10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2021

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 number	1-367

THE L. S. STARRETT COMPANY

(Exact name of registrant as specified in its charter)

Massachusetts	04-1866480
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

121 Crescent Street, Athol, Massachusetts	01331-1915
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code 978-249-3551

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common - $1.00 Per Share Par Value	SCX	New York Stock Exchange
Class B Common - $1.00 Per Share Par Value	Not applicable	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 ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check One):

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☒

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐    No ☒

Common Shares outstanding as of	January 27, 2022
Class A Common Shares	—
Class B Common Shares	—

1

THE L. S. STARRETT COMPANY

CONTENTS

			Page No.
Part I.	Financial Information:
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets – December 31, 2021 (unaudited) and June 30, 2021	3
		Consolidated Statements of Operations (unaudited)– three and six months ended December 31, 2021 and December 31, 2020	4
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) – three and six  months ended December 31, 2021 and December 31, 2020	5
		Consolidated Statements of Stockholders' Equity (unaudited) – three and six months ended December 31, 2021 and December 31, 2020	6
		Consolidated Statements of Cash Flows (unaudited) - six months ended December 31, 2021 and December 31, 2020	7
		Notes to Unaudited Consolidated Financial Statements	8-18
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24
Part II.	Other Information:
	Item 1A.	Risk Factors	25
	Item 6.	Exhibits	26
SIGNATURES			27

2

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets

(in thousands except share data)

(unaudited)

	12/31/2021		06/30/2021
ASSETS
Current assets:
Cash	$	9,437	$	9,105
Accounts receivable (less allowance for doubtful accounts of $602 and $665, respectively)	34,535		35,076
Inventories	63,874		60,572
Prepaid expenses and other current assets	14,473		14,467
Total current assets	122,319		119,220
Property, plant and equipment, net	35,851		35,992
Right of use assets	5,772		4,298
Deferred tax assets, net	18,601		19,073
Intangible assets, net	4,761		4,888
Goodwill	1,015		1,015
Total assets	$	188,319	$	184,486
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	21,969	$	15,959
Current lease liability	1,418		1,650
Accounts payable	15,108		17,229
Accrued expenses	9,191		8,811
Accrued compensation	4,128		8,040
Total current liabilities	51,814		51,689
Other tax obligations	2,870		2,866
Long-term lease liability	4,514		2,734
Long-term debt, net of current portion	9,158		6,010
Postretirement benefit and pension obligations	34,778		37,652
Total liabilities	103,134		100,951
Stockholders' equity:
Class A Common stock $1 par 20,000,000 shares authorized; 6,644,107 outstanding at December 31, 2021 and 6,475,307 outstanding at June 30, 2021)	6,644		6,475
Class B Common stock $1 par (10,000,000 shares authorized; 607,748 outstanding at December 31, 2021 and 633,505 outstanding at June 30, 2021	608		634
Additional paid-in capital	56,869		56,507
Retained earnings	79,941		74,181
Accumulated other comprehensive loss	(58,877)		(54,262)
Total stockholders' equity	85,185		83,535
Total liabilities and stockholders’ equity	$	188,319	$	184,486

See Notes to Unaudited Consolidated Financial Statements

3

THE L. S. STARRETT COMPANY

Consolidated Statements of Operations

(in thousands except per share data)

(unaudited)

	3 Months Ended						6 Months Ended
	12/31/2021			12/31/2020			12/31/2021			12/31/2020
Net sales	$	61,318		$	54,054		$	122,832		$	103,464
Cost of goods sold	42,368			36,449			83,737			70,287
Gross margin	18,950			17,605			39,095			33,177
% of Net sales	30.9		%	32.6		%	31.8		%	32.1		%
Restructuring charges	—			384			—			730
Gain on sale of building	—			(3,204)			—			(3,204)
Selling, general and administrative expenses	14,749			14,224			30,762			27,615
Operating income	4,201			6,201			8,333			8,036
Other (expense), net	(662)			(426)			(436)			(427)
Income before income taxes	3,539			5,775			7,897			7,609
Income tax expense (benefit)	1,011			1,918			2,137			(364)
Net income	$	2,528		$	3,857		$	5,760		$	7,973
Basic income per share	$	0.35		$	0.54		$	0.80		$	1.13
Diluted income per share	$	0.34		$	0.53		$	0.77		$	1.10
Weighted average outstanding shares used in per share calculations:
Basic	7,243			7,081			7,185			7,035
Diluted	7,492			7,294			7,473			7,260

See Notes to Unaudited Consolidated Financial Statements

4

THE L. S. STARRETT COMPANY

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

	3 Months Ended				6 Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
Net income	$	2,528	$	3,857	$	5,760	$	7,973
Other comprehensive income (loss):
Currency translation gain (loss), net of tax	(871)		3,846		(4,482)		3,610
Pension and postretirement plans, net of tax	(67)		1		(133)		(21)
Other comprehensive income (loss)	(938)		3,847		(4,615)		3,589
Total comprehensive income	$	1,590	$	7,704	$	1,145	$	11,562

See Notes to Unaudited Consolidated Financial Statements

5

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

(in thousands) (unaudited)

For the Three and Six-Month Period Ended December 31, 2021:

	Common Stock Outstanding				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Class A		Class B
Balance June 30, 2021	$	6,475	$	634	$	56,507	$	74,181	$	(54,262)	$	83,535
Total comprehensive income (loss)	—		—		—		3,232		(3,677)		(445)
Repurchase of shares	—		(2)		(14)		—		—		(16)
Stock-based compensation	119		—		55		—		—		174
Conversion	25		(25)		—		—		—		—
Balance September 30, 2021	$	6,619	$	607	$	56,548	$	77,413	$	(57,939)	$	83,248
Total comprehensive income	—		—		—		2,528		(938)		1,590
Repurchase of shares	—		—		(7)		—		—		(7)
Issuance of stock	7		8		102		—		—		117
Stock-based compensation	11		—		226		—		—		237
Conversion	7		(7)		—		—		—		—
Balance December 31, 2021	$	6,644	$	608	$	56,869	$	79,941	$	(58,877)	$	85,185
Accumulated balance consists of:
Translation loss									$	(60,528)
Pension and postretirement plans, net of taxes									1,651
									$	(58,877)

For the Three and Six-Month Period Ended December 31, 2020:

	Common Stock Outstanding				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Class A		Class B
Balance June 30, 2020	$	6,308	$	680	$	55,762	$	58,648	$	(75,415)	$	45,983
Total comprehensive income (loss)	—		—		—		4,116		(258)		3,858
Repurchase of shares	—		(2)		(4)		—		—		(6)
Stock-based compensation	8		—		359		—		—		367
Conversion	26		(26)		—		—		—		—
Balance September 30, 2020	$	6,342	$	652	$	56,117	$	62,764	$	(75,673)	$	50,202
Total comprehensive income	—		—		—		3,857		3,847		7,704
Repurchase of shares	—		—		(1)		—		—		(1)
Issuance of stock	—		8		17		—		—		25
Stock-based compensation	103		—		51		—		—		154
Conversion	3		(3)		—		—		—		—
Balance December 31, 2020	$	6,448	$	657	$	56,184	$	66,621	$	(71,826)	$	58,084
Accumulated balance consists of:
Translation loss									$	(58,264)
Pension and postretirement plans, net of taxes									(13,562)
									$	(71,826)

See Notes to Unaudited Consolidated Financial Statements

6

THE L. S. STARRETT COMPANY

Consolidated Statements of Cash Flows

(in thousands) (unaudited)

	6 Months Ended
	12/31/2021		12/31/2020
Cash flows from operating activities:
Net income	$	5,760	$	7,973
Non-cash operating activities:
Gain from sale of real estate	—		(3,204)
Depreciation	2,567		2,681
Amortization	660		605
Stock-based compensation	411		521
Net long-term tax obligations	86		114
Deferred taxes	305		(2,564)
Postretirement benefit and pension obligations	(706)		32
Working capital changes:
Accounts receivable	(1,619)		(2,911)
Inventories	(6,002)		4,615
Other current assets	(1,063)		(349)
Other current liabilities	(3,767)		(1,813)
Prepaid pension expense	(2,071)		(3,469)
Other	872		170
Net cash (used in) provided by operating activities	(4,567)		2,401
Cash flows from investing activities:
Purchases of property, plant and equipment	(4,457)		(3,050)
Software development	(533)		(537)
Proceeds from sale of real estate	—		5,214
Net cash (used in) provided by investing activities	(4,990)		1,627
Cash flows from financing activities:
Proceeds from borrowing	29,605		9,142
Debt repayments	(20,244)		(12,608)
Proceeds from common stock issued	117		25
Shares repurchased	(23)		(7)
Net cash provided by (used in) financing activities	9,455		(3,448)
Effect of exchange rate changes on cash	434		521
Net increase in cash	332		1,101
Cash, beginning of period	9,105		13,458
Cash, end of period	$	9,437	$	14,559
Supplemental cash flow information:
Interest paid	$	465	$	423
Income taxes paid, net	2,222		2,941

See Notes to Unaudited Consolidated Financial Statements

7

THE L. S. STARRETT COMPANY

Notes to Unaudited Consolidated Financial Statements

December 31, 2021

Note 1:    Basis of Presentation and Summary of Significant Account Policies

The unaudited interim consolidated financial statements as of and for the six months ended December 31, 2021 have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited consolidated financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021. The balance sheet as of June 30, 2021 has been derived from the audited consolidated financial statements as of and for the year ended June 30, 2021.  Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The Company’s “fiscal year” begins July 1st and ends June 30th.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2021 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Throughout the pandemic crisis, the Company's main focus has been on protecting the health and well-being of its employees, and the long-term financial health of the Company. It remains very difficult for management to predict when this crisis will no longer be a risk to future sales and operations. To the extent that pandemic-related events do not provide evidence about conditions that existed at the balance-sheet date, the Company considers it necessary to disclose it cannot estimate all aspects of the impact on the financial statements as a result of the on-going pandemic.

Note 2:    Segment Information

The segment information and the accounting policies of each segment are the same as those described in the notes to the consolidated financial statements entitled “Financial Information by Segment & Geographic Area” included in our Annual Report on Form 10-K for the year ended June 30, 2021. The Company’s business is aggregated into two reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses, which are included in the unallocated column in the table below. Other income and expense, including interest income and expense, and income taxes are excluded entirely from the table below. There were no significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated		Total
Three Months ended December 31, 2021
Sales1	$	32,666	$	28,652	$	—	$	61,318
Operating Income (Loss)	$	1,549	$	4,394	$	(1,742)	$	4,201
Three Months ended December 31, 2020
Sales2	$	27,106	$	26,948	$	—	$	54,054
Operating Income (Loss)	$	3,688	$	4,436	$	(1,923)	$	6,201

1.Excludes $930 of North American segment intercompany sales to the International segment, and $4,412 of International segment intercompany sales to the North American segment.

8

2.Excludes $992 of North American segment intercompany sales to the International segment, and $2,610 of International segment intercompany sales to the North American segment.

	North American Operations		International Operations		Unallocated		Total
Six months ended December 31, 2021
Sales1	$	66,475	$	56,357	$	—	$	122,832
Operating Income (Loss)	$	4,050	$	7,977	$	(3,694)	$	8,333
Six months ended December 31, 2020
Sales2	$	53,089	$	50,375	$	—	$	103,464
Operating Income (Loss)	$	4,516	$	7,277	$	(3,757)	$	8,036

1.Excludes $1,679 of North American segment intercompany sales to the International segment, and $9,748 of International segment intercompany sales to the North American segment.

2.Excludes $1,737 of North American segment intercompany sales to the International segment, and $5,396 of International segment intercompany sales to the North American segment.

Note 3:    Revenue from Contracts with Customers

Under ASC Topic 606, the Company is required to present a refund liability and a return asset within the Unaudited Consolidated Balance Sheet. As of December 31, 2021 and June 30, 2021, the balance of the return asset was $0.1 million and $0.2 million, respectively, and the balance of the refund liability as of December 31, 2021 and June 30, 2021 was $0.2 million. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the Consolidated Balance Sheets.

The Company, in general, warrants its products against certain defects in material and workmanship when used as designed, for a period of up to one year. The Company does not sell extended warranties.

Contract Balances

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had no contract asset balances, but had contract liability balances of $0.9 million and $0.6 million at December 31, 2021 and June 30, 2021, respectively, located in Accounts Payable in the Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in two reportable segments: North America and International. ASC Topic 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales by shipping origin are disaggregated accordingly for the three months ended December 31, 2021 and 2020 (in thousands):

9

	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
North America
United States	$	30,912	$	25,345	$	62,932	$	49,682
Canada & Mexico	1,754		1,761		3,543		3,408
	32,666		27,106		66,475		53,090
International
Brazil	18,687		17,493		37,890		32,401
United Kingdom	4,729		5,554		9,697		10,548
China	2,244		2,005		3,862		3,586
Australia & New Zealand	2,992		1,896		4,908		3,839
	28,652		26,948		56,357		50,374
Total Sales	$	61,318	$	54,054	$	122,832	$	103,464

Note 4:    Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU 2018-19 in November 2018. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption was permitted for annual periods beginning after December 15, 2018, and interim periods therein. This pronouncement was extended for Small Reporting Companies and for the Company to July 1, 2022. The Company does not expect the adoption of this standard to have a material impact on the financial position and results of operations.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for the Company beginning July 1, 2021 and must be applied on a retrospective basis. The Company does not expect the adoption of this standard to have a material impact on the financial position and results of operations or the required disclosures.

