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, 2022

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 17, 2023
Class A Common Shares	6,804,246
Class B Common Shares	622,645

1

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

2

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, our clinical results and other future conditions. The words “anticipate”, “believe”, “contemplate”, “continue”, “could”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “should”, “target”, “will”, “would”, or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in our Annual Report on Form 10-K and other filings with the Securities Exchange Commission (the “SEC”). 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, 2022.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

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THE L. S. STARRETT COMPANY

CONTENTS

			Page No.
Part I.	Financial Information:
	Item 1.	Financial Statements	2
		Condensed Consolidated Balance Sheets – December 31, 2022 (unaudited) and June 30, 2022	4
		Condensed Consolidated Statements of Operations (unaudited) – three and six months ended December 31, 2022 and December 31, 2021	6
		Condensed Consolidated Statements of Comprehensive Income (Loss), (unaudited) – three and six months ended December 31, 2022 and December 31, 2021	7
		Condensed Consolidated Statements of Stockholders' Equity (unaudited) – three and six months ended December 31, 2022 and December 31, 2021	8
		Condensed Consolidated Statements of Cash Flows (unaudited) - six months ended December 31, 2022 and December 31, 2021	9
		Notes to Unaudited Condensed Consolidated Financial Statements	10-18
	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

4

THE L. S. STARRETT COMPANY

Condensed Consolidated Balance Sheets

(in thousands except share data)

(unaudited)

	12/31/2022		06/30/2022
ASSETS
Current assets:
Cash	$	8,957	$	14,523
Accounts receivable (less allowance for credit losses of $806 and $796, respectively)	38,151		42,961
Inventories	70,088		66,900
Prepaid expenses and other current assets	9,727		8,669
Total current assets	126,923		133,053
Property, plant and equipment, net	38,121		37,116
Right of use assets	5,379		5,540
Deferred tax assets, net	13,943		14,924
Intangible assets, net	4,450		4,640
Goodwill	1,015		1,015
Other assets	3,280		3,266
Total assets	$	193,111	$	199,554
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	5,259	$	6,547
Current lease liability	2,025		1,530
Accounts payable	13,017		14,624
Accrued expenses	10,335		11,776
Accrued compensation	4,697		6,703
Total current liabilities	35,333		41,180
Other tax obligations	2,974		2,936
Long-term lease liability	3,529		4,166
Long-term debt, net of current portion	20,313		24,905
Postretirement benefit and pension obligations	23,052		23,938
Total liabilities	85,201		97,125
Stockholders' equity:
Class A Common stock $1 par 20,000,000 shares authorized; 6,802,549 outstanding at December 31, 2022 and 6,682,521 outstanding at June 30, 2022)	6,803		6,683
Class B Common stock $1 par (10,000,000 shares authorized; 624,321 outstanding at December 31, 2022 and 610,087 outstanding at June 30, 2022	624		610
Additional paid-in capital	57,454		57,143
Retained earnings	94,246		89,059
Accumulated other comprehensive loss	(51,217)		(51,066)
Total stockholders' equity	107,910		102,429
Total liabilities and stockholders’ equity	$	193,111	$	199,554

See Notes to Unaudited Condensed Consolidated Financial Statements

5

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Operations

(in thousands except per share data)

(unaudited)

	3 Months Ended						6 Months Ended
	12/31/2022			12/31/2021			12/31/2022			12/31/2021
Net sales	$	66,775		$	61,318		$	127,236		$	122,832
Cost of goods sold	45,199			42,368			85,460			83,737
Gross profit	21,576			18,950			41,776			39,095
% of Net sales	32.3		%	30.9		%	32.8		%	31.8		%
Restructuring charges	54			—			244			—
Selling, general and administrative expenses	15,561			14,749			31,855			30,762
Operating income	5,961			4,201			9,677			8,333
Other (expense), net	(1,121)			(662)			(1,797)			(436)
Income before income taxes	4,840			3,539			7,880			7,897
Income tax expense	1,709			1,011			2,693			2,137
Net income	$	3,131		$	2,528		$	5,187		$	5,760
Basic income per share	$	0.42		$	0.35		$	0.71		$	0.80
Diluted income per share	$	0.42		$	0.34		$	0.69		$	0.77
Weighted average outstanding shares used in per share calculations:
Basic	7,405			7,243			7,354			7,185
Diluted	7,541			7,492			7,511			7,473

See Notes to Unaudited Condensed Consolidated Financial Statements

6

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

	3 Months Ended				6 Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
Net income	$	3,131	$	2,528	$	5,187	$	5,760
Other comprehensive income (loss):
Currency translation gain (loss), net of tax	2,716		(871)		(90)		(4,482)
Pension and postretirement plans, net of tax	(36)		(67)		(61)		(133)
Other comprehensive income (loss)	2,680		(938)		(151)		(4,615)
Total comprehensive income	$	5,811	$	1,590	$	5,036	$	1,145

See Notes to Unaudited Condensed Consolidated Financial Statements

7

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Stockholders' Equity

(in thousands) (unaudited)

For the Three and Six-Month Period Ended December 31, 2022:

