UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(check one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 26, 2004
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).
Yes X No ____
The Registrant had 5,360,457 and 1,288,613 shares, respectively, of its $1.00
par value Class A and B common stock outstanding on December 27, 2003. On that
date, the aggregate market value of the common stock held by nonaffiliates was
approximately $116,000,000.
The exhibit index is located on page 34.
Documents incorporated by reference
Definitive Proxy Statement dated September 10, 2004 - 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, electronic gages, dial
indicators, gage blocks, granite surface plates, vision systems, optical
measuring projectors, tape measures, levels, chalk products, squares, band
saw blades, hole saws, hacksaw blades, jig saw blades, reciprocating saw
blades, vises, M1r lubricant, and precision ground flat stock and drill rod.
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 to 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-yourselfers and tradesmen such as builders, carpenters, plumbers and
electricians. One retailer, Sears, accounted for approximately 12% of the
Company's sales in fiscal 2004, and the Company's top three customers
accounted for approximately 25% of sales. The Company expects to wind down and
eventually end its relationship with W.W.Grainger, one of the three customers,
during fiscal 2005. The effect this will have on total Company sales and
profits is unknown since much of the Grainger business is expected to be
picked up by other Company distributors, although no such assurances can be
made.
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, 2004, the Company had 2,050 employees, approximately 65% of whom
were domestic. None of the Company's operations are subject to collective
bargaining agreements. In general, the Company considers its relations with
its employees to be excellent. Because of various stock ownership plans,
Company domestic personnel hold a large share of Company stock and the Company
believes that 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, 2004, there were no material changes in the
Company's competitive position. However, during recent years, the Company's
revenues have been negatively affected by the general migration of
manufacturing to low cost production areas, such as China, where the Company
does not have a substantial market presence. In addition, margins on the
Company's consumer products, such as tape measures and levels, are under
constant pressure due to the increasing market dominance of the large national
home and hardware retailers.
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 market for most of the Company's products is subject to economic
conditions affecting the industrial manufacturing sector, including the of
capital spending by industrial companies.
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. Subsidiaries in
Australia, Mexico and Germany are engaged in distribution of the Company's
products. The Company is in the process of establishing manufacturing
operations in the Dominican Republic. The Company expects its foreign
subsidiaries to continue to play a significant role in its overall operations.
A summary of the Company's foreign operations is contained in the footnotes to
the Company's fiscal 2004 financial statements under the caption "OPERATING
DATA" found in Item 8 of this Form 10-K 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 $43.3 million at June 26, 2004, and $54.0 at June 28,
2003. The Company uses the last-in, first-out (LIFO) method of valuing most
domestic inventories (approximately two thirds of all inventories). LIFO
inventory amounts reported in the financial statements are approximately $20
million lower than if determined on a first-in, first-out (FIFO) basis.
When appropriate, the Company applies 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 2004, 2003 and 2002 were approximately $3.0 million, $2.9
million, and $2.7 million, respectively, all of which was expensed in the
Company's financial statements.
The Company uses trademarks with respect to its products. All of its
important trademarks are registered.
Compliance with federal, state and local provisions that have been enacted or
adopted regulating the discharge of materials into the environment or
otherwise relating to protection of the environment is not expected to have a
material effect on the capital expenditures, earnings and competitive position
of the Company. Specifically, the Company has taken steps to reduce and
control water discharges and air emissions.
The Company's business is to a small extent seasonal, with sales and earnings
generally at the lowest level during the first and third quarters of the
fiscal year.
Where To Find More Information
The Company makes its public filings with the Securities and Exchange
Commission ("SEC"), including its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and
amendments to these reports, available free of charge at its website,
www.starrett.com, as soon as reasonably practicable after the Company files
such material with the SEC. Information contained on the Company's website is
not part of this report.
Item 2 - Properties
The Company's principal plant is located in Athol, Massachusetts on about 15
acres of Company-owned land. The plant consists of 25 buildings, mostly of
brick construction of varying dates, with approximately 535,000 square feet of
production and storage area. An additional 9,000 square feet of leased space
in Gardner, Massachusetts is considered part of this plant.
The Webber Gage Division, Cleveland, Ohio, owns and occupies two buildings
totaling approximately 50,000 square feet.
The Company-owned facility in Mt. Airy, North Carolina consists of two
buildings totaling approximately 356,000 square feet. It is occupied by the
Company's Saw Division, Granite Surface Plate Division, Coordinate Measuring
Machine/Optical Comparator Division, and Ground Flat Stock Division.
The Company's Evans Rule Division, located in North Charleston, South
Carolina, owns and occupies a 173,000 square foot building. In addition, this
division leases 35,000 square feet of manufacturing space in Mayaguez, Puerto
Rico.
The Company's Exact Level Division is in the process of relocating to a 29,000
square foot facility in the Dominican Republic and its 50,000 square foot
building located in Alum Bank, Pennsylvania is currently for sale.
The Company's subsidiary in Itu, Brazil owns and occupies several buildings
totaling 209,000 square feet. The Company's subsidiary in Jedburgh, Scotland
owns and occupies a 187,000 square foot building. Its wholly owned subsidiary,
which manufactures optical measuring projectors and was previously located in
Skipton, England, was consolidated into the Jedburgh plant during fiscal 2004.
Its 33,000 square foot building in Skipton was sold subsequent to fiscal 2004
year end. Two wholly owned subsidiaries in the Shanghai area of the People's
Republic of China lease approximately 40,000 square feet and 2,000 square
feet.
In addition, the Company operates warehouses and/or sales-support offices in
Arizona, Illinois, Georgia, Canada, Australia, Mexico, Germany, Japan, and
Argentina.
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
In August 2004, the Company reached a settlement with the U.S. Department of
Justice resulting in the termination of the Government's two-year
investigation of the Company's Coordinate Measuring Machine (CMM) Division
located in Mount Airy, North Carolina and the dismissal with prejudice of
the allegations in the qui tam complaint investigated by the government. The
qui tam complaint, which prompted the Government's investigation, was filed
under seal in March 2002 and was brought by a former independent contractor
and former employee of the Company. The Company first became aware of the
Government's investigation in September 2002, when the Government searched
the Company's Mount Airy facility. In recent years, the division has
accounted for less than 3% of the Company's total sales. Under the terms of
the settlement, the Company will pay the Government $500,000, and the
Government and the qui tam relators will release the Company and its
officers, directors, employees and shareholders from the causes of action in
the complaint that were the subject of the Government's investigation. The
Company cooperated with the Government throughout its investigation, and has
agreed to settle this matter solely to avoid the delay, expense,
inconvenience and uncertainty of protracted litigation. In this regard, the
Company denies and contests the allegations in the complaint, denies any
wrongdoing in connection with those allegations, and notes that the
Government itself, notwithstanding two years of investigation, intervened in
this action only for the purposes of settlement and dismissing the qui tam
action as described above. In addition, the United States Attorney for the
District of Massachusetts in early August 2004 informed the Company in
writing that, based on the facts known to the Office of the United States
Attorney, the United States Attorney's Office does not intend to seek
criminal charges against the Company or its CMM Division in connection with
allegations arising out of, or relating to, the manufacture, sale or service
of CMMs.
The Company is named as a defendant from time to time in other litigation`
in the ordinary course of business that is not considered material to its
financial condition or operations.
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, 2004.
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 Company'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 Company has
paid the same dividends thereon as have been paid on the Class A common stock
since that date. On July 23, 2004, there were 1,946 registered holders of
Class A common stock and 1,568 registered holders of Class B common stock.