Note 5:    Leases

Operating lease cost amounted to $0.8 million and $1.6 million for the three and six months period ended December 31, 2021 and $0.6 million and $1.2 million for the three and six months period ended December 31, 2020. As of December 31, 2021, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,772	$	5,932	$	7,201

In September 2021, the Company entered into a six year lease in China for 100,682 square feet and recorded a right of use asset for $2.6 million. The facility is expected to be operational by the end of 2021. In July, Starrett UK leased space to another company for annual rent of $0.2 million and incremental applicable service charges. The lease is a 20 year agreement with a contract review in 2026. The fees are recorded in Other Income in the Company's Consolidated Statement of Operations.

10

The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such, these lease payments are expensed as incurred. The Company’s weighted average discount rate and remaining term on lease liabilities is approximately 9.0% and 4.6 years. As of December 31, 2021, the Company’s financing leases are de minimis. The foreign exchange impact affecting the operating leases are de minimis.

The Company entered into $0.1 million and $2.6 million in new operating lease commitments and incurred immaterial exchange expense during the three and six months ended December 31, 2021.

At December 31, 2021, the Company had the following fiscal year minimum operating lease commitments (in thousands)

Six months ended December 31, 2021	Operating Lease Commitments
2021 (Remainder of year)	$	994
2023	1,689
2024	1,520
2025	1,129
2026	1,044
Thereafter	824
Subtotal	$	7,201
Imputed interest	(1,269)
Total	5,932

Note 6:    Stock-based Compensation

On September 5, 2012, the Board of Directors adopted The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”). The 2012 Stock Plan was approved by shareholders on October 17, 2012 and the material terms of its performance goals were re-approved by shareholders at the Company’s Annual Meeting held on October 18, 2017. There are no shares available under the 2012 Plan.

On September 1, 2021, the Board of Directors adopted The L.S. Starrett Company 2021 Long Term Incentive Plan (the “2021 Stock Plan”). The 2021 Stock Plan was approved by shareholders on October 13, 2021.

Both the 2012 and 2021 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2021 and 2012 Stock Plans provide for the issuance of up to 500,000 shares of common stock.

Under both plans, options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of December 31, 2021, there were no stock options and 205,636 restricted stock units outstanding. There were 441,901 shares available for grant under the 2021 Stock Plan as of December 31, 2021.

For stock option grants, the fair value of each grant is estimated at the date of grant using the Binomial Options pricing model. The Binomial Options pricing model utilizes assumptions related to stock volatility, the risk-free interest rate, the dividend yield, and employee exercise behavior. Expected volatilities utilized in the model are based on the historic volatility of the Company’s stock price. The risk-free interest rate is derived from the U.S. Treasury Yield curve in effect at the time of the grant. The expected life is determined using the average of the vesting period and contractual term of the options (Simplified Method).

No stock options were granted during the six months ended December 31, 2021 and 2020.

The weighted average contractual term for stock options outstanding as of December 31, 2021 was 1.0 years.  There are no stock options outstanding as of December 31, 2021. There were no stock options exercisable as of December 31, 2021. In

11

recognizing stock compensation expense for the 2012 and 2021 Stock Incentive Plan, management has estimated that there will be no forfeitures of options.

The Company accounts for stock options and RSU awards by recognizing the expense of the grant date fair value ratably over vesting periods generally ranging from one year to three years. The related expense is included in selling, general and administrative expenses.

There were 80,500 RSU awards with a fair value of $11.35 per RSU granted during the six months ended December 31, 2021. There were 124,668 RSUs settled, and 11,174 RSUs forfeited during the six months ended December 31, 2021.  The aggregate intrinsic value of RSU awards outstanding as of December 31, 2021 was $1.9 million. As of December 31, 2021, all vested awards have been issued and settled.

On February 5, 2013, the Board of Directors adopted The L.S. Starrett Company 2013 Employee Stock Ownership Plan (the “2013 ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income.  The plan is intended as an employee stock ownership plan within the meaning of Section 4975 (e) (7) of the Internal Revenue Code of 1986, as amended. U.S. employees who have completed a year of service are eligible to participate.

Compensation expense related to all stock-based plans for the three and six-month periods ended December 31, 2021 were $0.2 million and $0.3 million as compared to the prior year three and six months of $0.2 million and $0.5 million, respectively.  As of December 31, 2021, there was $2.8 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost, $1.7 million relates to performance based RSU grants that are not expected to be awarded. The remaining $1.1 million is expected to be recognized over a weighted average period of 2.0 years.

Note 7:    Inventories

Inventories consist of the following (in thousands):

	12/31/2021		06/30/2021
Raw material and supplies	$	30,687	$	29,271
Goods in process and finished parts	16,592		16,096
Finished goods	37,853		37,344
	85,132		82,711
LIFO Reserve	(21,258)		(22,139)
	$	63,874	$	60,572

Of the Company’s $63.9 million and $60.6 million total inventory at December 31, 2021 and June 30, 2021, respectively, the $21.3 million and  $22.1 million LIFO reserves belong to the U.S. Precision Tools and Saws Manufacturing “Core U.S.” business. The Core U.S. business total inventory was $30.2 million on a FIFO basis and $8.9 million on a LIFO basis at December 31, 2021. The Core U.S. business had total Inventory, on a FIFO basis, of $27.8 million and $5.7 million on a LIFO basis as of June 30, 2021. The use of LIFO, as compared to FIFO, resulted in a $0.1 million decrease in cost of sales for the goods sold in the period ending December 31, 2021 compared to $0.4 million in the six months ending December 31, 2020.

Note 8:    Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 and a private software company in 2017 resulted in the recognition of goodwill totaling $4.7 million. During the fourth quarter of fiscal year 2020 the Company tested impairment of intangible assets according to ASC 360 "Property, Plant and Equipment" and determined the carrying value was deemed to be recoverable at Bytewise but not at the private software company where the impairment of intangibles was calculated. The Company concluded that intangible assets of the private software company were impaired by $2.9 million.

The Company then, according to ASC 350 Intangibles -Goodwill and Other, conducted a step one analysis performed based on the update carrying value for each reporting unit. Goodwill was determined to be impaired $0.6 million at the private software company and Goodwill of $3.0 million was impaired at the Bytewise reporting unit as of June 30, 2020. As a result, the balance of Goodwill at Bytewise is zero and $1.0 million at the private software company as of December 31, 2020.

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The Company will continue to perform an annual assessment of goodwill associated with its purchase of a private software company. If future results significantly vary from current estimates, related projections, or business assumptions due to changes in industry or market conditions, the Company may be required to perform an impairment analysis prior to our annual test date if a triggering event is identified. As of December 31, 2021 , the Company did not identify a triggering event.

Amortizable intangible assets consist of the following (in thousands):

	12/31/2021		6/30/2021
Trademarks and trade names	2,070		2,070
Customer relationships	630		630
Software development	10,777		10,244
Total	13,477		12,944
Accumulated amortization and impairment	(8,716)		(8,056)
Total net balance	$	4,761	$	4,888

The category completed technology became fully amortized in November 2021 and, therefore, removed from the above table. Amortizable intangible assets are being amortized on a straight-line basis over the period of expected economic benefit.

The estimated useful lives of the intangible assets subject to amortization range between 5 years for software development and 20 years for some trademark and trade name assets. The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next five years and thereafter, is as follows (in thousands):

2022 (Remainder of year)	$	701
2023	1,260
2024	989
2025	829
2026	619
Thereafter	363
Total net balance	$	4,761

Note 9:    Pension and Post-retirement Benefits

The Company has two defined benefit pension plans, one for U.S. employees and another for U.K. employees.  The Company has a postretirement medical insurance benefit plan for U.S. employees. The Company also has defined contribution plans.

The U.K. defined benefit plan was closed to new entrants in fiscal 2009.

On December 21, 2016, the Company amended the U.S. defined benefit pension plan to freeze benefit accruals effective December 31, 2016. Consequently, the Plan is closed to new participants and current participants will no longer earn additional benefits after December 31, 2016.

Net periodic benefit costs for the Company's defined benefit pension plans are located in Other (expense), net in Consolidated Statements of Operations except (in the table below) for service cost . Service cost are in cost of sales and selling, general and administrative expenses. Net periodic benefit costs consist of the following (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
Interest cost	1,031		1,118		2,064		2,231
Expected return on plan assets	(1,098)		(1,113)		(2,198)		(2,221)
Amortization of net loss	15		14		28		27
	$	(52)	$	19	$	(106)	$	37

Net periodic benefit costs for the Company's Postretirement Medical Plan consists of the following (in thousands):

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	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
Service cost	$	9	$	22	$	18	$	43
Interest cost	13		52		25		103
Amortization of prior service credit	(369)		(135)		(737)		(269)
Amortization of net loss	47		41		94		83
	$	(300)	$	(20)	$	(600)	$	(40)

For both the three month and six month periods ended December 31, 2021, the Company contributed $1.5 million, in the U.S. and $0.3 million and $0.5 million in the UK pension plans for the same periods. Based upon the actuarial valuations performed on the Company’s defined benefit plans as of June 30, 2021, the contribution for fiscal 2022 for the U.S. plans would require a contribution of $5.6 million and the U.K. plan would require one of $1.0 million However, as a result of the American Rescue Plan Act of 2021, the minimum required company contribution for the U.S. Plan in fiscal 2022 was reduced from $5.6 million to $0.6 million. The Company believes that government regulation is only a small part of deciding the pension funding, and as a result, intends to contribute more than the federal requirement. The Company is currently planning on evaluating the U.S. future contribution on a quarterly basis and plans to contribute $0.5 million in the 2nd half of fiscal 2022.

The Company’s pension plans use fair value as the market-related value of plan assets and recognize net actuarial gains or losses in excess of ten percent (10)% of the greater of the market-related value of plan assets or of the plans’ projected benefit obligation in net periodic (benefit) cost as of the plan measurement date. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of accumulated other comprehensive loss.

Note 10:     Debt

Debt is comprised of the following (in thousands):

	12/31/2021		06/30/2021
Short-term and current maturities
Loan and Security Agreement (Line of credit)	13,746		9,153
Loan and Security Agreement (Term Loan)	1,509		1,509
Brazil Loans	6,714		5,297
	21,969		15,959
Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	5,158		6,010
Brazil Loans	4,000		—
	9,158		6,010
	$	31,127	$	21,969

On December 31, 2019, the Company entered into the Tenth Amendment of its Loan and Security Agreement (“Tenth Amendment”). Under the revised agreement, the credit limit for the Revolving Loan was increased from $23.0 million to $25.0 million. In addition, the Company entered into a new $10.0 million 5-year Term Loan with a fixed interest rate of 4.0%. Under the Tenth Amendment, the credit limit for external borrowing was increased from $2.5 million to $5.0 million.

On June 25, 2020, the Borrowers and TD Bank entered into an amendment and restatement (the “Amendment and Restatement”) of the Loan Agreement. The Amendment and Restatement waived the fixed charge coverage ratio for the quarter ended June 30, 2020. In addition, the Amendment and Restatement clarifies that certain non-cash adjustments to the definition of EBITDA are permitted under the Loan Agreement, as amended. In addition, the Amendment and Restatement increases the permitted borrowings from a foreign bank from $5.0 million to $15.0 million and permits the Company to draw the remainder of the outstanding balance under the Loan Agreement.

Pursuant to the terms of the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof. TD Bank updated its security interests in the Company’s U.S. based assets,

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increased the maximum interest charged on the Line Of Credit from and annual interest rate of 2.25% plus Libor to 3.50% plus Libor, and amended the borrowing base for the line of credit from 80% of Qualified AR and 50% of the lower of Cost or Market of US inventory values to 80% of qualified AR plus 85% of the Net Orderly Liquidation Value (NOLV) of US Inventory plus 62.5% of total appraised US real estate values.

As a result of this change, the Company is projected to maintain its current borrowing capacity of $25,000,000 under the Line of Credit. The Company underwent a series of appraisals and field exams in all US locations as part of restructuring this agreement and will provide additional reporting supporting the borrowing base and covenants certifications. This minimum adjusted EBITDA covenant was based on the Company’s plan for a slow pandemic recovery throughout FY21 and the impact of the Company’s restructuring plan initiatives. As of September 30, 2021, the agreement has reverted to the prior covenant package. The Company was compliant with the minimum liquidity requirement and the minimum fixed charge coverage ratio required bank covenants as of December 31, 2021.

Total debt increased $9.2 million during the six months ended December 31, 2021, $5.4 million of which was an increase in Brazil. This is in response to increased working capital levels required to meet strong customer demand and counteract pandemic related supply chain disruptions and increased transit times.

During the six months ended December 31, 2021 the Brazilian subsidiary realized a build-up of ICMS (sales tax) credits, a consequence of the fiscal 2021 restructuring activities which increased the manufacturing activity and, therefore, raw material imports into Brazil. As the Company's Brazilian subsidiary is now exporting a larger proportion of its sales, its ability to re-claim these ICMS credits has been diminished. The Company is actively mitigating this consequence by filing applications with the relevant tax authorities to change the methodology of charging and re-claiming ICMS on imports and domestic sales so that this credit is subsequently relieved and does not increase at this rate again. This new methodology is common for similar sized, export focused companies in Brazil.