	Common Stock Outstanding				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Class A		Class B
Balance June 30, 2022	$	6,683	$	610	$	57,143	$	89,059	$	(51,066)	$	102,429
Total comprehensive income (loss)	—		—		—		2,056		(2,831)		(775)
Repurchase of shares	—		(1)		(5)		—		—		(6)
Stock-based compensation	76		—		109		—		—		185
Conversion	12		(12)		—		—		—		—
Balance September 30, 2022	$	6,771	$	597	$	57,247	$	91,115	$	(53,897)	$	101,833
Total comprehensive income	—		—		—		3,131		2,680		5,811
Repurchase of shares	—		—		(3)		—		—		(3)
Issuance of stock	—		34		50		—		—		84
Stock-based compensation	25		—		160		—		—		185
Conversion	7		(7)		—		—		—		—
Balance December 31, 2022	$	6,803	$	624	$	57,454	$	94,246	$	(51,217)	$	107,910
Accumulated balance consists of:
Translation loss									$	(60,166)
Pension and postretirement plans, net of taxes									8,949
									$	(51,217)

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 (loss)	—		—		—		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)

See Notes to Unaudited Condensed Consolidated Financial Statements

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THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Cash Flows

(in thousands) (unaudited)

	6 Months Ended
	12/31/2022		12/31/2021
Cash flows from operating activities:
Net income	$	5,187	$	5,760
Non-cash operating activities:
Depreciation	2,585		2,567
Amortization	720		660
Stock-based compensation	370		411
Net long-term tax obligations	91		86
Deferred taxes	977		305
Postretirement benefit and pension obligations	314		(706)
Working capital changes:
Accounts receivable	4,530		(1,619)
Inventories	(3,307)		(6,002)
Other current assets	(1,098)		(1,063)
Other current liabilities	(4,818)		(3,767)
Prepaid pension expense	(1,147)		(2,071)
Other	70		872
Net cash provided by (used in) operating activities	4,474		(4,567)
Cash flows from investing activities:
Purchases of property, plant and equipment	(3,713)		(4,457)
Software development	(477)		(533)
Net cash (used in) investing activities	(4,190)		(4,990)
Cash flows from financing activities:
Proceeds from borrowing	1,575		29,605
Debt repayments	(7,508)		(20,244)
Proceeds from common stock issued	84		117
Shares repurchased	(9)		(23)
Net cash (used in) provided by financing activities	(5,858)		9,455
Effect of exchange rate changes on cash	8		434
Net (decrease) increase in cash	(5,566)		332
Cash, beginning of period	14,523		9,105
Cash, end of period	$	8,957	$	9,437
Supplemental cash flow information:
Interest paid	$	802	$	465
Income taxes paid, net	3,360		2,222

See Notes to Unaudited Condensed Consolidated Financial Statements

9

THE L. S. STARRETT COMPANY

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2022

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

The unaudited interim condensed consolidated financial statements as of and for the six months ended December 31, 2022 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 condensed 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 condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022. The balance sheet as of June 30, 2022 has been derived from the audited condensed consolidated financial statements as of and for the year ended June 30, 2022. 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.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for doubtful accounts is the Company's estimate of current expected credit losses on its existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines the receivable will not be recovered.

Fair Value Measurements

Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of their short-term maturity. See Notes 10 and 11 within the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for financial assets and liabilities held at carrying amount on the condensed consolidated balance sheet.

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 condensed consolidated financial statements and accompanying notes. Note 2 within the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q to the Company’s condensed consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2022 describes the significant accounting policies and methods used in the preparation of the condensed consolidated financial statements.

Note 2:    Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments -Credit Losses" (ASC 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 historic 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 pronouncement was extended for Small Reporting Companies and for the Company beginning July 1, 2022. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

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Note 3:    Segment Information

The segment information and the accounting policies of each segment are the same as those described in the notes to the condensed 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, 2022. The Company’s business is aggregated into two reportable segments based on geography of operations: North American Operations ("North America") and International Operations (“International”). 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 our Annual Report on Form 10-K for the year ended June 30, 2022. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated		Total
Three Months ended December 31, 2022
Sales1	$	39,687	$	27,088	$	—	$	66,775
Operating Income (Loss)	$	3,681	$	3,893	$	(1,613)	$	5,961
Three Months ended December 31, 2021
Sales2	$	32,666	$	28,652	$	—	$	61,318
Operating Income (Loss)	$	1,549	$	4,394	$	(1,742)	$	4,201

1.Excludes $707 of North American segment intercompany sales to the International segment, and $4,250 of International segment intercompany sales to the North American segment.

2.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.

	North American Operations		International Operations		Unallocated		Total
Six months ended December 31, 2022
Sales1	$	76,170	$	51,066	$	—	$	127,236
Operating Income (Loss)	$	6,878	$	6,729	$	(3,930)	$	9,677
Six months ended December 31, 2021
Sales2	$	66,475	$	56,357	$	—	$	122,832
Operating Income (Loss)	$	4,050	$	7,977	$	(3,694)	$	8,333

1.Excludes $1,635 of North American segment intercompany sales to the International segment, and $9,285 of International segment intercompany sales to the North American segment.