Quarter ended Dividends High Low
September 2002 $ 0.20 $ 25.30 $ 15.28
December 2002 0.20 17.60 13.80
March 2003 0.20 17.10 12.45
June 2003 0.10 14.60 11.63
September 2003 0.10 15.36 12.78
December 2003 0.10 17.63 13.83
March 2004 0.10 17.36 15.05
June 2004 0.10 16.47 14.75
Summary of Stock Repurchases:
A summary of the Company's repurchases of shares of its common stock for the
three months ended June 26, 2004 is as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Shares Purchased Shares yet to be
Shares Average Under Announced Purchased Under
Period Purchased Price Programs Announced Programs
3/28/04-
5/1/04 none none
5/2/04-
5/29/04 none none
5/30/04-
6/26/04 none none
Item 6 - Selected Financial Data
Years ended in June ($000 except per share data)
2004 2003 2002 2001 2000
Net sales $179,996 $175,711 $184,346 $225,857 $235,169
Earnings (loss) before
change in accounting (2,352) (4,489) (380) 8,097 11,489
Net earnings(loss) (2,352) (10,575) (380) 8,097 11,489
Basic earnings(loss)per share (.35) (1.60) (.06) 1.26 1.73
Diluted earnings(loss)per shr. (.35) (1.60) (.06) 1.25 1.73
Long-term debt 2,536 2,652 7,000 7,000 3,000
Total assets 218,924 219,740 239,097 248,532 250,418
Dividends per share 0.40 0.70 0.80 0.80 0.80
Items 7 and 7A- Management's Discussion and Analysis of Financial Condition
and Results of Operations and Quantitative and Qualitative
Disclosure about Market Risk
RESULTS OF OPERATIONS
2004 versus 2003
Overview As more fully discussed below, for fiscal 2004 the Company incurred
a net loss of $2.4 million, or $.35 per basic and diluted share, compared to
a net loss of $10.6 million, or $1.60 per basic and diluted share, for 2003.
A significant portion of the losses in both years was caused by the charges
incurred in connection with the government's investigation of the CMM
division and related matters discussed in more detail below: in 2004, $2.9
million after tax or $.43 per share; and in 2003, $2.3 million or $.35 per
share. Fiscal 2003 also included the writeoff of $6.1 million of goodwill
(as discussed in the notes to the financial statements), or $.92 per share
before and after tax; and fiscal 2004 contains $.6 million after tax ($.09
per share) of relocation and closure expenses related to our Skipton,
England and Alum Bank, Pennsylvania manufacturing facilities. These unusual
charges were offset by LIFO inventory liquidation benefits of $1.0 million
and $.6 million after tax in 2004 and 2003 ($.15 and $.09 per share).
Excluding all these unusual items, the Company had pro forma net income in
2004 of $.2 million, or $.02 per share, compared to a pro forma net loss of
$2.8 million, or $.42 per share, in 2003.
Sales Sales for fiscal 2004 increased 2% compared to 2003. Domestic sales
are down 2% and foreign sales are up 12%. In local currency, foreign sales
are down 2%, because the U.S. dollar has been weakening. Although domestic
sales are down for the full year comparison, the quarter to quarter trend
was up in fiscal 2004 whereas the trend was down in fiscal 2003. Domestic
sales in the last six months of fiscal 2004 were 10% higher than in the last
six months of fiscal 2003, reflecting improvement in the U.S. industrial
manufacturing sector.
Loss before taxes and cumulative effect of change in accounting principle
Excluding the effect in 2003 of the change in accounting principle mentioned
above, the pretax losses for fiscal years 2004 and 2003 were $4.9 million
and $8.1 million, respectively. Both periods contain unusual charges related
to the CMM division: in the current fiscal year, $3.2 million to write down
the CMM inventory to net realizable value and $1.4 million for settlement
expenses and additional professional fees in connection with concluding the
government investigation (see below); and, in the prior fiscal year, $3.7
million in connection with the government investigation ($2.1 million of
this was charged to selling and general expense and $1.6 million to cost of
sales). In addition, the Company incurred $1.0 million in fiscal 2004 for
severance, training, and relocation/closure expenses related to its Skipton,
England and Alum Bank, Pennsylvania manufacturing facilities. Excluding the
CMM division charges in both years and the relocation expenses in 2004, the
Company had pretax income of $.7 million in fiscal 2004 and a pretax loss of
$4.4 million in fiscal 2003, a $5.1 million improvement. The major items
causing the $5.1 million improvement were lower ($.6 million) exchange
losses, primarily in Brazil, and better gross margins (26.4% compared to
22.9% or $6.3 million excluding the unusual charges as discussed above). The
gross margin improvement of over 3 percentage points is due primarily to
lower headcount, higher domestic production levels and associated increase
in overhead absorption, and LIFO inventory liquidation benefits of $1.6
million in fiscal 2004 compared to $.9 million in fiscal 2003. These items
were partially offset by higher interest expense ($.3 million) in Brazil due
to borrowing in local currency and an overall $2.4 million increase in
selling and general expense (excluding the expense of the government
investigation) caused primarily by the effect of the weakening U.S. dollar
on the translation of expenses into U.S. dollars in Scotland and Brazil.
Also contributing to this $2.4 million increase in selling and general
expense were higher domestic fringe benefit and insurance costs, mainly
retirement.
Income Taxes The effective income tax rate was 52% for fiscal 2004 and 44%
for 2003. Puerto Rico tax incentives, and somewhat lower foreign income tax
rates all contribute to an overall effective tax rate that is normally
slightly lower than the combined U.S. state and federal rate of
approximately 38%. The large change in effective rate comes about because
pretax results are close enough to breakeven in both years that permanent
book/tax differences and jurisdictional tax rate differentials have an
exaggerated effect when converted to percentages. Because of losses, the
rates are relatively high compared to our normal rate of about 35% because
the least profitable operations are located in the jurisdictions with the
highest tax rates.
Loss per share The following table summarizes the after tax effect of the
goodwill writeoff, the CMM investigation, plant relocations, and LIFO
inventory liquidation benefits:
2004 2003
$000 per shr $000 per shr
Net loss as reported $ (2,352) $ (0.35) $(10,575) $ (1.60)
Remove unusual items:
Goodwill writeoff 6,086 0.92
CMM inventory and
Investigation 2,883 0.43 2,294 0.35
Plant relocations 620 0.09
Remove unusual benefits:
LIFO inventory reductions (980) (0.15) (575) (0.09)
Adjusted net income (loss) $ 171 $ 0.02 $ (2,770) $ (0.42)
2003 versus 2002
Overview As more fully discussed below, for fiscal 2003 the Company
incurred a net loss of $10.6 million, or $1.60 per basic and diluted share,
compared to a net loss of $.4 million, or $.06 per share, for 2002. A
significant portion of the fiscal 2003 loss was caused by two unusual
charges: the writeoff of $6.1 million, or $.92 per share before and after
tax, of goodwill (as discussed in the notes to the financial statements) and
a $2.3 million, or $.35 per share, after tax provision in connection with
the government investigation of the Company's CMM division (see below).
These 2003 charges were partially offset by LIFO inventory liquidation
benefits of $.6 million after tax ($.09 per share), which did not occur in
2002. Excluding these unusual items, the Company incurred a net loss for
2003 of $2.8 million, or $.42 per share, compared to a net loss of $.4
million, or $.06 per share, in 2002.
Sales Sales for 2003 decreased 5% compared to 2002. Domestic sales were
down 7% and foreign sales were up 2%. In local currency, foreign sales were
up 14%, primarily because of the devaluation of Brazil's currency. The
decrease in domestic sales reflects the continued weak U.S. industrial
manufacturing sector, particularly in the third quarter of fiscal 2003, and
lower first quarter 2003 shipments to a major consumer products customer as
they rebalanced their inventories.
Loss before taxes and cumulative effect of change in accounting principle
Results for the year, before the cumulative effect of the change in
accounting principle for goodwill (see footnotes regarding adoption of SFAS
142) were down $6.9 million from 2002. $3.7 million of this decrease ($.35
per share after tax) relates to charges taken in connection with the
Company's CMM division as further described below. Excluding the goodwill
writeoff and CMM division charges, cost of sales was 77.1% of sales compared
to 75.6% in 2002 and pretax results were down $3.2 million. The major items
causing the decrease in earnings were lower sales (approximately $2.5
million), increased domestic fringe benefit and insurance costs, mainly
retirement ($1.0 million), additional reserves for slow moving inventory
($.9 million) and the effect on unabsorbed overhead ($3.0 to $4.0 million)
of production levels being about 15% below sales as the Company continues to
reduce inventories. These cost increases were partially offset by headcount
and other cost reduction measures ($3.5 million), LIFO layer liquidation
profits ($.9 million) and the elimination of goodwill amortization ($.3
million).
Income Taxes The effective income tax rate before goodwill writeoff was 44%
for fiscal 2003 and 69% for 2002. The large change in effective rate comes
about because pretax results are close enough to breakeven in both years
that permanent book/tax differences and jurisdictional tax rate
differentials have an exaggerated effect when converted to percentages.
Because of losses, the rates are relatively high compared to our normal rate
of about 35% because the least profitable operations have been in the
jurisdictions with the highest tax rates.
Net loss per share Basic and diluted net loss per share was $1.60 for 2003.