Availability under the Line of Credit remains subject to a borrowing base comprised of Accounts Receivable, Inventory, and Real Estate. The Company believes that the borrowing base will consistently produce availability under the Line of Credit of $25.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

The Company’s Brazilian subsidiary incurs short-term loans with local banks in order to support the Company’s strategic initiatives. The loans are backed by the entity’s US dollar denominated export receivables. The Company’s Brazilian subsidiary has the following loans of December 31, 2021 (in thousands):

Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Santander	5.98%	February 2021	February 2022	$	1,219
Brasil	2.80%	May 2021	May 2022	$	795
Bradesco	1.88%	July 2021	July 2022	$	1,170
Bradesco	2.05%	August 2021	July 2022	$	400
Santander	2.15%	August 2021	July 2022	$	731
Brasil	2.10%	August 2021	August 2022	$	1,400
Itau	4.52%	October 2021	September 2024	$	4,000
Santander	2.71%	December 2021	December 2022	1,000
				$	10,714

Note 11:     Income Taxes

The Company is subject to U.S. federal income tax and various state, local, and foreign income taxes in numerous jurisdictions. The Company’s domestic and foreign tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.

The Company provides for income taxes on an interim basis based on an estimate of the effective tax rate for the year. This estimate is reassessed on a quarterly basis. Discrete tax items are accounted for in the quarterly period in which they occur.

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On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Beginning in fiscal 2019, the Company incorporated certain provisions of the Act in the calculation of the tax provision and effective tax rate, including the provisions related to the Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion Anti Abuse Tax (“BEAT”), as well as other provisions, which limit tax deductibility of expenses.

The GILTI provisions have had the most significant impact to the Company. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. In general, this foreign income will effectively be taxed at an additional 10.5% tax rate reduced by any available current year foreign tax credits. The ability to benefit foreign tax credits may be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income and other potential limitations within the foreign tax credit calculation.

In July 2020, the IRS issued final regulations and additional proposed regulations that address the application of the high-taxed exclusion from GILTI. Under these regulations, the Company can make an annual election to exclude from its GILTI inclusion, income from its foreign subsidiaries that’s effective income tax rate exceeds 18.9% for that year. The regulations must be applied for tax years beginning after July 23, 2020 but companies have the option to apply retroactively for tax years beginning after December 31, 2017 and before July 23, 2020. In the first quarter of fiscal 2021 the Company recognized a discrete tax benefit of ($2.7) million related to the impact of electing to apply the high-tax exclusion retroactively for fiscal year 2019 and fiscal year 2020.

For the three month period ended December 31, 2021, the Company recognized tax expense of $1.0 million on a profit before tax of $3.5 million or an effective tax rate of 29%. For the three month period ended December 31, 2020, the Company recognized tax expense of $1.9 million on a profit before tax of $5.8 million or an effective tax rate of 33%. The tax rate for both fiscal 2022 and fiscal 2021 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses.

For the six month period ended December 31, 2021, the Company recognized a tax benefit of $2.1 million on a profit before tax of $7.9 million or an effective tax rate of 27%. This was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by discrete tax benefits recognized from excess stock compensation deductions, tax credits, and permanent deductions generated from research expenses. For the six month period ended December 31, 2020. the Company recognized tax expense of $(0.4) million on a profit before tax of $7.6 million or an effective tax rate of (5)%.This was lower than the U.S. statutory tax rate of 21% primarily due to the discrete benefits relating to legislation enacted during the first quarter of fiscal 2021 in the amount of ($2.7) million related to the impact of the GILTI high-tax exclusion and ($0.2) million related to the impact of the increase in UK corporate tax rate on the net deferred tax asset. Other factors impacting the tax rate include the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses.

U.S. Federal tax returns for years prior to fiscal 2018 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from earlier years are still subject to adjustment. As of December 31, 2021, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2015 – present. During the next twelve months, it is possible there will be a reduction of $0.1 million in long-term tax obligations due to the expiration of the statute of limitations on prior year tax returns.

Accounting for income taxes requires estimates of future benefits and tax liabilities. Due to the temporary differences in the timing of recognition of items included in income for accounting and tax purposes, deferred tax assets or liabilities are recorded to reflect the impact arising from these differences on future tax payments. With respect to recorded tax assets, the Company assesses the likelihood that the asset will be realized by addressing the positive and negative evidence to determine whether realization is more likely than not to occur. If realization is in doubt because of uncertainty regarding future profitability, the Company provides a valuation allowance related to the asset to the extent that it is more likely than not that the deferred tax asset will not be realized. Should any significant changes in the tax law or the estimate of the necessary valuation allowance occur, the Company would record the impact of the change, which could have a material effect on the Company’s financial position.

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No valuation allowance has been recorded for the Company’s U.S. federal and foreign deferred tax assets related to temporary differences included in taxable income. While the Company continues to believe that forecasted future taxable income provide sufficient evidence to, more likely than not, support the realization of the tax benefits provided by those differences; the impact of COVID-19 may significantly impact its ability to forecast future pre-tax earnings in certain jurisdictions. If its forecasts are significantly impacted, the Company may need to record a valuation allowance on some or all its deferred tax assets as soon as the current fiscal year end.

In the U.S., a partial valuation allowance has been provided for foreign tax credit carryforwards due to the uncertainty of generating sufficient foreign source income to utilize those credits in the future and certain state net operating loss carryforwards that will expire in the near future unutilized.

Note 12: Contingencies

The Company is involved in certain legal matters, which arise, in the normal course of business. These matters are not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Use of Non- GAAP Financial Measures

In "Management's discussion and analysis on financial condition and results of operations" in this quarterly report on Form 10-Q, we discuss non- GAAP financial measures related to currency-neutral sales, as well as adjusted operating income.

We present these non- GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. Such non- GAAP financial measures assist investors in understanding the ongoing operating performance of the Company by presenting financial results between periods on a more comparable basis. Such measures should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Currency-neutral numbers are calculated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations. Adjusted operating income adjusts for restructuring costs and the gain on the sale of assets that are reflected in one period but not the other in order to show comparative operational performance. We include a reconciliation of currency-neutral revenues and adjusted operating income to its comparable GAAP financial measures.

References to currency-neutral sales and adjusted operating income should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with GAAP and may not be comparable to similarly titled non- GAAP financial measures used by other companies. In evaluating these non-GAAP financial measures, investors should be aware that in the future we may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. Our presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

Please see Note 2 regarding segment results of operations. The Company’s business is aggregated into two reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses, which are included in the unallocated column in the following tables as well as Note 2. These tables above are included to better explain our consolidated operational performance by showing more detail by business segment and reconciling GAAP operating income and adjusted operating income.

The following table represents key results of operations on a consolidated basis for the three months and six months ended December 31, 2021 and December 31, 2020:

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	Three Months Ended										Six Months Ended
(Amounts in thousands)	12/31/21			12/31/2020			$ Change favorable (unfavorable)		% Change		12/31/2021			12/31/2020			$ Change favorable (unfavorable)	% Change
Net sales	$	61,318		$	54,054		$	7,264	13.4	%	$	122,832		$	103,464		19,368	18.7	%
Gross margin	18,950			17,605			1,345		7.6	%	39,095			33,177			5,918	17.8	%
% of net sales	30.9		%	32.6		%					31.8		%	32.1		%
Selling, general and administrative expenses	14,749			14,224			(525)		(3.7)	%	30,762			27,615			(3,147)	(11.4)	%
% of net sales	24.1		%	26.3		%					25.0		%	26.7		%
Restructuring charges	—			384			384		(100.0)	%	—			730			730	(100.0)	%
Gain on sale of building	—			(3,204)			(3,204)		—	%	—			(3,204)			3,204	100.0	%
Operating income	4,201			6,201			(2,000)		(32.3)	%	8,333			8,036			297	3.7	%
Other income (expense), net	(662)			(426)			(236)		55.3	%	(436)			(427)			(9)	(2.0)	%
Income before income taxes	3,539			5,775			(2,236)		(38.7)	%	7,897			7,609			288	3.8	%
Income tax expense (benefit)	1,011			1,918			907		47.3	%	2,137			(364)			(2,501)	687.2	%
Net income	$	2,528		$	3,857		(1,329)		(34.5)	%	$	5,760		$	7,973		(2,213)	(27.8)	%

GAAP to Non-GAAP reconciliation:
	Three Months Ended							Six Months Ended
(Amounts in thousands)	12/31/21		12/31/2020		$ Change favorable (unfavorable)	% Change		12/31/2021		12/31/2020		$ Change favorable (unfavorable)	% Change
Operating income as reported	4,201		6,201		(2,000)	(32)	%	8,333		8,036		297	4	%
Add back restructuring charges	—		(384)		(384)	100	%	—		(730)		(730)	100	%
Less gain on sale of building	—		3,204		3,204	(100)	%	—		3,204		3,204	(100)	%
Non- GAAP adjusted operating income	4,201		3,381		820	24	%	8,333		5,562		2,771	50	%
% of net sales	6.9	%	6.3	%		60 basis points		6.8	%	5.4	%		140 basis points

The following table represents key results of operations for three months ending December 31, 2021 and 2020 based on our business aggregated into two reportable segments according to geography of operations: North American Operations and International Operations as reflected in the table below:

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	Three Months Ended December 31, 2021											Three Months Ended December 31, 2020
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total
Net sales	$	32,666		$	28,652		$	—	$	61,318		$	27,106		$	26,948		$	—	$	54,054
Gross margin	8,321			10,629			—		18,950			6,769			10,837					17,605
% of net sales	25.5		%	37.1		%			30.9		%	25.0		%	40.2		%			32.6		%
Selling, general and administrative expenses	6,772			6,235			1,742		14,749			5,976			6,324			1,923		14,224
% of net sales	20.7		%	21.8		%			24.1		%	22.0		%	23.5		%			26.3		%
Restructuring charges	—			—			—		—			308			76			—		384
Gain on sale of building	—			—			—		—			(3,204)			—			—		(3,204)
Operating income (loss)	$	1,549		$	4,394		$	(1,742)	$	4,201		$	3,688		$	4,436		$	(1,923)	$	6,201
% of net sales	4.7		%	15.3		%			6.9		%	13.6		%	16.5		%			11.5		%
Add back restructuring charges							—		—			308			76			—		384
Less gain on sale of building	—			—			—		—			(3,204)			—			—		(3,204)
Non-GAAP adjusted operating income	$	1,549		$	4,394		$	(1,742)	$	4,201		$	792		$	4,512		$	(1,923)	$	3,381
% of net sales	4.7		%	15.3		%			6.9		%	2.9		%	16.7		%			6.3		%

The following table represents key results of operations for six months ending December 31, 2021 and 2020 based on our business aggregated into two reportable segments according to geography of operations : North American Operations and International Operations:

	Six Months Ended December 31, 2021											Six Months Ended December 31, 2020
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total
Net sales	$	66,475		$	56,357		$—		$	122,832		$	53,089		$	50,375		$—		$	103,464
Gross margin	17,855			21,239			—		39,095			13,595			19,582					33,177
% of net sales	26.9		%	37.7		%			31.8		%	25.6		%	38.9		%			32.1		%
Selling, general and administrative expenses	13,805			13,262			3,694		30,762			11,630			12,229			3,757		27,615
% of net sales	20.8		%	23.5		%			25.0		%	21.9		%	24.3		%			26.7		%
Restructuring charges	—			—					—			654			76			—		730
Gain on sale of building	—			—					—			(3,204)			—			—		(3,204)
Operating income (loss)	$	4,050		$	7,977		$	(3,694)	$	8,333		$	4,516		$	7,277		$	(3,757)	$	8,036
% of net sales	6.1		%	14.2		%			6.8		%	8.5		%	14.4		%			7.8		%
Add back restructuring charges	—			—			—		—			654			76			—		730
Less gain on sale of building	—			—			—		—			(3,204)			—			—		(3,204)
Non-GAAP adjusted operating income	$	4,050		$	7,977		$	(3,694)	$	8,333		$	1,966		$	7,353		$	(3,757)	$	5,562
% of net sales	6.1		%	14.2		%			6.8		%	3.7		%	14.6		%			5.4		%

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US GAAP to NON-U.S. GAAP Reconciliation
(Amounts in Thousands)	Quarter Ended 12/31/2021	Comparison to Quarter Ended 12/31/2020			Fiscal 2022 YTD 12/31/2021	Comparison Fiscal 2021 YTD 12/31/2020
		12/31/2020	$ Change	% Change		12/31/2020	$ Change	% Change
Net Sales, as reported	$ 61,318	$ 54,054	$ 7,264	13.44%	$ 122,832	$ 103,464	$19,368	18.7%
Change when converting FY22 sales in non USD functional currencies at the same exchange rates used in the comparison period	389	-	389	0.72%	(703)	-	(703)	(0.68)%
FY22 Currency Neutral Net Sales	$ 61,707	$ 54,054	$ 7,653	14.16%	$ 122,129	$ 103,464	$18,665	18.0%

Three-month and Six-month Periods Ended December 31, 2021 and December 31, 2020

Overview

New order intake remained strong across all areas of the business during the six months ending December 31, 2021, representing an increase of over 16% compared to the six-month period ending December 31, 2020. As a result, backlog remains at historically high levels, over 36% higher on December 31, 2021 compared to December 31, 2020. The Company expects this trend to continue throughout the remainder of Fiscal 2022.