2.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.

Note 4:    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 Condensed Consolidated Balance Sheet. As of December 31, 2022 and June 30, 2022, 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, 2022 and June 30, 2022 was $0.1 million

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and $0.2 million, respectively. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the Condensed 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 $0.5 million and $0.9 million at December 31, 2022 and June 30, 2022, respectively, located in Accounts Payable in the Condensed 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 and six months ended December 31, 2022 and 2021 (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
North America
United States	$	37,620	$	30,912	$	71,892	$	62,932
Canada & Mexico	2,067		1,754		4,278		3,543
	39,687		32,666		76,170		66,475
International
Brazil	20,057		18,687		37,305		37,890
United Kingdom	3,294		4,729		6,494		9,697
China	1,978		2,244		3,665		3,862
Australia & New Zealand	1,759		2,992		3,601		4,908
	27,088		28,652		51,066		56,357
Total Sales	$	66,775	$	61,318	$	127,236	$	122,832

Note 5:    Leases

Operating lease cost amounted to $0.5 million and $1.0 million for the three and six months ended December 31, 2022 and $0.8 million and $1.6 million for the three and six months ended December 31, 2021. As of December 31, 2022, the Company’s right-of-use assets "ROU", lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,379	$	5,553	$	6,775

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 3.8 years. As of December 31, 2022, the Company’s financing leases are not material. The foreign exchange impact affecting the operating leases are, also, not material.

12

During the quarter ended December 31, 2022 the Company renewed its leases in both Australia (ends September 2026) and New Zealand (ends April 2025) and recorded $0.6 million in new leases as ROU assets. 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.

At December 31, 2022 the Company had the following fiscal year minimum operating lease commitments (in thousands):

	Operating Lease Commitments
2023 remaining	$	1,076
2024	2,013
2025	1,587
2026	1,293
2027	713
Thereafter	93
Subtotal	$	6,775
Imputed interest	(1,222)
Total	5,553

The Company entered into $1.0 million, in new operating lease commitments in the three and six months ended December 31, 2022, of which $0.6 million is for the Australia and New Zealand renewals, and incurred immaterial increases due to foreign exchange translation of ROU assets during the three and six months ended December 31, 2022.

In July 2021, 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 rental income is recorded in Other Income in the Company's Condensed Consolidated Statement of Operations.

Note 6:    Stock-based Compensation

Compensation expense related to all stock-based plans for the three and six months ended December 31, 2022 were $0.2 million and $0.3 million as compared to the prior year three and six months of $0.2 million and $0.3 million, respectively. 

Note 7:    Inventories

Inventories consist of the following (in thousands):

	12/31/2022		06/30/2022
Raw material and supplies	$	38,002	$	35,752
Goods in process and finished parts	22,007		22,268
Finished goods	36,198		35,589
	96,207		93,609
LIFO Reserve	(26,119)		(26,709)
	$	70,088	$	66,900

Of the Company’s $70.1 million and $66.9 million total inventory at December 31, 2022 and June 30, 2022, respectively, the $26.1 million and $26.7 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 $41.4 million on a FIFO basis and $15.3 million on a LIFO basis at December 31, 2022. The Core U.S. business had total inventory, on a FIFO basis, of $39.3 million and $12.6 million on a LIFO basis as of June 30, 2022. The use of LIFO, as compared to FIFO, resulted in, during the three months and six months ended December 31, 2022, a $0.1 million increase and $0.6 million decrease in cost of sales as compared to a $0.9 million increase and a $0.9 million decrease in the three and six months ended December 31, 2021.

Note 8:    Goodwill and Intangible Assets

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

13

	12/31/2022		6/30/2022
Trademarks and trade names	$	2,070	$	2,070
Customer relationships	630		630
Software development	11,746		11,269
Gross intangible assets	14,446		13,969
Accumulated amortization and impairment	(9,996)		(9,329)
Net intangible assets	$	4,450	$	4,640

The estimated useful lives of the intangible assets subject to amortization range between 5 years for software development and 20 years for trademark and trade name assets.

The goodwill balance at December 31, 2022, gross $4.7 million and accumulated impairment of $3.7 million. There is no change in the six months ended December 31, 2022 to the net goodwill balance of $1.0 million.

Note 9:    Accrued Expenses

The following table represents accrued expenses from the Condensed Consolidated Balance Sheets (in thousands)

	12/31/2022		06/30/2022
Sales related programs (commissions, rebates, distributor programs, warranty and related)	$	3,043	$	2,733
Income taxes	773		2,420
Professional fees	1,402		1,758
Other	1,579		1,463
Current portion pension cost	1,308		1,289
Taxes other than income tax	1,174		1,243
Workers compensation and employee deposits	432		518
Freight	624		352
Total	$	10,335	$	11,776

Note 10:     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), in the Condensed 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, allocated based on headcount. Net periodic benefit cost and expected return consist of the following (in thousands):

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	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
Interest cost	1,408		1,031		2,890		2,064
Expected return on plan assets	(960)		(1,098)		(1,992)		(2,198)
Amortization of net loss	10		15		20		28
Expected net cost (benefit) total	$	458	$	(52)	$	918	$	(106)