Excluding the $.35 related to the CMM division charges and the $.92 related
to the writeoff of goodwill, the net loss was $.33 per share compared to a
net loss of $.06 per share a year ago.
Coordinate Measuring Machine (CMM) division
In August 2004, the Company reached a settlement with the U.S. Department of
Justice resulting in the termination of the Government's two-year
investigation of the Company's CMM Division located in Mount Airy, North
Carolina and the dismissal with prejudice of the allegations in the qui tam
complaint investigated by the government. The qui tam complaint, which
prompted the Government's investigation, was brought by a former independent
contractor and former employee of the Company. The division manufactures
and sells coordinate measuring machines and accounts for less than 2% of the
Company's sales. Under the terms of the settlement, the Company will pay the
Government $500,000, and the Company and its officers, directors, employees
and shareholders will be released from any causes of action relating to the
false claims allegations in the complaint that were the subject of the
Government's investigation. The Company cooperated with the Government
throughout its investigation, and has agreed to settle this matter solely to
avoid the delay, expense, inconvenience and uncertainty of protracted
litigation. In this regard, the Company denies and contests the allegations
in the complaint, denies any wrongdoing in connection with those
allegations, and notes that the Government itself, notwithstanding two years
of investigation, intervened in this action only for the purposes of
settlement and dismissing the qui tam action as described above.
As a result of the government investigation and the CMM replacement program
initiated prior thereto in March 2002, the Company took reserves and charged
pretax operations with $3.7 million ($.35 per share after tax) in fiscal
2003 and $1.4 million in fiscal 2004. In addition, the Company charged cost
of sales and wrote down the carrying cost of its CMM inventory by $3.2
million to net realizable value in the December 2003 quarter of fiscal 2004.
See the additional comments below under "Reorganization and Restructuring
Plans" regarding the CMM division.
Financial instrument 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 risks that
are continually monitored, evaluated, and managed. Proper management of
these risks helps reduce the likelihood of earnings volatility. At June 2004
and 2003, 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 enter into long-
term supply contracts with either fixed prices or quantities. The Company
does not engage in regular hedging activities to minimize the impact of
foreign currency fluctuations. Net foreign monetary assets are approximately
$4 million.
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 $29.2 million and debt of
$4 million at June 26, 2004) 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 $2.2
million by $35,000.
LIQUIDITY AND CAPITAL RESOURCES
Years ended In June ($000)
2004 2003 2002
Cash provided by operations $18,899 $24,336 $17,700
Cash used in investing activities (15,757) (17,643) (10,451)
Cash used in financing activities (4,114) (5,187) (7,435)
Despite operating losses in 2004 and 2003, including the significant costs
associated with the government's investigation of the CMM division, cash
provided by operations has been positive in all periods presented. By far
the biggest factor contributing to this has been the reduction in
inventories that began in mid 2002, and had its most dramatic effect in
fiscal 2003. "Retirement benefits" under noncash expenses in the detailed
cash flow statement shows the effect on operating cash flow of the Company's
pension and retiree medical plans. Primarily because the Company's domestic
defined benefit plan is overfunded, retirement benefits in total are
currently generating approximately $.8 million of noncash income ($2.2 and
$1.4 million in 2003 and 2002). On an accrual basis, retirement benefit
expense (income) was approximately $.7 million in 2004, $(.4) million in
2003 and $.9 million in 2002.
The Company's investing activities consist of expenditures for plant and
equipment and the investment of cash not immediately needed for operations.
Increased short-term investments partially offset by less capital
expenditures accounts for the increase in investing activities in 2004 and
2003. Cash flows from financing activities are primarily the payment of
dividends. The proceeds from the sale of stock under the various stock plans
has historically been used to purchase treasury shares, although in recent
years such purchases have been curtailed. Overall debt has been reduced
from $12 million at the end of 2001 to $5 million at the end of 2004.
Liquidity and credit arrangements
The Company believes it maintains sufficient liquidity and has the resources
to fund its operations in the near term. If the Company is unable to return
to consistent profitability, additional steps will have to be taken in order
to maintain liquidity, including plant consolidations and further workforce
and dividend reductions (see "Reorganization and Restructuring Plans"
section below). The Company maintains a $15 million line of credit, but has
not made significant borrowings under it. Although the credit line is not
currently collateralized, it is possible, based on the Company's financial
performance, that in the future the Company will have to provide collateral
in order to maintain the credit agreement. The Company has a working capital
ratio of 5.4 to one as of June 26, 2004 and 5.9 to one as of June 28, 2003.
REORGANIZATION AND RESTRUCTURING PLANS
As discussed in greater detail in the Company's Form 10-Q for the quarters
ended December 27, 2003 and March 28, 2004, manufacturing globalization has
adversely affected the Company's customer base and competitive position,
particularly in North America, as more and more products are produced in low
wage countries. As a result, the Company has been rethinking almost all
aspects of its business and is formulating plans to lower wage costs,
consolidate operations, move the strategic focus from manufacturing location
to product group and distribution channel as well as achieving the goals of
enhanced marketing focus and global procurement. Although there have been
and may in the future be non-recurring costs associated with these plans,
Management believes it is premature to take additional charges at this time.
The outlook for the CMM division is problematic. Specific actions being
considered for the CMM division range from staying in the business, to
outsourcing, to exiting altogether. In the December 2003 quarter, the
Company wrote down its CMM inventories by $3.2 million to an estimated net
realizable value of $1.0 million (see above). During fiscal 2004, the
Company consolidated its Skipton, England optical comparator manufacturing
into its manufacturing facility in Jedburgh, Scotland. The cost of this
move, including severance costs, was approximately $800,000, which will be
partially offset by a $600,000 gain on the sale of the real estate that will
be reported during the first quarter of fiscal 2005. The Company has closed,
and is trying to sell, its Alum Bank, Pennsylvania level manufacturing plant
and is in the process of relocating the manufacturing to the Dominican
Republic, where production is expected to begin in fiscal 2005. Relocation
of other manufacturing capacity is also being considered. In addition, the
Company has recently consolidated its consumer hardware products activities
under one business unit head and created a new consumer hardware sales and
marketing organization. The Company's goal is to achieve labor savings and
maintain margins while satisfying the requirements of its customers with
lower prices. The Company has closed one warehouse and is evaluating
consolidating or eliminating others. Depending on how this capacity is
replaced, this could reduce inventory requirements and save operating costs
with the potential of a net gain due to the market value of the related real
estate. No material costs or asset write-downs are currently expected as a
result of these actions pertaining to distribution facilities. There can be
no assurances that the Company will implement all these actions and that, if
such actions are implemented, they will result in savings to the Company. It
is also possible that the Company may need to incur additional charges in
connection with these plans.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any material off-balance sheet arrangements as
defined under the Securities and Exchange Commission rules.
CRITICAL ACCOUNTING POLICIES
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 the amounts reported in the consolidated financial
statements and accompanying notes. The first footnote to these financial
statements describes the significant accounting policies and methods used in
the preparation of the consolidated financial statements.
Judgments, assumptions, and estimates are used for, but not limited to, the
allowance for doubtful accounts receivable and returned goods; inventory
allowances; income tax reserves; employee turnover, discount, and return
rates used to calculate pension obligations; normal expense accruals for
such things as workers compensation and employee medical expenses; and of
particular importance in fiscal 2003 and 2004 the previously discussed
charges connected with the government investigation of our CMM division.
Actual results could differ from these estimates.
The allowance for doubtful accounts and sales returns is based on our
assessment of the collectibility of specific customer accounts, the aging of
our accounts receivable and trends in product returns. While we believe that
our allowance for doubtful accounts and sales returns is adequate, if there
is a deterioration of a major customer's credit worthiness, actual defaults
are higher than our previous experience, or actual future returns do not
reflect historical trends, our estimates of the recoverability of the
amounts due us and our sales could be adversely affected.
Inventory purchases and commitments are based upon future demand forecasts.
If there is a sudden and significant decrease in demand for our products or
there is a higher risk of inventory obsolescence because of rapidly changing
technology and requirements, we may be required to increase our inventory
reserve and, as a result, our gross profit margin could be adversely
affected.
Accounting for income taxes requires estimates of our future tax
liabilities. Due to timing differences in the 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, we
assess the likelihood that the asset will be realized. If realization is in
doubt because of uncertainty regarding future profitability or enacted tax
rates, we provide a valuation allowance related to the asset. Should any
significant changes in the tax law or our estimate of the necessary
valuation allowance occur, we would record the impact of the change, which
could have a material effect on our financial position or results of
operations.