Net sales in the quarter ended December 31, 2021 were $61.3 million, an increase of $7.3 million, or 13.4% compared to $54.0 million in the quarter ended December 31, 2020. Net Sales in the six months ended December 31, 2021 were $122.8 million, compared to $103.4 million for the same six-month period ending December 31, 2020, representing an improvement of 19.4 million, or 18.7%.

Foreign currency translation impact has been minimal over the first six months of Fiscal 2022 as the United States Dollar had weakened compared to other currencies in the first quarter of the year but has since strengthened. Currency neutral net sales for the quarter ending December 31, 2021 were $61.7 million, an increase of $7.7 million or 14.2% compared to $54.0 million in the quarter ended December 31, 2020. For the six months ended December 31, 2021, currency neutral net sales were lower than reported sales at $122.1 million, representing an increase of $18.7 million, or 18.0% over the $103.4 million reported for the six months ending December 31, 2020.

Operating income in the quarter ended December 31, 2021 of $4.2 million or 6.9% of sales, was $2.0 million lower than the Operating income reported for quarter ending December 31, 2020, which included a $3.2 million gain on the sale of the Mt. Airy, North Carolina building and $0.4 million of restructuring charges. Eliminating the restructuring cost and the one-time gain on the sale of the Mt. Airy North Carolina facility from the prior December quarter, the December 31, 2021 non-GAAP adjusted operating income increased 24% to $4.2 million or 6.9% of sales versus $3.4 million or 6.3% of sales for the three-month period ending December 31, 2020.

Operating income improved from $8.0 million for the six months ended on December 31, 2020 to $8.3 million, or 3.8% for the six months ended December 31, 2021. Eliminating the impact of the aforementioned restructuring charges and the gain on the sale of the North Carolina facility during the six-month period ended on December 31, 2020, non-GAAP adjusted operating income was $8.3 million, or 6.8% of net sales compared to $5.6 million or 5.4% of net sales in the six-month period ended December 31, 2020, representing an improvement of $2.7 million or 50%.

The Company continues to benefit from its restructuring activities completed in Fiscal 2021 that have resulted in a reduction of excess production capacity and selling, general and administrative expenses. However, pandemic related challenges have continued to evolve in relation to supply chain, freight costs, logistics, wage inflation and labor shortages which impact plant utilization in North America. These challenges are offsetting those restructuring gains in the short term, and are expected to continue throughout the remainder of fiscal 2022. In an effort to mitigate the impact of these challenges, the Company implemented price increases in the first quarter of fiscal 2022 in Brazil and the U.S. Additional price increases and surcharges on shipped orders will be implemented on a rolling basis throughout the third quarter of fiscal 2022.

21

Net income for the quarter ended December 31, 2021 was $2.5 million, which was $1.4 million lower than the Net Income reported for the quarter ended December 31, 2020 of $3.9 million. The prior year included the $3.2 million gain on the sale of the Company’s Mt. Airy, North Carolina facility and $0.4 million of restructuring expense. When removing these items from the prior year, the comparative net income was $1.0 million for the quarter ended December 31, 2020.

For the six-month period ended December 31, 2021, net income was $5.8 million compared to $8.0 million for the six months ended December 31, 2020, a reduction of $2.2 million. However, the prior years’ result included the $3.2 million gain on the sale of the Mt. Airy, North Carolina facility, a $2.7 million tax credit in the first quarter of fiscal 2021 due to changes in legislation related to GILTI, and restructuring charges of $0.7 million. When removing these items from the prior year, the comparative net income was $2.8 million for the six months ended December 31, 2020.

Net Sales

The Company’s net sales for the quarter ended December 31, 2021 were $61.3 million versus $54.0 million for the same period a year prior. North America sales of $32.7 million represent an increase of $5.6 million or 20.6% in quarter ended December 31, 2021. International Sales increased to $28.6 million during the quarter ended December 31, 2021 from $26.9 million during the quarter ended December 31, 2020. The Company continues to achieve year on year sales growth across all geographical areas and product offerings.

During the six months ended December 31, 2021 as compared to 2020, North American sales increased $13.4 million or 25.4% while international sales increased $6.0 million or 11.9%. Consolidated Net Sales in the six months ended December 31, 2021 were $122.8 million, compared to $103.4 million for the same six-month period ended December 31, 2020, representing an improvement of 19.4 million, or 18.7%.

Gross Margin

Gross margin increased $1.3 million or 7.6% for the three months, and $5.9 million or 17.8% for the six months ended December 31, 2021 as compared to the year prior, primarily as a result of higher sales. Gross margin as a percentage of sales declined 1.7 percentage points for the three months, and 0.3 percentage points for the six months ended December 31, 2021 compared to the prior year.

The gross margin erosion is due to the evolution of many challenges related to the COVID-19 pandemic. These include an increase in material and freight costs, and longer transit times which impact all sectors or the Company’s business. In North America, labor shortages and associated wage inflation continue to drive up costs and impact plant utilization. Although North American gross margin shows some improvement compared to the prior year, fiscal 2021 restructuring efforts are partially offset by the aforementioned labor shortages and wage inflation. International gross margin is more affected by material and freight cost increases, supply chain disruptions and increased transit times. In an effort to mitigate the impact of these challenges, the Company implemented price increases in the first quarter of fiscal 2022 in Brazil and the U.S. Additional price increases and surcharges on shipped orders will be implemented on a rolling basis throughout the third quarter of fiscal 2022. The Company expects these headwinds to continue throughout the remainder of this fiscal year.

For the three months ended December 31, 2021, North American gross margin measured as a percent of net sales improved by 0.5 percentage points from 25.0% to 25.5%, compared to the three-month period ended December 31, 2020. International gross margin declined by 3.1 percentage points from 40.2% at the end of the three-month period ended December 31, 2020 to 37.1% for the three-month period ended December 31, 2021.

For the six-month period ended December 31, 2021, North American gross margin measured as a percent of Net Sales improved from 25.6% to 26.9%. International gross margin measured the same way declined from 38.9% to 37.7% from December 31, 2020 to December 31, 2021 respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.5 million or 3.7% during the quarter ended December 31, 2021 compared to the quarter ended December 31, 2020, but declined as a percentage of net sales to 24.1% for the quarter ended December 31, 2021 compared to 26.3% in the prior year quarter ended December 31, 2020.

Selling, general and administrative expenses increased $3.1 million or 11.4% during the six months ended December 31, 2021 compared to 2020, however as a percentage of net sales it has declined from 26.7% for the six months ended December 31, 2020 to 25.0% for the six months ended December 31, 2021.

22

The Company has continued to benefit from selling, general and administrative reductions enacted as part of the fiscal 2021 restructuring programs, as evidenced in the decline of these costs as a percentage of net sales. This was partially offset by some variable selling costs tied to the higher level of sales, and temporary salary reductions enacted during the initial phase of the pandemic, which have since been restored.

Other Income (Expense)

For the three and six months period ended December 31, 2021 other expense was $0.6 million and $0.4 million, respectively. For the three and six months period ended December 31, 2020 other expense was $0.4 million in both periods.

Income Taxes

For the three month period ended December 31, 2021, the Company recognized tax expense of $1.0 million on a profit before tax of $3.5 million or an effective tax rate of 29%. For the three month period ended December 31, 2020, the Company recognized tax expense of $1.9 million on a profit before tax of $5.8 million or an effective tax rate of 33%. The tax rate for both fiscal 2022 and fiscal 2021 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses.

For the six month period ended December 31, 2021, the Company recognized a tax benefit of $2.1 million on a profit before tax of $7.9 million or an effective tax rate of 27%. This was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by discrete tax benefits recognized from excess stock compensation deductions, tax credits, and permanent deductions generated from research expenses. For the six month period ended December 31, 2020. the Company recognized tax expense of $(0.4) million on a profit before tax of $7.6 million or an effective tax rate of (5)%. This was lower than the U.S. statutory tax rate of 21% primarily due to the discrete benefits relating to legislation enacted during the first quarter of fiscal 2021 in the amount of ($2.7) million related to the impact of the GILTI high-tax exclusion and ($0.2) million related to the impact of the increase in UK corporate tax rate on the net deferred tax asset. Other factors impacting the tax rate include the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Six Months Ended
	12/31/2021		12/31/2020
Cash (used in) provided by operating activities	(4,567)		2,401
Cash (used in) provided by investing activities	(4,990)		1,627
Cash provided by (used in) financing activities	9,455		(3,448)
Effect of exchange rate changes on cash	434		521
Net increase in cash	$	332	$	1,101

Net cash flows for the six months ended December 31, 2021 provided a decrease in cash of $0.3 million compared to an increase in cash of $1.1 million for the six month period ended December 31, 2020 . Cash used in operations was $4.6 million due to increases in working capital required to meet strong customer demand and counteract supply chain disruptions and increased transit times. The Company has invested $4.5 million in new equipment and increased borrowing $9.3 million in the six months ended December 31, 2021.

During the six months ended December 31, 2021 the Brazilian subsidiary realized a build-up of ICMS (sales tax) credits, a consequence of the fiscal 2021 restructuring activities which increased the manufacturing activity and, therefore, raw material imports into Brazil. As the Company's Brazilian subsidiary is now exporting a larger proportion of its sales, its ability to re-claim these ICMS credits has been diminished. The Company is actively mitigating this consequence by filing applications with the relevant tax authorities to change the methodology of charging and re-claiming ICMS on imports and domestic sales so that

23

this credit is subsequently relieved and does not increase at this rate again. This new methodology is common for similar sized, export focused companies in Brazil.

Liquidity and Credit Arrangements

The Company worked with TD Bank to amend the current loan agreement which resulted in a number of changes such as amendments to the financial covenants through June 2021. The Company believes that existing cash and cash expected to be provided by future operating activities, augmented by the plans highlighted above, are adequate to satisfy its working capital, capital expenditure requirements and other contractual obligations for at least the next 12 months. If the Company's expectations are incorrect or the impact from the COVID-19 pandemic worsens then it may need to take advantage of unanticipated strategic opportunities to strengthen our financial position, which could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Pursuant to the terms of the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof. TD Bank perfected its security interests in the Company’s U.S. based assets, increased the maximum interest charged on the Line Of Credit from an annual interest rate of 2.25% plus Libor to 3.50% plus Libor, and amended the borrowing base for the line of credit from 80% of Qualified AR and 50% of the lower of Cost or Market of US inventory values to 80% of qualified AR plus 85% of the Net Orderly Liquidation Value (NOLV) of US Inventory plus 62.5% of total appraised US real estate values. As a result of this change, the Company is projected to maintain its current borrowing capacity of $25,000,000 under the Line of Credit. The Company underwent a series of appraisals and field exams in all US locations as part of restructuring this agreement. In addition, the Company will provide additional reporting to TD Bank, including monthly profit and loss statements, balance sheets, cash flow statements and forecasting. This minimum adjusted EBITDA covenant is based on the Company’s plan for a slow pandemic recovery throughout fiscal year 2021 and the impact of the Company’s restructuring plan initiatives. The Company will apply certain proceeds from the sale of US real estate assets against the principle balance of the term loans under the TD Bank loan agreement. The Agreement reverted to the prior covenant package for the quarter ending September 30, 2021.

The effective interest rate on the borrowings under the Loan and Security Agreement during the six months ended December 31, 2021 and 2020 was 1.9% and 1.9% respectively. The effective rate for the six months ended December 31, 2020 was lower than that specified in the First Amendment to the loan agreement which was executed on September 17, 2020 (See Note 10).

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any material off-balance sheet arrangements as defined under the Securities and Exchange Commission rules.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

One should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Form 10-K for the year ended June 30, 2021.

ITEM 4.    CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, has evaluated the Company's disclosure controls and procedures as of December 31, 2021, and they have concluded that our disclosure controls and procedures were effective as of such date. All information required to be filed in this report was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

24

PART II.    OTHER INFORMATION

ITEM 1A.    RISK FACTORS

SAFE HARBOR STATEMENT

UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q contains forward-looking statements about the Company’s business, competition, sales, expenditures, foreign operations, plans for reorganization, interest rate sensitivity, debt service, liquidity and capital resources, and other operating and capital requirements. In addition, forward-looking statements may be included in future Company documents and in oral statements by Company representatives to securities analysts and investors. The Company is subject to risks that could cause actual events to vary materially from such forward-looking statements. You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Form 10-K for the year ended June 30, 2021. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2021.