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

	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
Service cost	$	5	$	9	$	11	$	18
Interest cost	17		13		35		25
Amortization of prior service credit	(368)		(369)		(737)		(737)
Amortization of net loss	45		47		89		94
Total net (benefit)	$	(301)	$	(300)	$	(602)	$	(600)

For the three months and six months ended December 31, 2022, the Company contributed in the U.S. $0.7 million. In the UK pension plans the Company contributed $0.2 million and $0.4 million for the same periods. Based upon the actuarial valuations performed on the Company’s defined benefit plans as of June 30, 2022, the contribution for fiscal 2023 for the U.S. plans would require a contribution of $1.4 million and the U.K. plan would require $0.8 million. However, as a result of the American Rescue Plan Act of 2021, the minimum required company contribution for the U.S. Plan was reduced. The Company believes that government regulation is only a small part of deciding the pension funding, and as a result, may contribute more than the federal requirement. The Company contributed $2.5 million in total during fiscal year 2022, with $1.5 million in the U.S. and $1.0 million in the U.K. The Company continues evaluating the U.S. future contribution on a quarterly basis. The Company currently believes contributions in fiscal year 2023 will be similar to the prior year.

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 11:     Debt

Debt is comprised of the following (in thousands):

	12/31/2022		06/30/2022
Short-term and current maturities
Loan and security agreement (term loan)	1,495		1,495
Brazil loans	3,764		5,052
	5,259		6,547
Long-term debt (net of current portion)
Loan and security agreement (term loan)	9,504		10,252
Loan and security agreement (line of credit)	8,897		11,397
Brazil loans	2,373		3,771
Debt reacquisition cost	(461)		(515)
	20,313		24,905
Total debt	$	25,572	$	31,452

On April 29, 2022, the Company and certain of the Company’s domestic subsidiaries entered into a Loan and Security agreement (the "Loan and Security Agreement") with HSBC Bank USA ("the Lender"). The Company incurred debt re-acquisition cost of $0.5 million which are recorded net of debt and amortized over five years.

15

These new credit facilities replaced the Company’s previous TD Bank credit facilities and are comprised of a $30 million revolving Loan and Security Agreement Line of Credit ("Line of Credit") with a $10 million uncommitted accordion provision, a Loan and Security Agreement Term Loan ("the Term Loan") with original principal of $12.1 million and a $7 million Capital Expenditure draw down credit facility (collectively, the "Facilities"). The Facilities are secured by a valid first-priority security interest on substantially all existing and future assets of the Company and its domestic subsidiaries.

The interest rate on the Facilities is based on a grid which uses the percentage of the remaining availability of the revolving credit line to determine the floating margin to be added to the one month or three months Secured Overnight Financing Rate, (SOFR). The Facilities mature on April 29, 2027.

Availability under the revolving line of credit is secured by and subject to a borrowing base comprised of eligible inventory and accounts receivable. The percentage of receivables included in the borrowing base is 90% for domestic investment grade and foreign insured accounts, 85% for domestic accounts that are neither investment grade nor insured, and 75% of foreign uninsured accounts. The percentage of inventory included in the borrowing base is the lower of 65% of the value of eligible inventory at cost or 85% of the net orderly liquidation value of eligible inventory at cost. Receivables and inventory are reported monthly to HSBC and subject to an annual field exam and inventory appraisal by an independent auditor commissioned by the Bank. The Company believes that the agreement provides an initial borrowing base sufficient for current domestic working capital needs and flexibility to accommodate potential growth-related working capital needs.

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 $30.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

Availability under the Term Loan was comprised of 70% of the fair market value of the Borrower's eligible real estate, which included facilities located in Westlake, Ohio, and Waite Park, Minnesota and totaled $4.6 million; and 85% of the net orderly liquidation value of the Borrowers’ machinery and equipment, capped at $7.5 million. The real estate portion of the Term facility is subject to a 12.5 year straight line amortization paid quarterly, and the machinery and equipment portion of the facility is subject to a 6.67 year straight line amortization, also paid quarterly. The Term Loan is subject to equal quarterly installments of $373,650, payable on the last day of each fiscal quarter.

The capital expenditure loan facility is available for the purchase of new machinery and equipment at 80% of the net invoice value of new machinery and equipment purchases, with a draw period of eighteen months past the closing date, with any amount outstanding under the facility subject to a 3.75% amortization rate per quarter.

The Facilities contain financial covenants with respect to a minimum fixed charge coverage ratio of 1.00, measured on a trailing twelve-month basis, for both the U.S. borrowing companies tested quarterly and the Consolidated L.S. Starrett Company tested semi-annually. The Loan and Security agreement also contains the customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions, fundamental corporate changes, excess pension contributions, and certain customary events of default. Upon the occurrence or continuation of an event of default, the Lender may terminate all commitments and facilities, and require the immediate payment of the entire unpaid principal balances, accrued interest, and all other obligations.

The TD Bank loan was retired in the quarter ended June 2022.