Pension and postretirement medical costs and obligations are dependent on
assumptions used by our actuaries in calculating such amounts. These
assumptions include discount rates, healthcare cost trends, inflation,
salary growth, long-term return on plan assets, retirement rates, mortality
rates, and other factors. These assumptions are made based on a combination
of external market factors, actual historical experience, long-term trend
analysis, and an analysis of the assumptions being used by other companies
with similar plans. Actual results that differ from our assumptions are
accumulated and amortized over future periods. Significant differences in
actual experience or significant changes in assumptions would affect our
pension and other postretirement benefit costs and obligations.
CONTRACTUAL OBLIGATIONS
The following table summarizes future estimated payment obligations by
period. The majority of the obligations represent commitments for production
needs in the normal course of business.
Payments due by period (in millions)
Total <1yr. 1-3yrs. 3-5yrs. >5yrs.
Long-term debt obligations $ 1.5 $ 1.5
Capital lease obligations 3.2 0.7 $ 2.5
Operating lease obligations 1.7 0.5 0.7 $ 0.4 $ 0.1
Purchase obligations 15.2 15.2
Other long-term liabilities
Reflected on the balance
Sheet under GAAP
Total $21.6 $17.9 $ 3.2 $ 0.4 $ 0.1
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K and the Company's 2004 Annual Report to
Stockholderts, including the President's letter, 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
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 Reorganization: The Company continues to develop plans to
consolidate and reorganize some of its manufacturing and distribution
operations. There can be no assurance that the Company will be successful
in these efforts or that any consolidation or reorganization will result in
cost savings to the Company. The implementation of these reorganization
measures may disrupt the Company's manufacturing and distribution
activities, could adversely affect operations, and could result in asset
impairment charges and other costs that will be recognized if and when
reorganization or restructuring plans are implemented or obligations are
incurred. If the Company is unable to return to consistent profitability,
additional steps will have to be taken, including further plant
consolidations and workforce and dividend reductions.
Risks Related to Technology: Although the Company's strategy includes
investment in research and development of new and innovative products to
meet technology advances, there can be no assurance that the Company will be
successful in competing against new technologies developed by competitors.
Risks Related to Foreign Operations: Approximately a third of the Company's
sales and a quarter of net assets relate to foreign operations. Foreign
operations are subject to special risks that can materially affect the
sales, profits, cash flows, and financial position of the Company, including
taxes and other restrictions on distributions and payments, currency
exchange rate fluctuations, political and economic instability, inflation,
minimum capital requirements, and exchange controls. In particular, the
Company's Brazilian operations, which constitute over half of the Company's
revenues from foreign operations, can be very volatile, changing from year
to year due to the political situation and economy. As a result, the future
performance of the Brazilian operations is inherently unpredictable.
Risks Related to Industrial Manufacturing Sector: The market for most of the
Company's products is subject to economic conditions affecting the
industrial manufacturing sector, including the level of capital spending by
industrial companies and the general movement of manufacturing to low cost
foreign countries where the Company does not have a substantial market
presence. Accordingly, economic weakness in the industrial manufacturing
sector may, and in some cases has, resulted in decreased demand for certain
of the Company's products, which adversely affects performance. Economic
weakness in the consumer market will also adversely impact the Company's
performance. In the event that demand for any of the Company's products
declines significantly, the Company could be required to recognize certain
costs as well as asset impairment charges on long-lived assets related to
those products.
Risks Related to Shift in Manufacturing: The Company's primary customers are
in the manufacturing business and, in particular, in the metal working
industry. Manufacturing is shifting to low wage countries where the Company
does not have a substantial market presence. As a result, unless the Company
can penetrate these markets, the Company's sales and performance may be
adversely affected.
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 tend to
reduce unit sales and/or adversely affect the Company's margins.
Risks Related to Customer Concentration: Sales to the Company's three
biggest customers accounted for approximately 25% of revenues in fiscal
2004. The Company expects to wind down and eventually end its relationship
with W.W.Grainger, one of the three customers, during fiscal 2005. The effect
this will have on total Company sales and profits is unknown since much of the
Grainger business is expected to be picked up by other Company distributors,
although no such assurances can be made. The loss or reduction in orders by
any of the remaining customers, including reductions due to market, economic
or competitive conditions, or the failure of the Company to replace the
Grainger sales could adversely affect business and results of operations.
Indeed, the Company's major customers have, and may continue to, place
pressure on the Company to reduce its prices. This pricing pressure may
affect the Company's margins and revenues and could adversely affect
business and results of operations.
Risks Related to Insurance Coverage: The Company carries liability, property
damage, workers' compensation, medical, and other insurance coverages that
management considers adequate for the protection of its assets and
operations. There can be no assurance, however, that the coverage limits of
such policies will be adequate to cover all claims and losses. Such
uncovered claims and losses could have a material adverse effect on the
Company. The Company self-insures for health benefits and retains risk in
the form of deductibles and sublimits. Depending on the risk, deductibles
can be as high as 5% of the loss or $500,000.
Risk Related to Raw Material and Energy Costs: Steel is the principal raw
material used in the manufacture of the Company's products. The price of
steel has historically fluctuated on a cyclical basis and has often depended
on a variety of factors over which the Company has no control. The cost of
producing the Company's products is also sensitive to the price of energy.
The selling prices of the Company's products have not always increased in
response to raw material, energy or other cost increases, and the Company is
unable to determine to what extent, if any, it will be able to pass future
cost increases through to its customers. The Company's inability to pass
increased costs through to its customers could materially and adversely
affect its financial condition or results of operations.
Risks Related to Stock Market Performance: Although the Company's domestic
defined benefit pension plan is significantly overfunded, a significant
(over 30%) drop in the stock market, even if short in duration, could cause
the plan to become temporarily underfunded and require the temporary
reclassification of prepaid pension cost on the balance sheet from an asset
to a contra equity account, thus reducing stockholders' equity and book
value per share.
Item 8 - Financial Statements and Supplementary Data
Contents: Page
Report of Independent Auditors 16
Consolidated Statements of Operations 17
Consolidated Statements of Cash Flows 18
Consolidated Balance Sheets 19
Consolidated Statements of Stockholders' Equity 20
Notes to Consolidated Financial Statements 21-29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The L.S. Starrett Company
We have audited the accompanying consolidated balance sheets of The L.S.
Starrett Company and subsidiaries (the "Company") as of June 26, 2004 and June
28, 2003, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
June 26, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). 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 as of June 26, 2004
and June 28, 2003, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended June 26, 2004, in
conformity with accounting principles generally accepted in the United States
of America.
As more fully described in the notes to the financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142
during the year ended June 28, 2003.
