
Depreciation | 1,558 | 1,996 | ||||||
Amortization | 333 | 317 | ||||||
Stock-based compensation | 144 | 125 | ||||||
Net long-term tax obligations | 433 | - | ||||||
Deferred taxes | 42 | 1,343 | ||||||
Unrealized transaction (gain) loss | 42 | (1 | ) | |||||
Income from equity method investment | (47 | ) | (47 | ) | ||||
Working capital changes: | ||||||||
Accounts receivable | 6,799 | 5,825 | ||||||
Inventories | (2,298 | ) | (3,457 | ) | ||||
Other current assets | (827 | ) | (1,219 | ) | ||||
Other current liabilities | (868 | ) | (1,012 | ) | ||||
Postretirement benefit and pension obligations | (271 | ) | (6 | ) | ||||
Other | (5 | ) | 170 | |||||
Net cash provided by operating activities | 4,857 | 4,957 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment | (2,003 | ) | (1,584 | ) | ||||
Software development | (162 | ) | (122 | ) | ||||
Purchase of investments | - | (28 | ) | |||||
Net cash used in investing activities | (2,165 | ) | (1,734 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from short-term borrowings | - | 921 | ||||||
Proceeds from long-term borrowings | 750 | - | ||||||
Long-term debt repayments | (547 | ) | (379 | ) | ||||
Proceeds from common stock issued | 64 | 66 | ||||||
Shares purchased | (107 | ) | (11 | ) | ||||
Dividends paid | (704 | ) | (697 | ) | ||||
Net cash used in financing activities | (544 | ) | (100 | ) | ||||
Effect of exchange rate changes on cash | (317 | ) | (1,033 | ) | ||||
Net increase in cash | 1,831 | 2,090 | ||||||
Cash, beginning of period | 11,108 | 16,233 | ||||||
Cash, end of period | $ | 12,939 | $ | 18,323 | ||||
Supplemental cash flow information: | ||||||||
Interest paid | $ | 163 | $ | 187 | ||||
Income taxes paid, net | 295 | 897 | ||||||
See Notes to Unaudited Consolidated Financial Statements
7
THE L. S. STARRETT COMPANY
Notes to Unaudited Consolidated Financial Statements
September 30, 2015
Note 1: Basis of Presentation and Summary of Significant Account Policies
The balance sheet as of June 30, 2015, which has been derived from audited financial statements, and the unaudited interim financial statements as of and for the three months ended September 30, 2015, 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, 2015. 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, 2015 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.
Note 2: Recent A ccounting 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, 2017 and for interim periods within those years and early adoption is not permitted. The Company expects to adopt this standard on July 1, 2018. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
Accounting Standards Update (ASU) 2015-11, "Inventory - Simplifying the Measurement of Inventory" requires companies to measure most inventory at the lower of cost or net realizable value, thereby simplifying the current guidance under which a company must measure inventory at the lower of cost or market. This Update eliminates the need to determine replacement cost and evaluate whether said cost is within a quantitative range. This Update also further aligns U.S. GAAP and international accounting standards. For public companies, the guidance in ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods thereafter. Early adoption is permitted. Management does not expect ASU 2015-11 to have a material impact on the Company's financial statements and disclosures.