In Brazil, the Company is actively mitigating this consequence of the build-up of ICMS (translate to "Tax on Commerce and Services") credits 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. The Brazilian federal tax authority has approved the Company's application and now it is awaiting state tax approval. This new methodology is common for similar sized, export focused companies in Brazil. The ICMS balance as of June 30, 2022 was $5.4 million and as of December 31, 2022 was $5.2 million. The ICMS balance increased $0.2 million versus the quarter ended September 30, 2022 due to currency exchange. The Company expects a lower balance by the fiscal year end. The ICMS is an asset and its build-up was one of the reasons that Brazilian operation incurred more debt. The balance is located on the Condensed Consolidated Balance Sheets in prepaid expenses and other current assets.

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. Included in the table below are $0.6 million of financing on purchased fixed assets. The Company’s Brazilian subsidiary has the following loans as of December 31, 2022 (in thousands):

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Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Brasil	4.52%	October 2021	September 2024	$	4,000
Itau	4.98%	February 2022	February 2024	1,523
Itau	4.95%	August 2022	July 2025	437
Brasil	3.80%	September 2022	August 2024	125
Brasil	4.18%	September 2022	September 2023	52
				$	6,137

Total debt was reduced by $3.8 million and $5.9 million during the three and six months ended December 31, 2022, respectively, and the Brazilian loans were reduced by $1.0 million and $2.7 million in the three and six months ended December 31, 2022, respectively.

Note 12:     Income Taxes

Tax expense for the three month period ended December 31, 2022 was $1.7 million on profit before tax of $4.8 million (an effective tax rate of 35%). Tax expense for the three month period ended December 31, 2021 was $1.0 million on profit before tax of $3.5 million (an effective tax rate of 29%). The effective tax rate for the three month periods ended December 31, 2022 and 2021 were 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. Tax expense for the three month period ended December 31, 2022 reflects the impact of final U.S. foreign tax credit regulations effective in fiscal 2023 that result in an increase in tax expense from the GILTI inclusion.

Tax expense for the six month period ended December 31, 2022 was $2.7 million on profit before tax of $7.9 million (an effective tax rate of 34%). Tax expense for the six month period ended December 31, 2021 was $2.1 million on profit before tax of $7.9 million (an effective tax rate of 27%). The effective tax rate for the six month periods ended December 31, 2022 and 2021 were 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. Tax expense for the six month period ended December 31, 2022 reflects the impact of final U.S. foreign tax credit regulations effective in fiscal 2023 that result in an increase in tax expense from the GILTI inclusion. In the six months ended December 31, 2022 the GILTI impact resulted in a 6.2% rate as compared to the six months ended December 31, 2021 resulting in a rate of 1.2%.

The Company has considered the positive and negative evidence to determine the need for a valuation allowance offsetting the deferred tax assets in the U.S. and has concluded that a partial valuation allowance is required against foreign tax credit carryforwards and certain state net operating loss carryforwards at December 31, 2022 and June 30, 2022. The Company had long term tax obligations related primarily to transfer pricing adjustments at December 31, 2022 and June 30, 2022.

Note 13: Contingencies

The Company is involved in certain legal matters, which arise, in the normal course of business. Although the outcomes of these legal matters are inherently difficult to predict, management does not expect the resolution of these legal matters to have a material adverse effect 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 including currency-neutral sales, and 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 sales 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 that are reflected in one period but not the other in order to show comparative operational performance. We include a reconciliation of currency-neutral sales 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 3 within the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q 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 in Note 3 within the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. These tables 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.

Results of Operations

The following table represents key results of operations on a consolidated basis for the three months and six months ended December 31, 2022 and December 31, 2021:

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	Three Months Ended										Six Months Ended
(Amounts in thousands)	12/31/22			12/31/2021			$ Change favorable (unfavorable)		% Change		12/31/2022			12/31/2021			$ Change favorable (unfavorable)	% Change
Net sales	$	66,775		$	61,318		$	5,457	8.9	%	$	127,236		$	122,832		4,404	3.6	%
Gross profit	21,576			18,950			2,626		13.9	%	41,776			39,095			2,681	6.9	%
% of net sales	32.3		%	30.9		%					32.8		%	31.8		%
Selling, general and administrative expenses	15,561			14,749			(812)		(5.5)	%	31,855			30,762			(1,093)	(3.6)	%
% of net sales	23.3		%	24.1		%					25.0		%	25.0		%
Restructuring charges	54			—			(54)		(100.0)	%	244			—			(244)	(100.0)	%
Operating income	5,961			4,201			1,761		41.9	%	9,677			8,333			1,344	16.1	%
Other (expense), net	(1,121)			(662)			(459)		69.4	%	(1,797)			(436)			(1,362)	(312.7)	%
Income before income taxes	4,840			3,539			1,301		36.8	%	7,880			7,897			(18)	(0.2)	%
Income tax expense (benefit)	1,709			1,011			(698)		(69.0)	%	2,693			2,137			(556)	(26.0)	%
Net income	$	3,131		$	2,528		603		23.9	%	$	5,187		$	5,760		(573)	(10.0)	%