S/DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 31, 2004
THE L.S. STARRETT COMPANY
Consolidated Statements of Operations
For the years ended in June (in thousands of dollars except per share data)
2004 2003 2002
OPERATIONS
Net sales $179,996 $175,711 $184,346
Cost of goods sold (136,703) (137,036) (139,413)
Selling, general and administrative expense (47,910) (46,169) (45,945)
Other expense (270) (585) (217)
Loss before income taxes and cumulative
effect of change in accounting principle (4,887) (8,079) (1,229)
Income taxes (benefit) (2,535) (3,590) (849)
Loss before cumulative effect of change
in accounting principle (2,352) (4,489) (380)
Cumulative effect of change in accounting
for goodwill (6,086)
Net loss $ (2,352) $ (10,575) $ (380)
Basic and diluted loss per share:
Before cumulative effect of accounting
change $ (0.35) $ (0.68) $ (0.06)
Cumulative effect of change in
accounting for goodwill (0.92)
$ (0.35) $ (1.60) $ (0.06)
Average outstanding shares used in the
computation of basic and diluted
loss per share 6,649 6,608 6,500
Dividends per share $ 0.40 $ 0.70 $ 0.80
See notes to consolidated financial statements
THE L. S. STARRETT COMPANY
Consolidated Statements of Cash Flows
For the years ended in June (in thousands of dollars)
2004 2003 2002
Cash flows from operating activities:
Net loss $ (2,352) $(10,575) $ (380)
Noncash operating activities:
Cumulative effect of change in
accounting principle 6,086
Depreciation and amortization 10,880 10,988 11,741
Deferred taxes (3,331) (3,875) 561
Unrealized translation losses (33) 453 263
Retirement Benefits (719) (1,338) (2,170)
Working capital changes:
Receivables (529) 695 1,664
Inventories 11,109 22,345 7,656
Other current assets and liabilities 3,592 (841) (1,862)
Prepaid pension cost and other 282 398 227
Net cash from operating activities 18,899 24,336 17,700
Cash flows from investing activities:
Additions to plant and equipment (6,345) (5,860) (8,028)
Increase in investments (9,412) (11,783) (2,423)
Net cash used in investing activities (15,757) (17,643) (10,451)
Cash flows from financing activities:
Short-term borrowings (repayments), net 330 (372) (4,050)
Long-term borrowings (repayments), net (1,577) (1,991)
Common stock issued 423 2,453 3,598
Treasury shares purchased (632) (658) (1,796)
Dividends (2,658) (4,619) (5,187)
Net cash used in financing activities (4,114) (5,187) (7,435)
Effect of translation rate changes on cash 149 128 (87)
Net increase (decrease) in cash (823) 1,634 (273)
Cash beginning of year 3,306 1,672 1,945
Cash end of year $ 2,483 $ 3,306 $ 1,672
Supplemental cash flow information:
Interest paid $ 1,076 $ 848 $ 695
Taxes paid, net $ 56 $ (958) $ (725)
Non-cash capital lease financing $ 3,000
See notes to consolidated financial statements
THE L.S. STARRETT COMPANY
Consolidated Balance Sheets
(in thousands except share data)
June 26 June 28
ASSETS 2004 2003
Current assets:
Cash $ 2,483 $ 3,306
Investments 32,023 21,995
Accounts receivable (less allowance for doubtful
accounts of $1,358 and $1,392) 33,434 32,175
Inventories:
Raw materials and supplies 8,510 9,859
Goods in process and finished parts 16,780 20,344
Finished goods 17,987 23,832
Total inventories 43,277 54,035
Prepaid expenses, taxes and other current assets 11,534 9,703
Total current assets 122,751 121,214
Property, plant and equipment, at cost:
Land 1,879 1,885
Buildings (less accumulated depreciation of
$19,937 and $18,463) 20,900 21,295
Machinery and equipment (less accumulated
depreciation of $80,789 and $70,719) 40,080 43,913
Total property, plant and equipment 62,859 67,093
Prepaid pension cost 32,370 30,565
Other assets 944 868
$218,924 $219,740
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities $ 2,102 $ 3,585
Accounts payable and accrued expenses 16,205 12,859
Accrued salaries and wages 4,375 3,940
Total current liabilities 22,682 20,384
Deferred income taxes 14,214 14,696
Long-term debt 2,536 2,652
Accumulated postretirement benefit obligation 17,209 17,057
Stockholders' equity:
Class A common stock $1 par (20,000,000 shrs. auth.;
5,396,679 outstanding in 2004, excluding
1,310,601 held in treasury; 5,344,033 outstanding
in 2003, excluding 1,294,542 held in treasury) 5,397 5,344
Class B common stock $1 par (10,000,000 shrs. auth.;
1,250,106 outstanding in 2004, excluding
332,019 held in treasury; 1,315,489 outstanding
in 2003, excluding 332,019 held in treasury) 1,250 1,315
Additional paid-in capital 49,934 49,826
Retained earnings reinvested and employed in
the business 129,282 134,547
Accumulated other comprehensive income (loss) (23,580) (26,081)
Total stockholders' equity 162,283 164,951
$218,924 $219,740
See notes to consolidated financial statements
THE L.S. STARRETT COMPANY
Consolidated Statements of Stockholders' Equity
For the years ended in June, 2002 through 2004
(in thousands)
Common Addi- Accumulated
Stock Out- tional Other Com-
standing Paid-in Retained prehensive
($1 Par) Capital Earnings Loss Total
Balance, June 30, 2001 $ 6,458 $ 45,112 $156,626 $ (23,375) $184,821
Comprehensive loss:
Net loss (380) (380)
Unrealized net loss
on investments (169) (169)
Translation loss, net (546) (546)
Total comprehensive loss (1,095)
Dividends ($0.80 per share) (5,187) (5,187)
Treasury shares:
Purchased (87) (679) (1,030) (1,796)
Issued 153 3,073 3,226
Options exercised 20 352 372
Balance, June 29, 2002 6,544 47,858 150,029 (24,090) 180,341
Comprehensive loss:
Net loss (10,575) (10,575)
Unrealized net gain
on investments 152 152
Minimum pension liability (3,207) (3,207)
Translation gain, net 1,064 1,064
Total comprehensive loss (12,566)
Dividends ($0.70 per share) (4,619) (4,619)
Treasury shares:
Purchased (39) (331) (288) (658)
Issued 142 2,159 2,301
Options exercised 12 140 152
Balance, June 28, 2003 6,659 49,826 134,547 (26,081) 164,951
Comprehensive income:
Net loss (2,352) (2,352)
Unrealized net loss
on investments (56) (56)
Minimum pension
liability, net 765 765
Translation gain, net 1,792 1,792
Total comprehensive income 149
Dividends ($0.40 per share) (2,658) (2,658)
Treasury shares:
Purchased (40) (337) (255) (632)
Issued 24 357 381
Options exercised 4 88 92
Balance, June 26, 2004 $ 6,647 $ 49,934 $129,282 $(23,580) $162,283
See notes to consolidated financial statements
THE L. S. STARRETT COMPANY
Notes to Consolidated Financial Statements
SIGNIFICANT ACCOUNTING POLICIES
Description of the business and principles of consolidation: The Company is
in the business of manufacturing industrial, professional, and consumer
measuring and cutting tools and related products. The largest consumer of
these products is the metalworking industry, but others include automotive,
aviation, marine, farm, do-it-yourselfers, and tradesmen such as builders,
carpenters, plumbers, and electricians. The consolidated financial
statements include the accounts of The L. S. Starrett Company and its
subsidiaries, all of which are wholly-owned. 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 major foreign
subsidiaries end in May. Certain reclassifications have been made to prior
year data to conform with current year presentation.
Financial instruments and derivatives: The Company's financial instruments
consist primarily of current assets, except inventory, current liabilities,
and long-term debt. Current assets and liabilities, except investments, are
stated at cost, which approximates fair market value. Long-term debts, which
are at current market interest rates, also approximate fair market value.
The Company does not enter into derivative arrangements.
Investments: Investments consist primarily of marketable securities such as
treasury bills, certificates of deposit, municipal securities, and money
market funds. The Company considers all its investments "available for sale."
As such, these investments are carried at market, with unrealized temporary
gains and losses recorded as a component of stockholders' equity. Included in
investments at June 26, 2004 is $2.2 million of AAA rated Puerto Rico debt
obligations that have maturities greater than one year but carry the benefit
of possibly reducing repatriation taxes. These investments represent "core
cash" and are part of the Company's overall cash management and liquidity
program and, under SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities," are considered "available for sale." The investments
themselves are highly liquid, carry no early redemption penalties, and are not
designated for acquiring non-current assets. Most other investments have
maturities of less than one year.
Long-lived assets: Buildings and equipment are depreciated using straight-
line and accelerated methods over estimated useful lives as follows:
buildings 15 to 50 years, building improvements 10 to 40 years, machinery
and equipment 5 to 12 years, motor vehicles 3 to 5 years, computer hardware
and software 3 to 7 years. Long-lived assets are reviewed for impairment when
circumstances indicate the carrying amount may not be recoverable. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell.
Inventories: Inventories are stated at the lower of cost or market. For
approximately two thirds 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 $19.9 million
and $28.8 million at the end of 2004 and 2003, respectively, such amounts
being approximately $20 million less than if determined on a FIFO basis.
During 2004 and 2003, the Company reduced the levels of certain LIFO
inventories that were carried in the aggregate at lower costs prevailing in
prior years. The effect of the LIFO inventory reductions was to increase
2004 and 2003 net earnings by approximately $980,000 and $575,000,
respectively, or $.15 and $.09 per share.
Revenue recognition: Revenue is recognized when inventory is shipped to the
customer or installed if installation is necessary. While the Company does
allow its customers the right to return in certain circumstances, revenue is
not deferred, but rather a reserve for sales returns is provided based on
experience, which historically has not been significant.