25

ITEM 6.    EXHIBITS

31a	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31b	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32	Certifications of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (I) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statement of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		THE L. S. STARRETT COMPANY (Registrant)
Date	February 7, 2022	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	February 7, 2022	/S/R. John C. Tripp
		John C. Tripp - Treasurer and CFO (Principal Accounting Officer)

27

EX-31.A

EXHIBIT 31.a

CERTIFICATIONS

I, Douglas A. Starrett, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The L.S. Starrett Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 5, 2021	/S/	Douglas A. Starrett
		Douglas A. Starrett
		Chief Executive Officer

EX-31.B

EXHIBIT 31.b

CERTIFICATIONS

I, John C. Tripp, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The L.S. Starrett Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial report; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 7, 2022	/S/	John C. Tripp
		John C. Tripp
		Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATIONS

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of The L.S. Starrett Company, a Massachusetts corporation (the "Company"), does hereby certify, to such officer's knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date	February 7, 2022	/S/ Douglas A. Starrett
		Douglas A. Starrett
		Chief Executive Officer
Date	February 7, 2022	/S/ John C. Tripp
		John C. Tripp
		Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to The L.S. Starrett Company and will be retained by The L.S. Starrett Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover page - shares	6 Months Ended
	Dec. 31, 2021	Jan. 27, 2022
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Dec. 31, 2021
Document Transition Report	false
Entity File Number	1-367
Entity Registrant Name	STARRETT L S CO
Entity Incorporation, State or Country Code	MA
Entity Tax Identification Number	04-1866480
Entity Address, Address Line One	121 Crescent Street
Entity Address, City or Town	Athol
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	01331-1915
City Area Code	978
Local Phone Number	249-3551
Title of 12(b) Security	Class A Common - $1.00 Per Share Par Value
Trading Symbol	SCX
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Current Fiscal Year End Date	--06-30
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Entity Central Index Key	0000093676
Amendment Flag	false
Class A Common Shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		0
Class B Common Shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		0

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Current assets:
Cash	$ 9,437	$ 9,105
Accounts receivable (less allowance for doubtful accounts of $602 and $665, respectively)	34,535	35,076
Inventories	63,874	60,572
Prepaid expenses and other current assets	14,473	14,467
Total current assets	122,319	119,220
Property, plant and equipment, net	35,851	35,992
Right of use assets	5,772	4,298
Deferred tax assets, net	18,601	19,073
Intangible assets, net	4,761	4,888
Goodwill	1,015	1,015
Total assets	188,319	184,486
Current liabilities:
Current maturities of debt	21,969	15,959
Current lease liability	1,418	1,650
Accounts payable	15,108	17,229
Accrued expenses	9,191	8,811
Accrued compensation	4,128	8,040
Total current liabilities	51,814	51,689
Other tax obligations	2,870	2,866
Long-term lease liability	4,514	2,734
Long-term debt, net of current portion	9,158	6,010
Postretirement benefit and pension obligations	34,778	37,652
Total liabilities	103,134	100,951
Stockholders' equity:
Additional paid-in capital	56,869	56,507
Retained earnings	79,941	74,181
Accumulated other comprehensive loss	(58,877)	(54,262)
Total stockholders' equity	85,185	83,535
Total liabilities and stockholders’ equity	$ 188,319	$ 184,486
Common stock, par value (in dollars per share)	$ 1	$ 1
Class A Common Shares
Stockholders' equity:
Common stock	$ 6,644	$ 6,475
Class B Common Shares
Stockholders' equity:
Common stock	$ 608	$ 634
Common stock, par value (in dollars per share)	$ 1	$ 1

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Allowance for doubtful accounts	$ 602	$ 665
Common stock, par value (in dollars per share)	$ 1	$ 1
Class A Common Shares
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares, outstanding (in shares)	6,644,107	6,475,307
Class B Common Shares
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares, outstanding (in shares)	607,748	633,505

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Income Statement [Abstract]
Net sales	$ 61,318	$ 54,054	$ 122,832	$ 103,464
Cost of goods sold	42,368	36,449	83,737	70,287
Gross margin	$ 18,950	$ 17,605	$ 39,095	$ 33,177
% of Net sales	30.90%	32.60%	31.80%	32.10%
Restructuring charges	$ 0	$ 384	$ 0	$ 730
Gain on sale of building	0	(3,204)	0	(3,204)
Selling, general and administrative expenses	14,749	14,224	30,762	27,615
Operating income	4,201	6,201	8,333	8,036
Other (expense), net	(662)	(426)	(436)	(427)
Income before income taxes	3,539	5,775	7,897	7,609
Income tax expense (benefit)	1,011	1,918	2,137	(364)
Net income	$ 2,528	$ 3,857	$ 5,760	$ 7,973
Basic income per share (in dollars per share)	$ 0.35	$ 0.54	$ 0.80	$ 1.13
Diluted income per share (in dollars per share)	$ 0.34	$ 0.53	$ 0.77	$ 1.10
Weighted average outstanding shares used in per share calculations:
Basic (in shares)	7,243	7,081	7,185	7,035
Diluted (in shares)	7,492	7,294	7,473	7,260

XML

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Statement of Comprehensive Income [Abstract]
Net income	$ 2,528	$ 3,857	$ 5,760	$ 7,973
Other comprehensive income (loss):
Currency translation gain (loss), net of tax	(871)	3,846	(4,482)	3,610
Pension and postretirement plans, net of tax	(67)	1	(133)	(21)
Other comprehensive income (loss)	(938)	3,847	(4,615)	3,589
Total comprehensive income	$ 1,590	$ 7,704	$ 1,145	$ 11,562

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock Outstanding Class A	Common Stock Outstanding Class B	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss
Beginning balance at Jun. 30, 2020	$ 45,983	$ 6,308	$ 680	$ 55,762	$ 58,648	$ (75,415)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	3,858				4,116	(258)
Repurchase of shares	(6)		(2)	(4)
Stock-based compensation	367	8		359
Conversion		26	(26)
Ending balance at Sep. 30, 2020	50,202	6,342	652	56,117	62,764	(75,673)
Beginning balance at Jun. 30, 2020	45,983	6,308	680	55,762	58,648	(75,415)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	11,562
Ending balance at Dec. 31, 2020	58,084	6,448	657	56,184	66,621	(71,826)
Beginning balance at Sep. 30, 2020	50,202	6,342	652	56,117	62,764	(75,673)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	7,704				3,857	3,847
Repurchase of shares	(1)			(1)
Stock-based compensation	154	103		51
Conversion		3	(3)
Issuance of stock	25		8	17
Ending balance at Dec. 31, 2020	58,084	6,448	657	56,184	66,621	(71,826)
Accumulated balance consists of:
Translation loss						(58,264)
Pension and postretirement plans, net of taxes						(13,562)
Accumulated other comprehensive loss	(71,826)
Accumulated other comprehensive loss	(54,262)
Beginning balance at Jun. 30, 2021	83,535	6,475	634	56,507	74,181	(54,262)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	(445)				3,232	(3,677)
Repurchase of shares	(16)		(2)	(14)
Stock-based compensation	174	119		55
Conversion		25	(25)
Ending balance at Sep. 30, 2021	83,248	6,619	607	56,548	77,413	(57,939)
Beginning balance at Jun. 30, 2021	83,535	6,475	634	56,507	74,181	(54,262)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	1,145
Ending balance at Dec. 31, 2021	85,185	6,644	608	56,869	79,941	(58,877)
Beginning balance at Sep. 30, 2021	83,248	6,619	607	56,548	77,413	(57,939)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	1,590				2,528	(938)
Repurchase of shares	(7)			(7)
Stock-based compensation	237	11		226
Conversion		7	(7)
Issuance of stock	117	7	8	102
Ending balance at Dec. 31, 2021	85,185	$ 6,644	$ 608	$ 56,869	$ 79,941	(58,877)
Accumulated balance consists of:
Translation loss						(60,528)
Pension and postretirement plans, net of taxes						$ 1,651
Accumulated other comprehensive loss	$ (58,877)

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Cash flows from operating activities:
Net income	$ 5,760	$ 7,973
Non-cash operating activities:
Gain from sale of real estate	0	(3,204)
Depreciation	2,567	2,681
Amortization	660	605
Stock-based compensation	411	521
Net long-term tax obligations	86	114
Deferred taxes	305	(2,564)
Postretirement benefit and pension obligations	(706)	32
Working capital changes:
Accounts receivable	(1,619)	(2,911)
Inventories	(6,002)	4,615
Other current assets	(1,063)	(349)
Other current liabilities	(3,767)	(1,813)
Prepaid pension expense	(2,071)	(3,469)
Other	872	170
Net cash (used in) provided by operating activities	(4,567)	2,401
Cash flows from investing activities:
Purchases of property, plant and equipment	(4,457)	(3,050)
Software development	(533)	(537)
Proceeds from sale of real estate	0	5,214
Net cash (used in) provided by investing activities	(4,990)	1,627
Cash flows from financing activities:
Proceeds from borrowing	29,605	9,142
Debt repayments	(20,244)	(12,608)
Proceeds from common stock issued	117	25
Shares repurchased	(23)	(7)
Net cash provided by (used in) financing activities	9,455	(3,448)
Effect of exchange rate changes on cash	434	521
Net increase in cash	332	1,101
Cash, beginning of period	9,105	13,458
Cash, end of period	9,437	14,559
Supplemental cash flow information:
Interest paid	465	423
Income taxes paid, net	$ 2,222	$ 2,941

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Basis of Presentation and Summary of Significant Account Policies

6 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Account Policies

Basis of Presentation and Summary of Significant Account Policies

The unaudited interim consolidated financial statements as of and for the six months ended December 31, 2021 have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited consolidated financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021. The balance sheet as of June 30, 2021 has been derived from the audited consolidated financial statements as of and for the year ended June 30, 2021.  Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The Company’s “fiscal year” begins July 1st and ends June 30th.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2021 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Throughout the pandemic crisis, the Company's main focus has been on protecting the health and well-being of its employees, and the long-term financial health of the Company. It remains very difficult for management to predict when this crisis will no longer be a risk to future sales and operations. To the extent that pandemic-related events do not provide evidence about conditions that existed at the balance-sheet date, the Company considers it necessary to disclose it cannot estimate all aspects of the impact on the financial statements as a result of the on-going pandemic.

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Segment Information

6 Months Ended

Dec. 31, 2021

Segment Reporting [Abstract]

Segment Information

Segment Information

The segment information and the accounting policies of each segment are the same as those described in the notes to the consolidated financial statements entitled “Financial Information by Segment & Geographic Area” included in our Annual Report on Form 10-K for the year ended June 30, 2021. The Company’s business is aggregated into two reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses, which are included in the unallocated column in the table below. Other income and expense, including interest income and expense, and income taxes are excluded entirely from the table below. There were no significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated		Total
Three Months ended December 31, 2021
Sales1	$	32,666	$	28,652	$	—	$	61,318
Operating Income (Loss)	$	1,549	$	4,394	$	(1,742)	$	4,201
Three Months ended December 31, 2020
Sales2	$	27,106	$	26,948	$	—	$	54,054
Operating Income (Loss)	$	3,688	$	4,436	$	(1,923)	$	6,201

1.Excludes $930 of North American segment intercompany sales to the International segment, and $4,412 of International segment intercompany sales to the North American segment.

2.Excludes $992 of North American segment intercompany sales to the International segment, and $2,610 of International segment intercompany sales to the North American segment.

	North American Operations		International Operations		Unallocated		Total
Six months ended December 31, 2021
Sales1	$	66,475	$	56,357	$	—	$	122,832
Operating Income (Loss)	$	4,050	$	7,977	$	(3,694)	$	8,333
Six months ended December 31, 2020
Sales2	$	53,089	$	50,375	$	—	$	103,464
Operating Income (Loss)	$	4,516	$	7,277	$	(3,757)	$	8,036

1.Excludes $1,679 of North American segment intercompany sales to the International segment, and $9,748 of International segment intercompany sales to the North American segment.

2.Excludes $1,737 of North American segment intercompany sales to the International segment, and $5,396 of International segment intercompany sales to the North American segment.

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Revenue from Contracts with Customers

6 Months Ended

Dec. 31, 2021

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customer

Revenue from Contracts with Customers

Under ASC Topic 606, the Company is required to present a refund liability and a return asset within the Unaudited Consolidated Balance Sheet. As of December 31, 2021 and June 30, 2021, the balance of the return asset was $0.1 million and $0.2 million, respectively, and the balance of the refund liability as of December 31, 2021 and June 30, 2021 was $0.2 million. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the Consolidated Balance Sheets.

The Company, in general, warrants its products against certain defects in material and workmanship when used as designed, for a period of up to one year. The Company does not sell extended warranties.

Contract Balances

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had no contract asset balances, but had contract liability balances of $0.9 million and $0.6 million at December 31, 2021 and June 30, 2021, respectively, located in Accounts Payable in the Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in two reportable segments: North America and International. ASC Topic 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales by shipping origin are disaggregated accordingly for the three months ended December 31, 2021 and 2020 (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
North America
United States	$	30,912	$	25,345	$	62,932	$	49,682
Canada & Mexico	1,754		1,761		3,543		3,408
	32,666		27,106		66,475		53,090
International
Brazil	18,687		17,493		37,890		32,401
United Kingdom	4,729		5,554		9,697		10,548
China	2,244		2,005		3,862		3,586
Australia & New Zealand	2,992		1,896		4,908		3,839
	28,652		26,948		56,357		50,374
Total Sales	$	61,318	$	54,054	$	122,832	$	103,464

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Recent Accounting Pronouncements

6 Months Ended

Dec. 31, 2021

Accounting Standards Update and Change in Accounting Principle [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU 2018-19 in November 2018. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption was permitted for annual periods beginning after December 15, 2018, and interim periods therein. This pronouncement was extended for Small Reporting Companies and for the Company to July 1, 2022. The Company does not expect the adoption of this standard to have a material impact on the financial position and results of operations.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for the Company beginning July 1, 2021 and must be applied on a retrospective basis. The Company does not expect the adoption of this standard to have a material impact on the financial position and results of operations or the required disclosures.