GAAP to Non-GAAP reconciliation:
	Three Months Ended							Six Months Ended
(Amounts in thousands)	12/31/2022		12/31/2021		$ Change favorable (unfavorable)	% Change		12/31/2022		12/31/2021		$ Change favorable (unfavorable)	% Change
Operating income as reported	5,961		4,201		1,761	41.9	%	9,677		8,333		1,344	16.1	%
Add back restructuring charges	(54)		—		54	(100)	%	(244)		—		244	(100)	%
Adjusted operating income	6,015		4,201		1,814	43.2	%	9,921		8,333		1,588	19.1	%
% of net sales	9.0	%	6.9	%		210 basis points		7.8	%	6.8	%		100 basis points

The following table represents key results of operations for three months ended December 31, 2022 and 2021 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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Key Results by Reporting Segment
	Three Months Ended December 31, 2022											Three Months Ended December 31, 2021
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total
Net sales	$	39,687		$	27,088		$	—	$	66,775		$	32,666		$	28,652		$	—	$	61,318
Gross profit	11,123			10,453			—		21,576			8,321			10,629					18,950
% of net sales	28.0		%	38.6		%			32.3		%	25.5		%	37.1		%			30.9		%
Selling, general and administrative expenses	7,442			6,507			1,613		15,562			6,772			6,235			1,742		14,749
% of net sales	18.8		%	24.0		%			23.3		%	20.7		%	21.8		%			24.1		%
Restructuring charges	—			54			—		54			—			—			—		—
Operating income (loss)	$	3,681		$	3,893		$	(1,613)	$	5,961		$	1,549		$	4,394		$	(1,742)	$	4,201
% of net sales	9.3		%	14.4		%			8.9		%	4.7		%	15.3		%			6.9		%
Add back restructuring charges	—			(54)			—		(54)			—			—			—		—
Adjusted operating income	$	3,681		$	3,946		$	(1,613)	$	6,014		$	1,549		$	4,394		$	(1,742)	$	4,201
% of net sales	9.3		%	14.6		%			9.0		%	4.7		%	15.3		%			6.9		%

The following table represents key results of operations for six months ended December 31, 2022 and 2021 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, 2022											Six Months Ended December 31, 2021
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total
Net sales	$	76,170		$	51,066		$—		$	127,236		$	66,475		$	56,357		$—		$	122,832
Gross profit	22,054			19,722			—		41,776			17,855			21,239					39,095
% of net sales	29.0		%	38.6		%			32.8		%	26.9		%	37.7		%			31.8		%
Selling, general and administrative expenses	15,176			12,748			3,930		31,854			13,805			13,262			3,694		30,762
% of net sales	19.9		%	25.0		%			25.0		%	20.8		%	23.5		%			25.0		%
Restructuring charges	—			244					244			—			—					—
Operating income (loss)	$	6,878		$	6,729		$	(3,930)	$	9,677		$	4,050		$	7,977		$	(3,694)	$	8,333
% of net sales	9.0		%	13.2		%			7.6		%	6.1		%	14.2		%			6.8		%
Add back restructuring charges	—			(244)			—		(244)			—						—		—
Less gain on sale of building	—			—			—		—			—			—			—		—
Adjusted operating income	$	6,878		$	6,974		$	(3,930)	$	9,922		$	4,050		$	7,977		$	(3,694)	$	8,333
% of net sales	9.0		%	13.7		%			7.8		%	6.1		%	14.2		%			6.8		%

Non-GAAP Measure Reconciliation: Fiscal 2023 Q2 "Currency Neutral" Net Sales

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	Three months ended							Six months ended
(Amounts in Thousands)	12/31/2022		12/31/2021		$ Change	% Change		12/31/2022		12/31/2021		$ Change	% Change
Net Sales, as reported	$	66,775	$	61,318	5,457	8.9	%	$	127,236	$	122,832	4,404	3.6	%
Currency Neutralizing Adjustment*	(173)		—		(173)	(0.3)	%	749		—		749	0.6	%
Q2 FY23 Currency Neutral Net Sales	66,602		61,318		5,284	8.6	%	127,985		122,832		5,153	4.2	%
North America Net Sales, as reported	$	39,687	$	32,666	7,021	21.5	%	$	76,170	$	66,475	9,695	14.6	%
Currency Neutralizing Adjustment*	54		—		54	0.2	%	117		—		117	0.2	%
Q2FY23 Currency Neutral North America Net Sales	39,741		32,666		7,075	21.7	%	76,287		66,475		9,812	14.8	%
International Net Sales, as reported	$	27,088	$	28,652	(1,564)	(5.5)	%	$	51,066	56,357		(5,291)	(9.4)	%
Currency Neutralizing Adjustment*	(227)		—		(227)	(0.8)	%	632		—		632	1.1	%
Q2FY23 Currency Neutral International Net Sales	26,861		28,652		(1,791)	(6.3)	%	51,698		$	56,357	(4,659)	(8.3)	%
*"Currency Neutralizing Adjustment" = Change when converting Q2FY23 sales in non USD functional currencies at the same exchange rates used in the comparison period

Three-months and Six-months Ended December 31, 2022 and December 31, 2021

Overview

Although backlog remains at very high levels, 18.5% higher on December 31, 2022 compared to December 31, 2021, order intake overall has begun to soften in the three month period ended December 31, 2022. As a result, overall order intake is down about 4.0% for the six months ended December 31, 2022 compared to the six months ended December 31, 2021. North America order intake has increased by 9.4%, and International order intake has decreased by 19.6% for the six months ended December 31, 2022 compared to the same six month period a year prior. North American order intake has been supported by continued high demand for precision granite products and stable order intake through industrial distribution for our portfolio of precision measuring tools and saw blades. International order intake has been negatively impacted, particularly in Europe, as a result of recession pressures and the ongoing war in Ukraine. The company anticipates a continued softening of order intake throughout fiscal 2023.