Warranty expense: The Company's warranty obligation is generally one year
from shipment to the end user and is affected by product failure rates,
material usage, and service delivery costs incurred in correcting a product
failure. Any such failures tend to occur soon after shipment. Historically,
the Company has not incurred significant predictable warranty expense and
consequently its warranty reserves are not material. In the event a material
warranty liability is deemed probable, a reserve is established for the
event.
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 approximately $40 million of undistributed earnings
of foreign subsidiaries as of June 2004 or the related unrealized translation
adjustments because such amounts are considered permanently invested. In
addition, it is possible that remittance taxes, if any, would be reduced by
U.S. foreign tax credits. Valuation allowances are recognized if, based on the
available evidence, it is more likely than not that some portion of the
deferred tax assets will not be realized.
Research and development: Research and development costs were expensed as
follows: $3,048,000 in 2004, $2,929,000 in 2003 and $2,727,000 in 2002.
Earnings per share (EPS): Basic EPS excludes dilution and is computed by
dividing earnings available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution by securities that could share in the earnings. The
Company had 13,701, 7,329 and 9,573 of potentially dilutive common shares in
2004, 2003 and 2002 resulting from shares issuable under its stock option
plan. These additional shares are not used for the diluted EPS calculation
in loss years.
Translation of foreign currencies: Assets and liabilities are translated at
exchange rates in effect on reporting dates, and income and expense items
are translated at rates in effect on transaction dates. The resulting
differences due to changing exchange rates are charged or credited directly
to the "accumulated other comprehensive loss" account included as part of
stockholders' equity.
Use of accounting estimates: The preparation of the financial statements in
conformity with accounting principles generally accepted in the U.S. requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of sales and expenses during the reporting period. Amounts
ultimately realized could differ from those estimates.
CHANGE IN ACCOUNTING FOR GOODWILL
The Company adopted SFAS 142, "Goodwill and Other Intangible Assets," as of
June 30, 2002, the first day of fiscal 2003, and performed a transitional fair
value based impairment test as of that date. As a result, a non-cash
impairment charge of $6,086,000 ($.92 per share), relating primarily to the
acquisition of the Company's Evans Rule division in 1986, was recorded as of
the first day of fiscal 2003 and related amortization of $268,000 per year was
discontinued. The charge is reflected as the cumulative effect of a change in
accounting principle in the accompanying Statements of Operations and Cash
Flows. There were no income taxes associated with the charge. Had goodwill not
been amortized in the prior years, net loss and net loss per share would have
been as follows (in thousands except per share data):
2004 2003 2002
Net loss as reported $ (2,352) $(10,575) $ (380)
Add back goodwill amortization 268
Pro forma net loss $ (2,352) $(10,575) $ (112)
Basic and diluted loss per
share as reported $ (0.35) $ (1.60) $ (0.06)
Pro forma basic and diluted
loss per share $ (0.35) $ (1.60) $ (0.03)
ACCOUNTING PRONOUNCEMENTS
Effective with the beginning of the first quarter of fiscal 2004, the
Company has adopted the fair value method of accounting for stock-based
compensation on a prospective basis as described in SFAS 123 and 148. The
Company incurred $57,000 in stock-based compensation costs in fiscal 2004.
Historically, stock-based compensation has not been material.
OTHER INCOME AND EXPENSE
Other income and expense consists of the following (in thousands):
2004 2003 2002
Interest income (expense), net $ (301) $ 13 $ 179
Realized and unrealized translation
gains (losses), net 174 (390) (351)
Other (143) (208) (45)
$ (270) $ (585) $ (217)
INCOME TAXES
The provision for income taxes consists of the following (in thousands):
2004 2003 2002
Current:
Federal $ 35 $ 50 $(1,640)
Foreign 587 234 266
State 174 1 (36)
Deferred (3,331) (3,875) 561
$(2,535) $(3,590) $ (849)
Pretax domestic income (loss) as reportable to the IRS was $ 2,000,000,
$(9,557,000) and $(3,274,000) in 2004, 2003, and 2002, respectively.
A reconciliation of expected tax expense at the U.S. statutory rate to actual
tax expense is as follows (in thousands):
2004 2003 2002
Expected tax expense (benefit) $(1,662) $(4,816) $ (430)
Increase (decrease) from:
State and Puerto Rico taxes, net
of federal benefit (985) (1,126) (672)
Foreign taxes, net of federal credits 2 235 163
Goodwill writeoff 2,069
Other 110 48 90
Actual tax benefit $(2,535) $(3,590) $ (849)
Deferred income taxes at year end are attributable to the following (in
thousands):
2004 2003
Deferred assets:
Retiree medical benefits $(6,969) $(6,907)
Inventories (4,200) (2,280)
Domestic NOL carried forward 20 years (2,562) (3,515)
Foreign NOL carried forward indefinitely (1,365) (1,165)
Foreign tax credit carryforward expiring 2007-8 (2,283) (745)
Other (987) (907)
(18,366) (15,519)
Deferred liabilities:
Prepaid pension 13,497 12,928
Other employee benefits 370 540
Depreciation 6,125 7,081
Other 1,561 1,593
21,553 22,142
Valuation reserve for foreign tax credits 912 ____745
Net deferred tax liability $ 4,099 $ 7,368
Long-term portion $14,214 $14,696
EMPLOYEE BENEFIT PLANS
The Company has several pension plans, both defined benefit and defined
contribution, covering all of its domestic and most of its nondomestic
employees. In addition, certain domestic employees participate in an
Employee Stock Ownership Plan (ESOP). Ninety percent of the actuarially
determined annuity value of their ESOP shares is used to offset benefits
otherwise due under the domestic defined benefit pension plan. The total
cost (benefit) of all such plans for 2004, 2003 and 2002, considering the
combined projected benefits and funds of the ESOP as well as the other
plans, was $140,000, $(678,000) and $(1,783,000), 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 shares of the Company's common stock. The
measurement date for the Company's domestic pension and other benefit plans
is June 30.
The asset allocation of the Company's domestic pension plan is diversified,
consisting primarily of investments in equity and debt securities. The
Company seeks a long-term investment return that is reasonable given
prevailing capital market expectations. Target allocations are 50% to 70%
in equities (including 10% to 20% in Company stock), and 30% to 50% in cash
and debt securities.
The Company uses an expected long-term rate of return assumption of 8.0% for
the domestic pension plan, and 6.9% for the nondomestic plan. In determining
these assumptions, the Company considers the historical returns and
expectations for future returns for each asset class as well as the target
asset allocation of the pension portfolio as a whole.
The table below details assets by category for the Company's domestic
pension plan. These assets consist primarily of publicly traded equity and
fixed income securities, including 1,015,999 shares of the Company's common
stock with a fair value of $16.4 million (16% of total plan assets) at June
30, 2004 and 1,030,235 shares with a fair value of $13.3 million (14% of
total plan assets) at June 30, 2003. The majority of these shares are in
the Company's ESOP plan.