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Leases

6 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Leases

Leases

Operating lease cost amounted to $0.8 million and $1.6 million for the three and six months period ended December 31, 2021 and $0.6 million and $1.2 million for the three and six months period ended December 31, 2020. As of December 31, 2021, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,772	$	5,932	$	7,201

In September 2021, the Company entered into a six year lease in China for 100,682 square feet and recorded a right of use asset for $2.6 million. The facility is expected to be operational by the end of 2021. In July, Starrett UK leased space to another company for annual rent of $0.2 million and incremental applicable service charges. The lease is a 20 year agreement with a contract review in 2026. The fees are recorded in Other Income in the Company's Consolidated Statement of Operations.

The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such, these lease payments are expensed as incurred. The Company’s weighted average discount rate and remaining term on lease liabilities is approximately 9.0% and 4.6 years. As of December 31, 2021, the Company’s financing leases are de minimis. The foreign exchange impact affecting the operating leases are de minimis.

The Company entered into $0.1 million and $2.6 million in new operating lease commitments and incurred immaterial exchange expense during the three and six months ended December 31, 2021.

At December 31, 2021, the Company had the following fiscal year minimum operating lease commitments (in thousands)

Six months ended December 31, 2021	Operating Lease Commitments
2021 (Remainder of year)	$	994
2023	1,689
2024	1,520
2025	1,129
2026	1,044
Thereafter	824
Subtotal	$	7,201
Imputed interest	(1,269)
Total	5,932

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Stock-based Compensation

6 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-based Compensation

Stock-based Compensation

On September 5, 2012, the Board of Directors adopted The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”). The 2012 Stock Plan was approved by shareholders on October 17, 2012 and the material terms of its performance goals were re-approved by shareholders at the Company’s Annual Meeting held on October 18, 2017. There are no shares available under the 2012 Plan.

On September 1, 2021, the Board of Directors adopted The L.S. Starrett Company 2021 Long Term Incentive Plan (the “2021 Stock Plan”). The 2021 Stock Plan was approved by shareholders on October 13, 2021.

Both the 2012 and 2021 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2021 and 2012 Stock Plans provide for the issuance of up to 500,000 shares of common stock.

Under both plans, options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of December 31, 2021, there were no stock options and 205,636 restricted stock units outstanding. There were 441,901 shares available for grant under the 2021 Stock Plan as of December 31, 2021.

For stock option grants, the fair value of each grant is estimated at the date of grant using the Binomial Options pricing model. The Binomial Options pricing model utilizes assumptions related to stock volatility, the risk-free interest rate, the dividend yield, and employee exercise behavior. Expected volatilities utilized in the model are based on the historic volatility of the Company’s stock price. The risk-free interest rate is derived from the U.S. Treasury Yield curve in effect at the time of the grant. The expected life is determined using the average of the vesting period and contractual term of the options (Simplified Method).

No stock options were granted during the six months ended December 31, 2021 and 2020.

The weighted average contractual term for stock options outstanding as of December 31, 2021 was 1.0 years.  There are no stock options outstanding as of December 31, 2021. There were no stock options exercisable as of December 31, 2021. In

recognizing stock compensation expense for the 2012 and 2021 Stock Incentive Plan, management has estimated that there will be no forfeitures of options.

The Company accounts for stock options and RSU awards by recognizing the expense of the grant date fair value ratably over vesting periods generally ranging from one year to three years. The related expense is included in selling, general and administrative expenses.

There were 80,500 RSU awards with a fair value of $11.35 per RSU granted during the six months ended December 31, 2021. There were 124,668 RSUs settled, and 11,174 RSUs forfeited during the six months ended December 31, 2021.  The aggregate intrinsic value of RSU awards outstanding as of December 31, 2021 was $1.9 million. As of December 31, 2021, all vested awards have been issued and settled.

On February 5, 2013, the Board of Directors adopted The L.S. Starrett Company 2013 Employee Stock Ownership Plan (the “2013 ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income.  The plan is intended as an employee stock ownership plan within the meaning of Section 4975 (e) (7) of the Internal Revenue Code of 1986, as amended. U.S. employees who have completed a year of service are eligible to participate.

Compensation expense related to all stock-based plans for the three and six-month periods ended December 31, 2021 were $0.2 million and $0.3 million as compared to the prior year three and six months of $0.2 million and $0.5 million, respectively.  As of December 31, 2021, there was $2.8 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost, $1.7 million relates to performance based RSU grants that are not expected to be awarded. The remaining $1.1 million is expected to be recognized over a weighted average period of 2.0 years.

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Inventories

6 Months Ended

Dec. 31, 2021

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories consist of the following (in thousands):

	12/31/2021		06/30/2021
Raw material and supplies	$	30,687	$	29,271
Goods in process and finished parts	16,592		16,096
Finished goods	37,853		37,344
	85,132		82,711
LIFO Reserve	(21,258)		(22,139)
	$	63,874	$	60,572

Of the Company’s $63.9 million and $60.6 million total inventory at December 31, 2021 and June 30, 2021, respectively, the $21.3 million and  $22.1 million LIFO reserves belong to the U.S. Precision Tools and Saws Manufacturing “Core U.S.” business. The Core U.S. business total inventory was $30.2 million on a FIFO basis and $8.9 million on a LIFO basis at December 31, 2021. The Core U.S. business had total Inventory, on a FIFO basis, of $27.8 million and $5.7 million on a LIFO basis as of June 30, 2021. The use of LIFO, as compared to FIFO, resulted in a $0.1 million decrease in cost of sales for the goods sold in the period ending December 31, 2021 compared to $0.4 million in the six months ending December 31, 2020.

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Goodwill and Intangible Assets

6 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 and a private software company in 2017 resulted in the recognition of goodwill totaling $4.7 million. During the fourth quarter of fiscal year 2020 the Company tested impairment of intangible assets according to ASC 360 "Property, Plant and Equipment" and determined the carrying value was deemed to be recoverable at Bytewise but not at the private software company where the impairment of intangibles was calculated. The Company concluded that intangible assets of the private software company were impaired by $2.9 million.

The Company then, according to ASC 350 Intangibles -Goodwill and Other, conducted a step one analysis performed based on the update carrying value for each reporting unit. Goodwill was determined to be impaired $0.6 million at the private software company and Goodwill of $3.0 million was impaired at the Bytewise reporting unit as of June 30, 2020. As a result, the balance of Goodwill at Bytewise is zero and $1.0 million at the private software company as of December 31, 2020.

The Company will continue to perform an annual assessment of goodwill associated with its purchase of a private software company. If future results significantly vary from current estimates, related projections, or business assumptions due to changes in industry or market conditions, the Company may be required to perform an impairment analysis prior to our annual test date if a triggering event is identified. As of December 31, 2021 , the Company did not identify a triggering event.

Amortizable intangible assets consist of the following (in thousands):

	12/31/2021		6/30/2021
Trademarks and trade names	2,070		2,070
Customer relationships	630		630
Software development	10,777		10,244
Total	13,477		12,944
Accumulated amortization and impairment	(8,716)		(8,056)
Total net balance	$	4,761	$	4,888

The category completed technology became fully amortized in November 2021 and, therefore, removed from the above table. Amortizable intangible assets are being amortized on a straight-line basis over the period of expected economic benefit.

The estimated useful lives of the intangible assets subject to amortization range between 5 years for software development and 20 years for some trademark and trade name assets. The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next five years and thereafter, is as follows (in thousands):

2022 (Remainder of year)	$	701
2023	1,260
2024	989
2025	829
2026	619
Thereafter	363
Total net balance	$	4,761

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Pension and Post-retirement Benefits

6 Months Ended

Dec. 31, 2021

Retirement Benefits [Abstract]

Pension and Post-retirement Benefits

Pension and Post-retirement Benefits

The Company has two defined benefit pension plans, one for U.S. employees and another for U.K. employees.  The Company has a postretirement medical insurance benefit plan for U.S. employees. The Company also has defined contribution plans.

The U.K. defined benefit plan was closed to new entrants in fiscal 2009.

On December 21, 2016, the Company amended the U.S. defined benefit pension plan to freeze benefit accruals effective December 31, 2016. Consequently, the Plan is closed to new participants and current participants will no longer earn additional benefits after December 31, 2016.

Net periodic benefit costs for the Company's defined benefit pension plans are located in Other (expense), net in Consolidated Statements of Operations except (in the table below) for service cost . Service cost are in cost of sales and selling, general and administrative expenses. Net periodic benefit costs consist of the following (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
Interest cost	1,031		1,118		2,064		2,231
Expected return on plan assets	(1,098)		(1,113)		(2,198)		(2,221)
Amortization of net loss	15		14		28		27
	$	(52)	$	19	$	(106)	$	37

Net periodic benefit costs for the Company's Postretirement Medical Plan consists of the following (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
Service cost	$	9	$	22	$	18	$	43
Interest cost	13		52		25		103
Amortization of prior service credit	(369)		(135)		(737)		(269)
Amortization of net loss	47		41		94		83
	$	(300)	$	(20)	$	(600)	$	(40)

For both the three month and six month periods ended December 31, 2021, the Company contributed $1.5 million, in the U.S. and $0.3 million and $0.5 million in the UK pension plans for the same periods. Based upon the actuarial valuations performed on the Company’s defined benefit plans as of June 30, 2021, the contribution for fiscal 2022 for the U.S. plans would require a contribution of $5.6 million and the U.K. plan would require one of $1.0 million However, as a result of the American Rescue Plan Act of 2021, the minimum required company contribution for the U.S. Plan in fiscal 2022 was reduced from $5.6 million to $0.6 million. The Company believes that government regulation is only a small part of deciding the pension funding, and as a result, intends to contribute more than the federal requirement. The Company is currently planning on evaluating the U.S. future contribution on a quarterly basis and plans to contribute $0.5 million in the 2nd half of fiscal 2022.

The Company’s pension plans use fair value as the market-related value of plan assets and recognize net actuarial gains or losses in excess of ten percent (10)% of the greater of the market-related value of plan assets or of the plans’ projected benefit obligation in net periodic (benefit) cost as of the plan measurement date. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of accumulated other comprehensive loss.

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Debt

6 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Debt

Debt

Debt is comprised of the following (in thousands):

	12/31/2021		06/30/2021
Short-term and current maturities
Loan and Security Agreement (Line of credit)	13,746		9,153
Loan and Security Agreement (Term Loan)	1,509		1,509
Brazil Loans	6,714		5,297
	21,969		15,959
Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	5,158		6,010
Brazil Loans	4,000		—
	9,158		6,010
	$	31,127	$	21,969

On December 31, 2019, the Company entered into the Tenth Amendment of its Loan and Security Agreement (“Tenth Amendment”). Under the revised agreement, the credit limit for the Revolving Loan was increased from $23.0 million to $25.0 million. In addition, the Company entered into a new $10.0 million 5-year Term Loan with a fixed interest rate of 4.0%. Under the Tenth Amendment, the credit limit for external borrowing was increased from $2.5 million to $5.0 million.

On June 25, 2020, the Borrowers and TD Bank entered into an amendment and restatement (the “Amendment and Restatement”) of the Loan Agreement. The Amendment and Restatement waived the fixed charge coverage ratio for the quarter ended June 30, 2020. In addition, the Amendment and Restatement clarifies that certain non-cash adjustments to the definition of EBITDA are permitted under the Loan Agreement, as amended. In addition, the Amendment and Restatement increases the permitted borrowings from a foreign bank from $5.0 million to $15.0 million and permits the Company to draw the remainder of the outstanding balance under the Loan Agreement.

Pursuant to the terms of the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof. TD Bank updated its security interests in the Company’s U.S. based assets,

increased the maximum interest charged on the Line Of Credit from and annual interest rate of 2.25% plus Libor to 3.50% plus Libor, and amended the borrowing base for the line of credit from 80% of Qualified AR and 50% of the lower of Cost or Market of US inventory values to 80% of qualified AR plus 85% of the Net Orderly Liquidation Value (NOLV) of US Inventory plus 62.5% of total appraised US real estate values.

As a result of this change, the Company is projected to maintain its current borrowing capacity of $25,000,000 under the Line of Credit. The Company underwent a series of appraisals and field exams in all US locations as part of restructuring this agreement and will provide additional reporting supporting the borrowing base and covenants certifications. This minimum adjusted EBITDA covenant was based on the Company’s plan for a slow pandemic recovery throughout FY21 and the impact of the Company’s restructuring plan initiatives. As of September 30, 2021, the agreement has reverted to the prior covenant package. The Company was compliant with the minimum liquidity requirement and the minimum fixed charge coverage ratio required bank covenants as of December 31, 2021.

Total debt increased $9.2 million during the six months ended December 31, 2021, $5.4 million of which was an increase in Brazil. This is in response to increased working capital levels required to meet strong customer demand and counteract pandemic related supply chain disruptions and increased transit times.

During the six months ended December 31, 2021 the Brazilian subsidiary realized a build-up of ICMS (sales tax) credits, a consequence of the fiscal 2021 restructuring activities which increased the manufacturing activity and, therefore, raw material imports into Brazil. As the Company's Brazilian subsidiary is now exporting a larger proportion of its sales, its ability to re-claim these ICMS credits has been diminished. The Company is actively mitigating this consequence by filing applications with the relevant tax authorities to change the methodology of charging and re-claiming ICMS on imports and domestic sales so that this credit is subsequently relieved and does not increase at this rate again. This new methodology is common for similar sized, export focused companies in Brazil.

