L.S. Starrett Co.

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L.S. Starrett Co.

121 Crescent Street
Athol, Massachusetts 01331-1915
U.S.A.
(508) 249-3551
Fax: (508) 249-8495

Public Company
Incorporated: 1900
Employees: 2,563
Sales: $180.2 million
Stock Exchanges: New York Boston Chicago
SICs: 3423 Hand and Edge Tools, Except Machine Tools and Handsaws; 3425 Saw Blades and Handsaws; 3545 Cutting Tools, Machine Tool Accessories and Machinists’ Precision Measuring Devices; 3823 Industrial Instruments for Measurement, Display and Control of Process Variables and Related Products; 3827 Optical Instruments and Lenses

Founded in 1880, the L.S. Starrett Co. manufactures more than 5,000 industrial, professional, and consumer products, but is perhaps best known for its precision hand tools, some of which are considered virtual works of art. Although Starrett was a public company, the conservatively managed business remained, after more than 100 years in operation, a family-run operation. In fact, Starrett’s president in the mid-1990s was the great-grandson of the founder.

The founder, Laroy Sunderland Starrett, one of 12 children of a Maine farmer, rented a 600-acre Newburyport, Massachusetts, farm in 1861. Mechanically inclined, he also patented a number of inventions, including a meat chopper, a washing machine, and a butter working machine. In 1868, Starrett became general agent and superintendent of the Athol Machine Co. of Athol, Massachusetts, incorporated with the purpose of manufacturing his inventions. He eventually took out about 100 patents.

Among Starrett’s inventions were a number of hand tools useful in the building trades. The first of these devices, patented in 1879, was a combination square that contained a steel rule with a sliding head. With the aid of the head, it could be used as a square or mitre, a bevel, or a plumb bob. Starrett established a shop on Athol’s Crescent Street in 1880 to manufacture the popular hand tool. Ambitiously seeking out new markets for his inventions, he made his name known worldwide by establishing agencies in London and Paris in 1882. Also during the 1880s, Starrett manufactured steel rules and tapes, micrometers, calipers, and dividers.

As business increased, Starrett established a larger factory on the other side of Crescent Street. In 1894, the compound was expanded to span Millers River, and it occupied some 60,000 square feet in 1901. A year later, a new building of more than twice the floor space was erected on an adjoining site. The enterprise was incorporated in 1900, with Starrett as president and treasurer; along with him, four other members constituted the stockholders and directors. By 1906, Starrett was employing about 1,000 workers in the Athol factory and a caliper-manufacturing plant in Springfield, Massachusetts.

L.S. Starrett Co. reported assets of $8.6 million in 1918. By the time its founder died in 1922, the Athol factory was being hailed as the largest plant in the world wholly devoted to making fine mechanical tools. These products included micrometer gauges of more than 30 different styles and nearly 200 types of calipers and dividers. In addition, L.S. Starrett maintained offices and stores in New York, Chicago, and London, and special agencies in England, Germany, France, Belgium, Italy, Switzerland, Sweden, Denmark, Austria, Argentina, Australia, and Japan.

When L.S. Starrett was reincorporated in 1929, its assets had fallen to $4.8 million and the number of employees to about 720. In 1934, as the nation was slowly emerging from the depths of the Great Depression, assets were down to $3.8 million and employment to 402. However, following deficits in both 1932 and 1933, the company had earned a net income of $190,134 on sales of over $1.3 million, a distinct improvement over the $734,110 in sales registered in 1932 and $856,845 in 1933. At the end of the year, Starrett was able to resume dividends, which had not been paid in 1932 or 1933. In 1935, Starrett acquired the “Last Word” indicator business of Henry A. Lowe Co. in Cleveland, Ohio, and moved its equipment to the Athol factory. Throughout the remainder of the decade, Starrett gradually recovered from the Depression despite damage to the company’s facilities from river floods in 1936 and 1938.

In fiscal year 1941 (ending June 30, 1940) L.S. Starrett’s net income was $740,978 on record sales of more than $3.6 million. The number of employees had grown to 1,300 and the number of stockholders to 1,742. During World War II, Starrett increased its output eightfold, operating around the clock. Net sales advanced to a peak of $12.9 million in fiscal 1943. During this period of prosperity, Arthur H. Starrett, the founder’s grandson, assumed the presidency. Starrett took control of the company in 1946, only to watch postwar sales slump to $6.9 million in 1950. As a result, net income declined from $1.4 million in 1943 to $486,129 in 1950, and by 1950 employment fell to 1,135 from the 1943 high of 2,034.