2004 2003
Asset category:
Cash 13% 13%
Equities 59% 54%
Debt 28% 33%
100% 100%
The status of these defined benefit plans, including the ESOP, is as follows
(in thousands):
2004 2003 2002
Change in benefit obligation:
Benefit obligation at beginning of year $100,829 $ 93,349 $ 83,203
Service cost 3,245 3,278 3,106
Interest cost 6,104 6,490 5,958
Participant contributions 223 219 226
Exchange rate changes 3,362 3,066 820
Benefits paid (3,836) (3,648) (3,614)
Actuarial (gain) loss (4,737) (1,925) 3,650
Benefit obligation at end of year $105,190 $100,829 $ 93,349
Change in plan assets:
Fair value of plan assets at beginning
of year $115,191 $126,154 $128,038
Actual return on plan assets 13,931 (10,522) 633
Employer contributions 480 467 92
Participant contributions 223 219 226
Benefits paid (3,836) (3,648) (3,614)
Exchange rate changes 2,701 2,521 779
Fair value of plan assets at end of year $128,690 $115,191 $126,154
Reconciliation of funded status:
Funded status $ 23,500 $ 14,362 $ 32,805
Unrecognized actuarial gain 9,958 19,009 (370)
Unrecognized transition asset (981) (1,922) (2,932)
Unrecognized prior service cost 3,382 3,698 4,148
Prepaid pension cost $ 35,859 $ 35,147 $ 33,651
Amounts recognized in statement of financial
position:
Prepaid benefit cost $ 36,705 $ 36,172 $ 35,069
Accrued benefit liability (5,259) (6,606) (2,551)
Intangible asset 924 999 1,133
Accumulated other comprehensive income 3,489 4,582
Prepaid pension cost $ 35,859 $ 35,147 $ 33,651
Accumulated benefit obligation
at year-end for all pension plans $ 96,113 $ 92,571 $ 89,803
Year-end information for plans with accumulated
benefit obligations in excess of plan assets:
Projected benefit obligation $ 32,069 $ 28,832 $ 24,947
Accumulated benefit obligation 31,300 26,617 24,889
Fair value of plan assets 26,040 22,011 20,800
Components of net periodic benefit cost:
Service cost $ 3,245 $ 3,278 $ 3,106
Interest cost 6,104 6,490 5,958
Expected return on plan assets (9,387) (10,271) (10,863)
Amortization of prior service cost 421 408 394
Amortization of transition asset (973) (956) (937)
Recognized actuarial gain 292 (58) (264)
Net periodic benefit cost $ (298) $ (1,109) $ (2,606)
Weighted average assumptions:
Discount rate 6.25% 6.00% 7.00%
Expected long-term rate of return 8.00% 8.00% 8.50%
Rate of compensation increase 3.25% 3.25% 3.75%
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):
2004 2003 2002
Change in benefit obligation:
Benefit obligation at beginning of year $ 17,839 $ 15,649 $ 15,197
Service cost 657 633 551
Interest cost 1,037 1,057 1,097
Plan amendments (1,360)
Benefits paid (1,312) (1,047) (1,014)
Actuarial (gain) loss (1,145) 1,547 (182)
Benefit obligation at end of year $ 15,716 $ 17,839 $ 15,649
Reconciliation of funded status:
Funded status $(15,716) $(17,839) $(15,649)
Unrecognized actuarial gain 2,481 3,750 2,259
Unrecognized prior service cost (3,974) (2,968) (3,321)
Accrued benefit liability $(17,209) $(17,057) $(16,711)
Components of net periodic benefit cost:
Service cost $ 657 $ 633 $ 551
Interest cost 1,037 1,057 1,097
Amortization of prior service cost (353) (353) (353)
Recognized actuarial gain 123 56 81
Net periodic benefit cost $ 1,464 $ 1,393 $ 1,376
Weighted average assumptions:
Discount rate 6.25% 6.00% 7.00%
Rate of compensation increase 3.25% 3.25% 3.75%
An 11.0% annual rate of increase in the per capita cost of covered health care
benefits was assumed for fiscal 2005. The rate was assumed to decrease
gradually to 5.0% for 2014 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one percentage point change in assumed
health care cost trend rates would have the following effects (in thousands):
1% 1%
Increase Decrease
Effect on total of service and interest cost $ 102 $ (86)
Effect on postretirement benefit obligation 778 (666)
For fiscal 2005, the Company expects no contributions (required or
discretionary) to the qualified domestic pension plan, $23,000 to the
nonqualified domestic pension plan, $497,000 to the nondomestic pension plan,
and $900,000 to the retiree medical and life insurance plan.
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid (in thousands):
Other
Fiscal year Pension Benefits
2005 $ 3,971 $ 900
2006 4,083 988
2007 4,329 1,058
2008 4,703 1,100
2009 5,022 1,167
2010-2014 27,704 6,734
In December 2003, legislation was enacted providing a Medicare prescription
drug benefit beginning in 2006 and federal subsidies to employers who
provide drug coverage to retirees. The Company does not expect this
legislation to materially impact plan obligations, and has not reflected any
potential effects of the legislation.
DEBT
At year end, long-term debt consists of the following (in thousands):
2004 2003
Note payable due 12/03, 4.0% $ $ 2,318
Capitalized lease obligations payable in Brazilian
currency, due 2006 to 2008, 15% to 21% 3,971 3,433
Revolving credit agreement - -
3,971 5,751
Less current maturities 1,435 3,099
$ 2,536 $ 2,652
The revolving credit agreement is for $15 million, expires September 13,
2005, and requires commitment fees of .25%. Interest rates vary from LIBOR
plus .5% to 2% depending on EBITDA. The Company must maintain tangible net
worth of $145 million and an EBITDA (as defined) to debt service ratio of at
least 1.5. Current notes payable carry interest at a rate of LIBOR plus
1% to 4%. Interest expense, prior to capitalization of interest on self-
constructed assets, was $1,080,000, $761,000 and $641,000 in 2004, 2003 and
2002. Long-term debt maturities from 2006 to 2008 are as follows: $707,000,
$583,000, and $1,246,000.
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 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 2010.
Under the Company's employee 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 were exercisable at fiscal year ends. A summary of
option activity is as follows:
Weighted
Average
Exercise Shares
Shares Price Available
On Option At Grant For Grant
Balance, June 30, 2001 73,336 $18.22 710,578
Options granted 28,191 18.06 (28,191)
Options exercised ($17.77 and $18.65) (20,552) 18.11
Options canceled (32,026) 32,026
Balance, June 29, 2002 48,949 17.48 714,413
Options authorized 800,000
Options granted 82,567 13.28 (82,567)
Options exercised ($13.22 and $11.10) (11,724) 12.93
Options canceled (51,720) (693,936)
Balance, June 28, 2003 68,072 13.20 737,910
Options granted 36,919 12.65 (36,919)
Options exercised ($12.29 and $13.26) (3,322) 12.80
Options canceled (28,122) 25,462
Balance, June 26, 2004 73,547 12.78 726,453
The following information relates to outstanding options as of June 26,
2004:
Weighted average remaining life 1.1 years
Weighted average fair value on grant date
of options granted in:
2002 $5.00
2003 4.00
2004 3.50
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions: volatility - 21% to 29%, interest - 1.5% to 3.5%, and expected
lives - 2 years.
CONTINGENCIES
Since early fiscal 2003, the Company has been the subject of a government
investigation, prompted by a qui tam action. Subsequent to the end of fiscal
2004, the investigation was settled with no finding of liability or
wrongdoing. The Company has recorded what it believes will be the final
addition to its reserve for this matter of approximately $1.1 million in the
fourth quarter of fiscal 2004.
OPERATING DATA
The Company believes it has no significant concentration of credit risk as
of June 26, 2004. Trade receivables are dispersed among a large number of
retailers, distributors and industrial accounts in many countries. One
customer accounted for approximately 12% of sales in 2004 and 14% in 2003
and 2002.
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 determining 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 (in thousands):
2004 2003 2002
Sales:
North America $ 123,149 $ 124,006 $ 133,895
United Kingdom 27,409 28,910 26,331
Brazil 35,756 29,630 31,559
Eliminations and other (6,318) (6,835) (7,439)
Total $ 179,996 $ 175,711 $ 184,346
Long-lived assets:
North America $ 80,490 $ 83,790 $ 96,163
United Kingdom 8,482 7,978 7,916
Brazil 8,501 9,446 5,857
Other 2,189 1,894 2,094
Total $ 99,662 $ 103,108 $ 112,030
QUARTERLY FINANCIAL DATA (UNAUDITED)(in thousands except per share data)
(* before writeoff of $6,086 of goodwill in the September 2002 quarter)
Earnings Basic Basic
(Loss) Earnings Earnings
Before Net (Loss) (Loss)
Quarter Net Gross Income Earnings Earnings Per Per
Ended Sales Profit Taxes* (Loss)* (Loss) Share* Share
Sep 2002 $ 45,335 $ 8,736 $(4,496) $(2,535) $ (8,621) $(0.39) $(1.31)
Dec 2002 44,828 10,342 (1,339) (641) (641) (0.09) (0.09)
Mar 2003 41,525 9,162 (2,255) (1,267) (1,267) (0.19) (0.19)
Jun 2003 44,023 10,435 11 (46) (46) 0.01 0.01
$175,711 $38,675 $(8,079) $(4,489) $(10,575) $(0.68) $(1.60)
Sep 2003 $ 40,675 $ 9,735 $(1,950) $(1,095) $ (1,095) $(0.16) $(0.16)
Dec 2003 45,420 8,392 (3,109) (1,833) (1,833) (0.28) (0.28)
Mar 2004 44,945 11,928 180 444 444 0.07 0.07
Jun 2004 48,956 13,238 (8) 132 132 0.02 0.02
$179,996 $43,293 $(4,887) $(2,352) $ (2,352) $(0.35) $(0.35)
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.