Availability under the Line of Credit remains subject to a borrowing base comprised of Accounts Receivable, Inventory, and Real Estate. The Company believes that the borrowing base will consistently produce availability under the Line of Credit of $25.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

The Company’s Brazilian subsidiary incurs short-term loans with local banks in order to support the Company’s strategic initiatives. The loans are backed by the entity’s US dollar denominated export receivables. The Company’s Brazilian subsidiary has the following loans of December 31, 2021 (in thousands):

Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Santander	5.98%	February 2021	February 2022	$	1,219
Brasil	2.80%	May 2021	May 2022	$	795
Bradesco	1.88%	July 2021	July 2022	$	1,170
Bradesco	2.05%	August 2021	July 2022	$	400
Santander	2.15%	August 2021	July 2022	$	731
Brasil	2.10%	August 2021	August 2022	$	1,400
Itau	4.52%	October 2021	September 2024	$	4,000
Santander	2.71%	December 2021	December 2022	1,000
				$	10,714

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Income Taxes

6 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company is subject to U.S. federal income tax and various state, local, and foreign income taxes in numerous jurisdictions. The Company’s domestic and foreign tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to the Company’s interpretation of applicable tax laws in the jurisdictions in which it files.

The Company provides for income taxes on an interim basis based on an estimate of the effective tax rate for the year. This estimate is reassessed on a quarterly basis. Discrete tax items are accounted for in the quarterly period in which they occur.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Beginning in fiscal 2019, the Company incorporated certain provisions of the Act in the calculation of the tax provision and effective tax rate, including the provisions related to the Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion Anti Abuse Tax (“BEAT”), as well as other provisions, which limit tax deductibility of expenses.

The GILTI provisions have had the most significant impact to the Company. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. In general, this foreign income will effectively be taxed at an additional 10.5% tax rate reduced by any available current year foreign tax credits. The ability to benefit foreign tax credits may be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income and other potential limitations within the foreign tax credit calculation.

In July 2020, the IRS issued final regulations and additional proposed regulations that address the application of the high-taxed exclusion from GILTI. Under these regulations, the Company can make an annual election to exclude from its GILTI inclusion, income from its foreign subsidiaries that’s effective income tax rate exceeds 18.9% for that year. The regulations must be applied for tax years beginning after July 23, 2020 but companies have the option to apply retroactively for tax years beginning after December 31, 2017 and before July 23, 2020. In the first quarter of fiscal 2021 the Company recognized a discrete tax benefit of ($2.7) million related to the impact of electing to apply the high-tax exclusion retroactively for fiscal year 2019 and fiscal year 2020.

For the three month period ended December 31, 2021, the Company recognized tax expense of $1.0 million on a profit before tax of $3.5 million or an effective tax rate of 29%. For the three month period ended December 31, 2020, the Company recognized tax expense of $1.9 million on a profit before tax of $5.8 million or an effective tax rate of 33%. The tax rate for both fiscal 2022 and fiscal 2021 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses.

For the six month period ended December 31, 2021, the Company recognized a tax benefit of $2.1 million on a profit before tax of $7.9 million or an effective tax rate of 27%. This was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by discrete tax benefits recognized from excess stock compensation deductions, tax credits, and permanent deductions generated from research expenses. For the six month period ended December 31, 2020. the Company recognized tax expense of $(0.4) million on a profit before tax of $7.6 million or an effective tax rate of (5)%.This was lower than the U.S. statutory tax rate of 21% primarily due to the discrete benefits relating to legislation enacted during the first quarter of fiscal 2021 in the amount of ($2.7) million related to the impact of the GILTI high-tax exclusion and ($0.2) million related to the impact of the increase in UK corporate tax rate on the net deferred tax asset. Other factors impacting the tax rate include the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses.

U.S. Federal tax returns for years prior to fiscal 2018 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from earlier years are still subject to adjustment. As of December 31, 2021, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2015 – present. During the next twelve months, it is possible there will be a reduction of $0.1 million in long-term tax obligations due to the expiration of the statute of limitations on prior year tax returns.

Accounting for income taxes requires estimates of future benefits and tax liabilities. Due to the temporary differences in the timing of recognition of items included in income for accounting and tax purposes, deferred tax assets or liabilities are recorded to reflect the impact arising from these differences on future tax payments. With respect to recorded tax assets, the Company assesses the likelihood that the asset will be realized by addressing the positive and negative evidence to determine whether realization is more likely than not to occur. If realization is in doubt because of uncertainty regarding future profitability, the Company provides a valuation allowance related to the asset to the extent that it is more likely than not that the deferred tax asset will not be realized. Should any significant changes in the tax law or the estimate of the necessary valuation allowance occur, the Company would record the impact of the change, which could have a material effect on the Company’s financial position.

No valuation allowance has been recorded for the Company’s U.S. federal and foreign deferred tax assets related to temporary differences included in taxable income. While the Company continues to believe that forecasted future taxable income provide sufficient evidence to, more likely than not, support the realization of the tax benefits provided by those differences; the impact of COVID-19 may significantly impact its ability to forecast future pre-tax earnings in certain jurisdictions. If its forecasts are significantly impacted, the Company may need to record a valuation allowance on some or all its deferred tax assets as soon as the current fiscal year end.

In the U.S., a partial valuation allowance has been provided for foreign tax credit carryforwards due to the uncertainty of generating sufficient foreign source income to utilize those credits in the future and certain state net operating loss carryforwards that will expire in the near future unutilized.

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Contingencies	6 Months Ended
	Dec. 31, 2021
Commitments and Contingencies Disclosure [Abstract]
Contingencies	ContingenciesThe Company is involved in certain legal matters, which arise, in the normal course of business. These matters are not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.

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Basis of Presentation and Summary of Significant Account Policies (Policies)

6 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Basis of Accounting

The unaudited interim consolidated financial statements as of and for the six months ended December 31, 2021 have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited consolidated financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021. The balance sheet as of June 30, 2021 has been derived from the audited consolidated financial statements as of and for the year ended June 30, 2021.  Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The Company’s “fiscal year” begins July 1st and ends June 30th.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2021 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Potential Impairment Due to COVID-19

Throughout the pandemic crisis, the Company's main focus has been on protecting the health and well-being of its employees, and the long-term financial health of the Company. It remains very difficult for management to predict when this crisis will no longer be a risk to future sales and operations. To the extent that pandemic-related events do not provide evidence about conditions that existed at the balance-sheet date, the Company considers it necessary to disclose it cannot estimate all aspects of the impact on the financial statements as a result of the on-going pandemic.

Recently Issued Accounting Standards not yet adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU 2018-19 in November 2018. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption was permitted for annual periods beginning after December 15, 2018, and interim periods therein. This pronouncement was extended for Small Reporting Companies and for the Company to July 1, 2022. The Company does not expect the adoption of this standard to have a material impact on the financial position and results of operations. In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for the Company beginning July 1, 2021 and must be applied on a retrospective basis.

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Segment Information (Tables)

6 Months Ended

Dec. 31, 2021

Segment Reporting [Abstract]

Summary of financial results for reportable segments

Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated		Total
Three Months ended December 31, 2021
Sales1	$	32,666	$	28,652	$	—	$	61,318
Operating Income (Loss)	$	1,549	$	4,394	$	(1,742)	$	4,201
Three Months ended December 31, 2020
Sales2	$	27,106	$	26,948	$	—	$	54,054
Operating Income (Loss)	$	3,688	$	4,436	$	(1,923)	$	6,201

1.Excludes $930 of North American segment intercompany sales to the International segment, and $4,412 of International segment intercompany sales to the North American segment.

2.Excludes $992 of North American segment intercompany sales to the International segment, and $2,610 of International segment intercompany sales to the North American segment.

	North American Operations		International Operations		Unallocated		Total
Six months ended December 31, 2021
Sales1	$	66,475	$	56,357	$	—	$	122,832
Operating Income (Loss)	$	4,050	$	7,977	$	(3,694)	$	8,333
Six months ended December 31, 2020
Sales2	$	53,089	$	50,375	$	—	$	103,464
Operating Income (Loss)	$	4,516	$	7,277	$	(3,757)	$	8,036

1.Excludes $1,679 of North American segment intercompany sales to the International segment, and $9,748 of International segment intercompany sales to the North American segment.

2.Excludes $1,737 of North American segment intercompany sales to the International segment, and $5,396 of International segment intercompany sales to the North American segment.

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Revenue from Contracts with Customers (Tables)

6 Months Ended

Dec. 31, 2021

Revenue from Contract with Customer [Abstract]

Disaggregation of revenue

	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
North America
United States	$	30,912	$	25,345	$	62,932	$	49,682
Canada & Mexico	1,754		1,761		3,543		3,408
	32,666		27,106		66,475		53,090
International
Brazil	18,687		17,493		37,890		32,401
United Kingdom	4,729		5,554		9,697		10,548
China	2,244		2,005		3,862		3,586
Australia & New Zealand	2,992		1,896		4,908		3,839
	28,652		26,948		56,357		50,374
Total Sales	$	61,318	$	54,054	$	122,832	$	103,464

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Leases (Tables)

6 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Summary of lease assets and liabilities

As of December 31, 2021, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,772	$	5,932	$	7,201

Fiscal year minimum operating lease commitments

At December 31, 2021, the Company had the following fiscal year minimum operating lease commitments (in thousands)

Six months ended December 31, 2021	Operating Lease Commitments
2021 (Remainder of year)	$	994
2023	1,689
2024	1,520
2025	1,129
2026	1,044
Thereafter	824
Subtotal	$	7,201
Imputed interest	(1,269)
Total	5,932

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Inventories (Tables)

6 Months Ended

Dec. 31, 2021

Inventory Disclosure [Abstract]

Schedule of inventories

Inventories consist of the following (in thousands):

	12/31/2021		06/30/2021
Raw material and supplies	$	30,687	$	29,271
Goods in process and finished parts	16,592		16,096
Finished goods	37,853		37,344
	85,132		82,711
LIFO Reserve	(21,258)		(22,139)
	$	63,874	$	60,572

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Amortizable intangible assets

Amortizable intangible assets consist of the following (in thousands):

	12/31/2021		6/30/2021
Trademarks and trade names	2,070		2,070
Customer relationships	630		630
Software development	10,777		10,244
Total	13,477		12,944
Accumulated amortization and impairment	(8,716)		(8,056)
Total net balance	$	4,761	$	4,888

Estimated aggregate amortization expense

The estimated aggregate amortization expense for the remainder of fiscal 2021 and for each of the next five years and thereafter, is as follows (in thousands):

2022 (Remainder of year)	$	701
2023	1,260
2024	989
2025	829
2026	619
Thereafter	363
Total net balance	$	4,761

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Pension and Post-retirement Benefits (Tables)

6 Months Ended

Dec. 31, 2021

Retirement Benefits [Abstract]

Schedule of net benefit costs

Net periodic benefit costs consist of the following (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
Interest cost	1,031		1,118		2,064		2,231
Expected return on plan assets	(1,098)		(1,113)		(2,198)		(2,221)
Amortization of net loss	15		14		28		27
	$	(52)	$	19	$	(106)	$	37

Net periodic benefit costs for the Company's Postretirement Medical Plan consists of the following (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2021		12/31/2020		12/31/2021		12/31/2020
Service cost	$	9	$	22	$	18	$	43
Interest cost	13		52		25		103
Amortization of prior service credit	(369)		(135)		(737)		(269)
Amortization of net loss	47		41		94		83
	$	(300)	$	(20)	$	(600)	$	(40)

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Debt (Tables)

6 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Debt schedule

Debt is comprised of the following (in thousands):

	12/31/2021		06/30/2021
Short-term and current maturities
Loan and Security Agreement (Line of credit)	13,746		9,153
Loan and Security Agreement (Term Loan)	1,509		1,509
Brazil Loans	6,714		5,297
	21,969		15,959
Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	5,158		6,010
Brazil Loans	4,000		—
	9,158		6,010
	$	31,127	$	21,969

Schedule of short-term debt, Brazilian subsidiary

The Company’s Brazilian subsidiary has the following loans of December 31, 2021 (in thousands):

Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Santander	5.98%	February 2021	February 2022	$	1,219
Brasil	2.80%	May 2021	May 2022	$	795
Bradesco	1.88%	July 2021	July 2022	$	1,170
Bradesco	2.05%	August 2021	July 2022	$	400
Santander	2.15%	August 2021	July 2022	$	731
Brasil	2.10%	August 2021	August 2022	$	1,400
Itau	4.52%	October 2021	September 2024	$	4,000
Santander	2.71%	December 2021	December 2022	1,000
				$	10,714

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Segment Information - Narrative (Details)	6 Months Ended
	Dec. 31, 2021 segment
Segment Reporting [Abstract]
Number of reportable segments	2

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Segment Information - Summary of financial results for reportable segments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	$ 61,318	$ 54,054	$ 122,832	$ 103,464
Operating Income (Loss)	4,201	6,201	8,333	8,036
Unallocated
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	0	0	0	0
Operating Income (Loss)	(1,742)	(1,923)	(3,694)	(3,757)
North American Operations
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	32,666	27,106	66,475	53,090
North American Operations | Operating Segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	32,666	27,106	66,475	53,089
Operating Income (Loss)	1,549	3,688	4,050	4,516
North American Operations | Intercompany sales
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Intercompany sales	930	992	1,679	1,737
International Operations | Operating Segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	28,652	26,948	56,357	50,375
Operating Income (Loss)	4,394	4,436	7,977	7,277
International Operations | Intercompany sales
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Intercompany sales	$ 4,412	$ 2,610	$ 9,748	$ 5,396