Net sales in the quarter ended December 31, 2022 were $66.8 million, an increase of $5.5 million, or 8.9% compared to $61.3 million in the quarter ended December 31, 2021. Net Sales in the six months ended December 31, 2022 were $127.2 million, compared to $122.8 million for the same six-month period ended December 31, 2021, representing an improvement of $4.4 million, or 3.6%.

Foreign currency translation had a negative impact on sales of $0.7 million over the first six months of fiscal 2023 as the United States Dollar had strengthened compared to other currencies in the first quarter and early second quarter of the fiscal year but has begun to weaken during the latter part of the second quarter. Currency neutral net sales for the quarter ended December 31, 2022 were $66.6 million , an increase of $5.3 million or 8.6% compared to $61.3 million in the quarter ended December 31, 2021. For the six months ended December 31, 2022, currency neutral net sales of $128.0 million were an increase of $5.2 million or 4.2% as compared to $122.8 million, for the six months ended December 31, 2021.

Operating income in the quarter ended December 31, 2022 was $6.0 million or 8.9% of sales, reflecting an increase of $1.8 million or 41.9% compared to operating income of $4.2 million reported for quarter ended December 31, 2021. Operating income for the six months ended December 31, 2022 increased 43.2% by 1.3 million to $9.7 million or 7.6% of sales versus $8.3 million or 6.8% of sales for the six months ended December 31, 2021.

Operating income improved from $8.3 million or 6.8% for the six months ended on December 31, 2021 to $9.7 million or 7.6% of sales for the six months ended December 31, 2022. Eliminating the impact of the restructuring charges of $0.2 million during the six-month period ended on December 31, 2022, adjusted operating income was $9.9 million, or 7.8% of net sales compared to $8.3 million or 6.8% of net sales in the six-month period ended December 31, 2021, representing an improvement of $1.6 million or 19.1%.

21

Net income for the quarter ended December 31, 2022 was $3.1 million, which was $0.6 million or 23.9% greater than the net income reported for the quarter ended December 31, 2021 of $2.5 million. For the six-month period ended December 31, 2022, net income was $5.2 million compared to $5.8 million for the six month period ended December 31, 2021, representing a decrease of $0.6 million or 10.0%, driven principally by higher interest rates.

Net Sales

The Company’s net sales for the quarter ended December 31, 2022 were $66.8 million which was $5.5 million or 8.9% higher versus $61.3 million for the quarter ended December 31, 2021, primarily driven by an 11.0% increase from price realization and a 0.3% increase due to currency translation, offset by a 2.4% decrease in volume. North America sales for the quarter ended December 31, 2022 were $39.7 million which was an increase of $7.0 million or 21.5% versus $32.7 million in quarter ended December 31, 2021, primarily driven by an 11.8% increase from price realization and an increase of 9.4% due to volume, offset by a decrease of 0.2% due to currency translation. North American net sales have been positively impacted by continued stronger sales of precision granite products and increased sales of precision measuring tools and saw blades as our North American facilities are continuing to recover from the labor shortages experienced a year ago and deliver on the Company's order entry. International net sales for the quarter ended December 31, 2022 were $27.1 million which was $1.6 million or 5.5% less than the $28.7 million for the quarter ended December 31, 2021, primarily driven by a 15.8% decline in volume offset by a 10.1% increase realized from pricing and a favorable impact of 0.8% from currency translation. International net sales have been negatively impacted, particularly in Europe, as a result of recession pressures and the ongoing war in Ukraine.

During the six months ended December 31, 2022 as compared to 2021, North American sales increased $9.7 million or 14.6% while International sales decreased $5.3 million or 9.4%. North American sales increased 10.6% due to pricing actions and 4.0% due to volume offset by 0.2% from currency translation, while International sales declined by 25.8% due to volume and 1.1% due to currency translation, but were offset by 17.5% of pricing realization. Consolidated net sales in the six months ended December 31, 2022 were $127.2 million, compared to $122.8 million for the same six-month period ended December 31, 2021, representing an improvement of $4.4 million, or 3.6%. Overall this was driven by increases due to pricing actions of 13.9% offset by volume reductions of 9.7% and currency translation of 0.6%.