Item 9A - 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, have evaluated the Company's disclosure controls and procedures as
of June 26, 2004, and they have concluded that these controls and procedures
are effective. There have been no significant changes in internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting. As
reported in the Company's Annual Report on Form 10-K for fiscal 2003, the
Company's management and its outside auditors reported to the Audit Committee
in August 2003 one reportable condition related to computer file access, which
was subsequently corrected.
Item 9B - Other Information
None
PART III
Item 10 - Directors and Executive Officers of the Registrant
Directors
The information concerning the Directors of the Registrant is contained
immediately under the heading "Election of Directors" and prior to Section A
of Part I (pages 2-5) in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on October 13, 2004 (the "2004 Proxy
Statement") as filed with the SEC, and is hereby incorporated by reference.
Executive Officers of the Registrant
Held Present
Name Age Office Since Position
Douglas A. Starrett 52 2001 President and CEO and
Director
Roger U. Wellington, Jr. 63 1984 Vice President, Treasurer
and Chief Financial
Officer and Director
George B. Webber 83 1962 Vice President
Webber Gage Division
and Director
Anthony M. Aspin 51 2000 Vice President Sales
Stephen F. Walsh 58 2003 Vice President Operations
Steven A. Wilcox 49 1997 Clerk
Douglas A. Starrett has been President of the Company since 1995 and became
CEO in 2001. Roger U. Wellington, Jr. and George B. Webber have served in the
same capacities as listed above for at least the past five years. Anthony M.
Aspin was previously a divisional sales manager with the Company. Stephen F.
Walsh was previously president of the Silicon Carbide Division of Saint-Gobain
Industrial Ceramics. Except in the case of Steven A. Wilcox, the positions
listed above represent their principal occupations and employment during the
last five years. Steven A. Wilcox, Clerk of the Company since 1997, has been a
partner in Ropes & Gray LLP, counsel for the Company, throughout that period,
and is not an employee of the Company.
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 executive officer during the past five years.
Code of Ethics
The Company has adopted a Policy on Business Conduct and Ethics (the "Ethics
Policy") applicable to all directors, officers and employees of the Company.
The Code is intended to promote honest and ethical conduct, full and
accurate reporting, and compliance with laws as well as other matters. The
Ethics Policy as well as any waivers under the Ethics Policy granted to
directors and executive officers, if any, are available on the Company's
website at www.starrett.com. Stockholders may also obtain free of charge a
printed copy of the Ethics Policy by writing to the Clerk of the Company at
The L.S. Starrett, 121 Crescent Street, Athol, MA 01331.
Item 11 - Executive Compensation
The information concerning management remuneration is contained in (i) the
second full paragraph on page 5, and (ii) in Sections C-G of Part I (pages 8-
14) in the Company's 2004 Proxy Statement, and is hereby incorporated by
reference.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
(a) The following table gives information about the Company's Common Stock
that may be issued upon the exercise of options, warrants and rights
under the Company's 2002 Employees' Stock Purchase Plan ("2002 Plan") as
of June 26, 2004. The Plan was approved by stockholders at the
Company's 2002 annual meeting and shares of Class A or Class B Common
Stock may be issued under the Plan. Options are not issued under the
Company's Employees' Stock Purchase Plan that was adopted in 1952.
Number of Securities
Remaining Available
Number of Securities For Future Issuance
to be issued Upon Ex- Weighted Average Under Equity Compen-
ercise of Outstanding Exercise Price of sation Plans (Ex-
Plan Options, Warrants and Outanding Options, cluding Securities
Category Rights Warrants and Rights Reflected in Col (a)
(a) (b) (c)
Equity compensa-
tion plans ap-
proved by secur-
ity holders 73,547 12.78 726,453
Equity compensa-
tion plans not
approved by se-
curity holders 0 0 0
Total 73,547 12.78 726,453
(b) 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 under the heading "Security
Ownership of Certain Beneficial Owners" in Section I of Part I (pages
17-18) of the Company's 2004 Proxy Statement, and is hereby incorporated
by reference.
(c) 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 under the heading "Security
Ownership of Management" in Section I of Part I (pages 15-17) in the
Company's 2004 Proxy Statement, and is hereby incorporated by reference.
(d) 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
Item 14 - Principal Accountant Fees and Services.
The information required by this Item 14 is contained in the Audit Fee table
in Section B of Part I (page 7) in the Company's 2004 Proxy Statement, and
is hereby incorporated by reference.
PART IV
Item 5 - 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 Operations for each of the three
years in the Period ended June 26, 2004
Consolidated Statements of Cash Flows for each of the three
years in the Period ended June 26, 2004
Consolidated Balance Sheets at June 26, 2004 and June 28, 2003
Consolidated Statements of Stockholders' Equity for each of
the three years in the Period Ended June 26, 2004
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. Compensatory plans or arrangements are
identified by an "*."
(b) The following reports on Form 8-K were filed with or furnished to
the SEC in the last quarter of the period covered by this report:
The Company furnished a report on Form 8-K on May 7, 2004
announcing it had issued a quarterly shareholder earnings letter
for the March 2004 quarter.
(c) See Exhibit Index below.
(d) Not applicable.
THE L.S. STARRETT COMPANY AND SUBSIDIARIES - EXHIBIT INDEX
3a 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.
3b Bylaws as amended September 16, 1999, filed with Form 10-Q for the
quarter ended September 24, 1999, are hereby incorporated by reference.
4 Second Amended and Restated Rights Agreement, dated as of March 13,
2002, between the Company and Mellon Investor Services, as Rights Agent,
including Form of Common Stock Purchase Rights Certificate, filed with
Form 10-K for the year ended June 29, 2002, is hereby incorporated by
reference.
10a $25,000,000 Revolving Credit Agreement dated as of June 13, 2000 (the
"credit agreement"), among The L.S. Starrett Company and Fleet National
Bank filed with Form 10-K for the year ended June 24, 2000 is hereby
incorporated by reference.
10b Form of indemnification agreement with directors and executive officers,
filed with Form 10-K for the year ended June 29, 2002, is hereby
incorporated by reference.
10c*The L.S. Starrett Company Supplemental Executive Retirement Plan, filed
with Form 10-K for the year ended June 29, 2002 is hereby incorporated
by reference.
10d*The L.S. Starrett Company 401(k) Stock Savings Plan (2001 Restatement),
filed with Form 10-K for the year ended June 29, 2002 is hereby
incorporated by reference.
10e 2002 Employees' Stock Purchase Plan filed with Form 10-Q for the quarter
ended September 28, 2002 is hereby incorporated by reference.
10f Amendment dated April 1, 2003 to the Company's 401(k) Stock Savings
Plan, filed with Form 10-K for the year ended June 28, 2003, is hereby
incorporated by reference.
10g Amendment dated October 20, 2003 to the Company's 401(k) Stock Savings
Plan, filed with Form 10-Q for the quarter ended September 27, 2003, is
hereby incorporated by reference.
10h Amendment dated as of March 1, 2004 to the Company's Credit Agreement,
filed with Form 10-Q for the quarter ended March 27, 2004, is hereby
incorporated by reference.
21 Subsidiaries of the Registrant, filed herewith.
23 Independent Auditors' Consent, filed herewith.
31a Certification of Chief Executive Officer Pursuant to Rule 13a-14(a),
filed herewith.
31b Certification of Chief Financial Officer Pursuant to Rule 13a-14(a),
filed herewith.
32 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act
of 2003 (subsections (a) and (b) of Section 1350, Chapter 63 of Title
18, United States Code), filed herewith.
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.,
Vice President, Treasurer and Chief
Financial Officer
Date: September 9, 2004
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 A. STARRETT S/ANTONY MCLAUGHLIN
Douglas A. Starrett, Sep. 9, 2004 Antony McLaughlin, Sep. 9, 2004
President and CEO and Director President Starrett Industria e
Comercio, Ltda, Brazil
S/RALPH G. LAWRENCE S/TERRY A. PIPER
Ralph G. Lawrence, Sep. 9, 2004 Terry A. Piper, Sep. 9, 2004
Director Director
S/RICHARD B. KENNEDY S/ROBERT L. MONTGOMERY, JR.
Richard B. Kennedy, Sep. 9, 2004 Robert L. Montgomery,Jr.,Sep.9, 2004
Director Director
S/STEVEN G. THOMSON S/ROGER U. WELLINGTON, JR.
Steven G. Thomson, Sep. 9, 2004 Roger U. Wellington,Jr., Sep.9, 2003
Chief Accounting Officer Vice President, Treasurer and CFO
and Director
1