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Revenue from Contracts with Customers - Narrative (Details)	6 Months Ended
	Dec. 31, 2021 USD ($) segment	Jun. 30, 2021 USD ($)
Revenue from Contract with Customer [Abstract]
Customer return asset	$ 100,000	$ 200,000
Customer refund liability	200,000	200,000
Contract asset	0	0
Contract liability	$ 900,000	$ 600,000
Number of reportable segments | segment	2

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Revenue from Contracts with Customers - Disaggregation of revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Disaggregation of Revenue [Line Items]
Net sales	$ 61,318	$ 54,054	$ 122,832	$ 103,464
North America
Disaggregation of Revenue [Line Items]
Net sales	32,666	27,106	66,475	53,090
International
Disaggregation of Revenue [Line Items]
Net sales	28,652	26,948	56,357	50,374
United States | North America
Disaggregation of Revenue [Line Items]
Net sales	30,912	25,345	62,932	49,682
Canada & Mexico | North America
Disaggregation of Revenue [Line Items]
Net sales	1,754	1,761	3,543	3,408
Brazil | International
Disaggregation of Revenue [Line Items]
Net sales	18,687	17,493	37,890	32,401
United Kingdom | International
Disaggregation of Revenue [Line Items]
Net sales	4,729	5,554	9,697	10,548
China | International
Disaggregation of Revenue [Line Items]
Net sales	2,244	2,005	3,862	3,586
Australia & New Zealand | International
Disaggregation of Revenue [Line Items]
Net sales	$ 2,992	$ 1,896	$ 4,908	$ 3,839

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Leases - Narrative (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)	Sep. 30, 2021 USD ($) ft²	Jul. 31, 2021 USD ($)	Jun. 30, 2021 USD ($)
Lessee, Lease, Description [Line Items]
Operating lease cost	$ 800	$ 600	$ 1,600	$ 1,200
Right of use assets	$ 5,772		$ 5,772		$ 2,600		$ 4,298
Annual rent income from lease						$ 200
Weighted average discount rate	9.00%		9.00%
Weighted average remaining lease term	4 years 7 months 6 days		4 years 7 months 6 days
Operating lease commitments	$ 100		$ 2,600
China
Lessee, Lease, Description [Line Items]
Operating lease term					6 years
Square footage leased | ft²					100,682
United Kingdom
Lessee, Lease, Description [Line Items]
Term of UK lease contract						20 years

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Leases - Summary of lease assets and liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Sep. 30, 2021	Jun. 30, 2021
Commitments and Contingencies Disclosure [Abstract]
Right-of-Use Assets	$ 5,772	$ 2,600	$ 4,298
Operating Lease Obligations	5,932
Remaining Cash Commitment	$ 7,201

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Leases - Fiscal year minimum operating lease commitments (Details) $ in Thousands	Dec. 31, 2021 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2021 (Remainder of year)	$ 994
2023	1,689
2024	1,520
2025	1,129
2026	1,044
Thereafter	824
Subtotal	7,201
Imputed interest	(1,269)
Total	$ 5,932

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Stock-based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020	Sep. 05, 2012
The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Shares available for grant under 2012 plan (in shares)	441,901		441,901
Weighted average contractual term for stock options outstanding (in years)			1 year
Compensation expense related to stock-based plans	$ 0.2	$ 0.2	$ 0.3	$ 0.5
Unrecognized stock-based compensation costs	$ 1.1		$ 1.1
Expected weighted average vesting period (in years)			2 years
The 2012 and 2021 Stock Incentive Plans
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Shares of common stock authorized by 2012 and 2021 plans (in shares)					500,000
Share-based Payment Arrangement, Option | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Expiration date of options granted (in years)			10 years
Shares outstanding (in shares)	0		0
Stock options granted (in shares)			0	0
Forfeiture of options (in shares)			0
Restricted Stock Units (RSUs) | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Shares outstanding (in shares)	205,636		205,636
Aggregate intrinsic value of shares outstanding (less than)	$ 1.9		$ 1.9
Restricted stock awards (in shares)			80,500
Fair value of restricted stock award grants (in dollars per share)			$ 11.35
Restricted stock awards vested (in shares)			124,668
Restricted stock awards forfeited (in shares)			11,174
Unrecognized stock-based compensation costs	2.8		$ 2.8
Portion Relating to RSU Grants Not Expected to be Awarded | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Unrecognized stock-based compensation costs	$ 1.7		$ 1.7
Minimum | Share-based Payment Arrangement, Option | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Vesting period of shares granted (in years)			1 year
Minimum | Restricted Stock Units (RSUs) | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Vesting period of shares granted (in years)			1 year
Maximum | Share-based Payment Arrangement, Option | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Vesting period of shares granted (in years)			3 years
Maximum | Restricted Stock Units (RSUs) | The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Vesting period of shares granted (in years)			3 years

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Inventories - Components of Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Inventory Disclosure [Abstract]
Raw material and supplies	$ 30,687	$ 29,271
Goods in process and finished parts	16,592	16,096
Finished goods	37,853	37,344
Total before LIFO reserve	85,132	82,711
LIFO Reserve	(21,258)	(22,139)
Total	$ 63,874	$ 60,572

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Inventories (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Jun. 30, 2021
Inventory Disclosure [Abstract]
Inventories	$ 63,874		$ 60,572
Inventory, LIFO Reserve	21,258		22,139
Inventory difference using FIFO basis	30,200		27,800
LIFO inventory amount	8,900		$ 5,700
Effect of LIFO Reserve on income	$ 100	$ 400

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Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2021	Jun. 30, 2021	Dec. 31, 2020	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Goodwill		$ 1,015	$ 1,015
Bytewise and Private Software Company
Finite-Lived Intangible Assets [Line Items]
Goodwill					$ 4,700
Private Software Company
Finite-Lived Intangible Assets [Line Items]
Goodwill				$ 1,000
Impairment of intangible assets	$ 2,900
Goodwill impairment loss	600
Bytewise
Finite-Lived Intangible Assets [Line Items]
Goodwill				$ 0
Goodwill impairment loss	$ 3,000
Computer software
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life		5 years
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life		20 years

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Goodwill and Intangible Assets - Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Finite-Lived Intangible Assets [Line Items]
Total	$ 13,477	$ 12,944
Accumulated amortization and impairment	(8,716)	(8,056)
Total net balance	4,761	4,888
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Total	2,070	2,070
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Total	630	630
Software development
Finite-Lived Intangible Assets [Line Items]
Total	$ 10,777	$ 10,244

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Goodwill and Intangible Assets - Estimated Aggregate Amortization Expense (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]
2022 (Remainder of year)	$ 701
2023	1,260
2024	989
2025	829
2026	619
Thereafter	363
Total net balance	$ 4,761	$ 4,888

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Pension and Post-retirement Benefits (Details) $ in Millions	3 Months Ended	6 Months Ended
	Dec. 31, 2021 USD ($) plan	Dec. 31, 2021 USD ($) plan
Defined Benefit Plan Disclosure [Line Items]
Number of defined benefit pension plans | plan	2	2
Expected future contributions for the current year	$ 0.5	$ 0.5
Pension Plan | United States
Defined Benefit Plan Disclosure [Line Items]
Employer contributions		1.5
Expected employer contributions for remainder of the fiscal year	5.6	5.6
Expected future contributions for current fiscal year, after legislation	0.6	0.6
Pension Plan | Foreign Plan
Defined Benefit Plan Disclosure [Line Items]
Employer contributions	0.3	0.5
Expected employer contributions for remainder of the fiscal year	$ 1.0	$ 1.0

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Pension and Post-retirement Benefits - Net Periodic Costs (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Interest cost	$ 1,031	$ 1,118	$ 2,064	$ 2,231
Expected return on plan assets	(1,098)	(1,113)	(2,198)	(2,221)
Amortization of net loss	15	14	28	27
Total	(52)	19	(106)	37
Post Retirement Medical Plan
Defined Benefit Plan Disclosure [Line Items]
Service cost	9	22	18	43
Interest cost	13	52	25	103
Amortization of prior service credit	(369)	(135)	(737)	(269)
Amortization of net loss	47	41	94	83
Total	$ (300)	$ (20)	$ (600)	$ (40)

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Debt - Debt schedule (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Short-term Debt [Abstract]
Loan and Security Agreement	$ 21,969	$ 15,959
Brazil Loans	10,714
Short-term and current maturities	21,969	15,959
Long-term Debt, Excluding Current Maturities [Abstract]
Loan and Security Agreement	9,158	6,010
Long-term debt	31,127	21,969
Loan and Security Agreement (Term Loan)
Long-term Debt, Excluding Current Maturities [Abstract]
Loan and Security Agreement	5,158	6,010
Loan and Security Agreement (Line of credit)
Long-term Debt, Excluding Current Maturities [Abstract]
Loan and Security Agreement	4,000	0
Loan and Security Agreement (Line of credit)
Short-term Debt [Abstract]
Loan and Security Agreement	13,746	9,153
Loan and Security Agreement (Term Loan)
Short-term Debt [Abstract]
Loan and Security Agreement	1,509	1,509
Brazil Loans
Short-term Debt [Abstract]
Brazil Loans	$ 6,714	$ 5,297

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Debt (Details) - USD ($)			6 Months Ended
	Jun. 25, 2020	Dec. 31, 2019	Dec. 31, 2021	Jun. 24, 2020	Dec. 30, 2019
Debt Instrument [Line Items]
Credit limit on revolving loan facility		$ 25,000,000	$ 25,000,000		$ 23,000,000
Commitment fee percentage on line of credit			0.25%
Loan and Security Agreement
Debt Instrument [Line Items]
Face value of term loan				$ 5,000,000
Amended and Restated Loan And Security Agreement, Foreign Bank Term Loan
Debt Instrument [Line Items]
Face value of term loan	$ 15,000,000
Amended and Restated Loan And Security Agreement, Term Loan | London Interbank Offered Rate (LIBOR) | Minimum
Debt Instrument [Line Items]
Variable interest rate	2.25%
Amended and Restated Loan And Security Agreement, Term Loan | London Interbank Offered Rate (LIBOR) | Maximum
Debt Instrument [Line Items]
Variable interest rate	3.50%
All Debt
Debt Instrument [Line Items]
Increase in debt			$ 9,200,000
Brazil Debt
Debt Instrument [Line Items]
Increase in debt			5,400,000
Term Loan
Debt Instrument [Line Items]
Face value of term loan		$ 10,000,000
Term of loan		5 years
Fixed interest rate		4.00%
Credit limit for external borrowing		$ 5,000,000			$ 2,500,000
Line of Credit | Loan and Security Agreement
Debt Instrument [Line Items]
Percent of qualified AR				80.00%
Percent of the lower of Cost or Market of US Inventory values				50.00%
Line of Credit | Amended and Restated Loan And Security Agreement, Term Loan
Debt Instrument [Line Items]
Credit limit on revolving loan facility			$ 25,000,000
Percent of qualified AR	80.00%
Percent of Net Orderly Liquidation Value (NOLV)	85.00%
Percent of US real estate values	62.50%

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Debt - Short-term Debt (Details) $ in Thousands	Dec. 31, 2021 USD ($)
Statement [Line Items]
Brazil Loans	$ 10,714
Santander Bank | 5.98% Short-term loan
Statement [Line Items]
Interest rate	5.98%
Brazil Loans	$ 1,219
Santander Bank | 2.15% Short-term loan
Statement [Line Items]
Interest rate	2.15%
Brazil Loans	$ 731
Santander Bank | 2.71% Short-term loan
Statement [Line Items]
Interest rate	2.71%
Brazil Loans	$ 1,000
Brasil Bank | 2.80% Short-term loan
Statement [Line Items]
Interest rate	2.80%
Brazil Loans	$ 795
Brasil Bank | 2.10% Short-term loan
Statement [Line Items]
Interest rate	2.10%
Brazil Loans	$ 1,400
Bradesco Bank | 1.88% Short-term loan
Statement [Line Items]
Interest rate	1.88%
Brazil Loans	$ 1,170
Bradesco Bank | 2.05% Short-term loan
Statement [Line Items]
Interest rate	2.05%
Brazil Loans	$ 400
Itau Bank | 4.52% Short-term loan
Statement [Line Items]
Interest rate	4.52%
Brazil Loans	$ 4,000

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Dec. 31, 2021	Sep. 30, 2021	Dec. 31, 2020	Dec. 31, 2021	Dec. 31, 2020
Operating Loss Carryforwards [Line Items]
Effective income tax rate percentage	29.00%	18.90%	33.00%	27.00%	(5.00%)
Income tax expense (benefit)	$ 1,011		$ 1,918	$ 2,137	$ (364)
Profit before tax	3,500		$ 5,800	7,900	$ 7,600
Possible reduction in long-term tax obligations	100			$ 100
Tax Years 2019 and 2020
Operating Loss Carryforwards [Line Items]
Income tax expense (benefit)	$ (2,700)	$ (2,700)
Foreign Tax Authority | Her Majesty's Revenue and Customs (HMRC)
Operating Loss Carryforwards [Line Items]
Effect of increase in UK corporate tax rate		$ (200)