The advent of the Korean War in the early 1950s created a new surge in business for Starrett, which the company was able to sustain after the 1953 armistice. In fiscal year 1957—Starrett’s best year of the decade—the company earned $1.5 million on net sales of $16.2 million. Shortly thereafter, Starrett began a modest program of acquisitions. In 1959, the company purchased Bristol Engineering & Manufacturing Co. based in Rehoboth, Massachusetts. Further, Starrett acquired Rhode Island Tool Co. of Providence for shares of common stock in 1962. That same year, Starrett acquired Webber Gage Co. of Cleveland, Ohio, for 20,000 shares of stock and $840,000 in cash. The acquisition of Webber, a manufacturer of precision gage blocks and certain types of optical measuring tools, enabled Starrett to begin manufacturing extremely high precision products.

Meanwhile, Transue & Williams Steel Forging Corp. of Alliance, Ohio, a maker of forgings and stampings for the automotive, truck, and tractor industries, was buying significant amounts of Starrett stock. Together with stock purchases by Russell McPhail, chairman of Transue & Williams, and his McPhail Candy Corp., these holdings represented about 30 percent of Starrett’s outstanding stock in 1964, with a value of $6.8 million. At the 1963 annual meeting, McPhail unsuccessfully proposed a cumulative-voting proposal that would have made it easier for him and other minority stockholders to win seats on the company’s board of directors. This challenge to Starrett’s family management ended in October 1964, when the company purchased and retired the McPhail-Transue & Williams stock holdings for $31 a share, or about $6.8 million.

In the 1960s, Starrett’s fortunes were favorably tied to war once again—this time the conflict was in Vietnam. Net sales, only $12.8 million in fiscal 1959, surged to $33.1 million in 1968, while net income grew from $886,588 to $4.2 million during this period. By the end of the decade, the company had major branches in Chicago, Cleveland, Los Angeles, Providence, and Springfield, New Jersey, and a warehouse in Toronto. Further, Starrett established subsidiaries in Brazil and Scotland in 1958 to manufacture products for foreign markets, and a Canadian subsidiary was established in 1962. Starrett also owned Herramientas de Precision—a Mexican subsidiary—from 1972 to 1985.

During this period, Starrett was also making its presence known in nonmilitary markets. While it would seem that hand-operated tools should have been rendered obsolete with the advent of power machinery and automation, the reality was that a growing number of do-it-yourself property owners were in the market for affordable and easy-to-use hand tools for repair and maintenance. At the other end of the spectrum, the increasing complexity of modern industry stimulated demand for all kinds of specialized hardware, some of which Starrett was manufacturing.

In fiscal 1970, Starrett bought Herman Stone Co., a Dayton, Ohio, producer of granite slabs for measuring tables, for $308,000 worth of stock. It was made a division of Starrett and moved to Mount Airy, North Carolina, in 1972. During the 1970s, Starrett’s net sales grew from $28.7 million in 1971 to $92.9 million in 1979, while net income rose from $2.7 million to $10.8 million over that period. By this time, Starrett tools and instruments were being sold in over 100 countries through a network of industrial distributors. By far, the largest consumer of Starrett’s products was the metalworking industry—which constituted about 65 percent of the company’s revenue—but other important costumers were automotive, aviation, marine, and farm equipment shops, as well as tradesmen such as builders, carpenters, plumbers, and electricians.

Douglas R. Starrett, who had joined the company as an apprentice tool-and-die maker in 1941, succeeded his father as president in 1962. By 1985, the Starrett headquarters was a little-changed four-story brick factory and the company’s inventory of little metal parts was piled haphazardly into wooden boxes. Despite its outmoded appearance, Starrett’s profit margin of 10.7 percent was three times that of the rest of the machine-tool industry. Even in the face of Japanese competition and its own high prices, Starrett’s tools were selling because they were so finely made. Ground to within two-thousands of an inch and sometimes triple-plated, these tools were valued by machinists as the equivalent of works of art.

Half the company’s shares were being held by present and retired employees under a retirement-benefits plan adopted in 1946. In fact, the Starrett family held only slightly more than 2 percent of the stock. However, after the employee stock-ownership plan purchased 400,000 shares in the Starrett treasury in 1984, the company bought 341,514 shares from stockholders at $30 a share to avoid dilution of the existing shareholders’ voting power. As added protection against any future takeover attempts of the company, Starrett adopted a “poison pill” defense in 1990.

After a sharp slide in fiscal 1983 due to a severe recession, Starrett’s sales resumed steady growth later in the decade, reaching $169.9 million in 1988, when net income came to $15.8 million. In 1986, the company bought Evans Rule Co. of North Charleston, South Carolina, for between $20 million and $30 million. A subsidiary of Masco Corp., Evans was producing measuring tapes and associated items.

Interviewed for New England Business in 1987, Douglas Starrett reaffirmed his company’s commitment to manufacturing. “We could have reduced ourselves to a selling organization,” he said, citing companies that had abandoned domestic manufacturing in favor of foreign-made goods. While expressing confidence that Starrett could compete with Japanese and German competitors, Starrett admitted that he was troubled by potential low-wage rivals from China, Taiwan, or South Korea, subsidized production overseas, and product dumping in U.S. markets.

During the 1980s, L.S. Starrett began manufacturing coordinate measuring machines, which combine the functions of several tools and allow for faster and more efficient measuring. A new division for this purpose was established in Mount Airy. To complement this investment, Starrett acquired Sigma Optical, a British firm designing and manufacturing optical measuring projectors, in 1990, establishing a new division for this purpose in Farmington Hills, Michigan.

As Starrett entered the 1990s, net sales, which had reached a peak of $201.6 million during fiscal 1990, fell to $174.8 million three years later. Net earnings dropped from $18.8 million to $8.7 million over this period. In the 1993 annual report, Douglas Starrett deemed 1990 “the year of the largest federal tax increase in history” and went on to say that “because of that tax increase, the economy has gone downhill ever since.” Sales increased slightly to $180.2 million and earnings to $9 million in fiscal 1994. The mid-1990s held even more promise for Starrett; during the first nine months of 1995, sales rose from $133 million to $156.2 million and net income from $5.7 million to $8.8 million.

Among the products being manufactured by Starrett in the 1990s were precision tools, tape measures, levels, electronic gages, dial indicators, gage blocks, digital readout measuring tools, granite surface plants, optical measuring projectors, coordinate measuring machines, vices, Ml lubricant, hacksaw blades, hole saws, band saw blades, jigsaw blades, reciprocating saw blades, and precision ground flat stock. Subsidiaries in Brazil and Scotland were making hacksaw and band saw blades and a limited line of precision tools and measuring tapes. These foreign operations accounted for 26 percent of the company’s sales in 1994. One retailer, Sears, accounted for about 11 percent of the company’s sales.

The factory in Athol, on about 15 acres of company-owned land, remained Starrett’s principal plant, with 25 buildings and about 535,000 square feet of production and storage area. The Granite Surface Plate Division and Coordinate Measuring Machine Division resided in the Mount Airy facility. The Webber Gage Division owned and occupied two buildings in Cleveland. The Evans Rule Division owned and occupied a building in North Charleston, South Carolina, and leased manufacturing space in Mayaguez, Puerto Rico. The Level Division owned and occupied a building in Alum Bank, Pennsylvania. The Advanced Technology Division occupied leased facilities in Gardner, Massachusetts.

Starrett’s Brazilian subsidiary owned and occupied a facility in Itu, Brazil. The Scottish subsidiary owned a manufacturing plant in Jedburgh, Scotland, and also leased manufacturing space in Skipton, England. The Canadian subsidiary owned and occupied a building in Toronto. There were also Starrett-owned warehouse/sales offices in Atlanta, Georgia; Buena Park, California; Elmhurst, Illinois; and Farmington Hills, Michigan. Two granite quarries owned by Starrett in North Carolina were sold during fiscal 1994.

Owners and directors of L.S. Starrett Co. controlled 6.9 percent of the voting power in 1994. The president’s son Douglas A. Starrett, 42 in 1994, became executive vice-president of the company in 1985. Employee benefit plans accounted for about 17 percent of Starrett’s shares of common stock in 1994, according to a Standard & Poor’s report; however, the company’s annual report declared that present and former employees held about one-half of the outstanding stock. Starrett’s long-term debt was $10.8 million.

Principal Subsidiaries: Evans Rule Co., Inc.; Level Industries, Inc.; The L.S. Starrett Co. Ltd. (Scotland); The L.S. Starrett Co. of Canada Ltd; The L.S. Starrett International Co. (Barbados); Starrett Industria e Commercio Ltda. (Brazil); Starrett Securities Corp.