Gross Profit

Gross profit increased $2.6 million or 13.9% for the three months, and $2.7 million or 6.9% for the six months ended December 31, 2022 as compared to the year prior. In addition to higher sales, the Company improved gross margin through a series of price increases, despite continuing to experience macro-economic and inflationary pressures on most production inputs. Gross Profit was $21.6 million and $41.8 million for the three months and six months ended December 31, 2022 compared to $18.9 million and $39.1 million for the three months and six months ended December 31, 2021. Gross profit as a percentage of sales increased 1.4 percentage points for the three months, and 1.0 percentage points for the six months ended December 31, 2022 compared to the prior year.

For the three months ended December 31, 2022, North American gross profit increased $2.8 million or 33.7% to $11.1 million versus $8.3 million in the three months ended December 31, 2021. Gross margin measured as a percent of net sales improved 2.6 percentage points from 25.5% to 28.0% compared to the three-month period ended December 31, 2021.

Although International gross profit declined slightly due to lower sales, International gross margin increased 1.5 percentage points from 37.1% of sales at the end of the three-month period ended December 31, 2021 to 38.6% for the three-month period ended December 31, 2022.

For the six-month period ended December 31, 2022, North American gross profit measured as a percent of Net Sales improved from 26.9% to 29.0%. International gross margin increased from 37.7% to 38.6% from December 31, 2021 to December 31, 2022 respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses including Corporate expense for the three months and six months ended December 31, 2022 were $15.6 million and $31.9 million, respectively versus $14.7 million and $30.8 million for the same time periods ending December 31, 2021.

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Selling, general and administrative expenses increased $0.8 million or 5.5% during the quarter ended December 31, 2022 compared to the quarter ended December 31, 2021, but declined as a percentage of net sales to 23.3% for the quarter ended December 31, 2022 compared to 24.1% in the prior year quarter ended December 31, 2021.

Selling, general and administrative expenses increased $1.1 million or 3.6% during the six months ended December 31, 2022 compared to 2021, however as a percentage of net sales it has remained steady from 25.0% for the six months ended December 31, 2021 to 25.0% for the six months ended December 31, 2022.

Other Income (Expense)

For the three and six months ended December 31, 2022 other expense was $1.1 million and $1.8 million, respectively. For the three and six months ended December 31, 2021 other expense was $0.7 million and $0.4 million. Other Expense has been impacted by the increase in interest rates, which has impacted periodic pension costs and interest cost on debt. The change in other income (expense) for the pension and post-retirement cost (other than service cost) accounts was $(0.5) million in comparing the three months ended December 31, 2022, which had an expense of $(0.1) million compared to an income of $0.4 million in the three months ended December 31, 2021. For the six months ended December 31, 2022, pension costs were $(0.7) million, compared to an income of $0.3 million for the six months ended December 31, 2021, a change of $(1.0) million when comparing the two periods, accounting for most of the change in Other Income (Expense) between the two comparative periods. See Note 10 "Pension and Post-retirement Benefits" of the notes to unaudited condensed consolidated financial statements.

Income Taxes

In the three months ended December 31, 2022, the Company recognized income tax expense of $1.7 million on profit before tax of $4.8 million (an effective tax rate 35%) as compared to income tax expense of $1.0 million on profit before tax of $3.5 million (an effective tax rate of 29%), in the three months ended December 31, 2021.

In the six months ended December 31, 2022, the Company recognized income tax expense of $2.7 million on profit before tax of $7.9 million (an effective tax rate 34%) as compared to income tax expense of $2.1 million on profit before tax of $7.9 million (an effective tax rate of 27%), in the six months ended December 31, 2021.

The higher effective tax rate in the three and six months ended December 31, 2022, when compared with the three and six months ended December 31, 2021, respectively, is primarily due to final U.S. foreign tax credit regulations effective in fiscal 2023 that result in an increase in tax expense from the GILTI inclusion of approximately $0.2 million and $0.4 million, respectively, as a result of this change.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Six Months Ended
	12/31/2022		12/31/2021
Cash provided by (used in) operating activities	4,474		(4,567)
Cash (used in) provided by investing activities	(4,190)		(4,990)
Cash (used in) provided by financing activities	(5,858)		9,455
Effect of exchange rate changes on cash	8		434
Net (decrease) increase in cash	$	(5,566)	$	332

Net cash flows used in the six months ended December 31, 2022 was $5.6 million compared to cash provided by operations of $0.3 million for the six month period ended December 31, 2021. Cash provided by operations was $4.5 million due to increases in net income of $5.2 million partially offset by working capital required to meet strong customer demand and counteract supply chain disruptions and increased transit times. The Company has invested $3.7 million in new equipment and debt repayments net of additional borrowings were $5.9 million in the six months ended December 31, 2022.

The Company believes it maintains sufficient liquidity and has the resources to fund its operations and cash expected to be provided by future operating activities are adequate to satisfy working capital, capital expenditure requirements and other

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contractual obligations for at least the next 12 months from the date of the financial statements included in this Quarterly Report on Form 10-Q.

On April 29, 2022, the Company and certain of the Company’s domestic subsidiaries entered into a new Loan and Security agreement (the "Loan and Security Agreement") with HSBC Bank USA. These new credit facilities ("the facilities") replaced the Company’s previous TD Bank credit facilities and are comprised of a $30 million revolving line of credit with a $10 million uncommitted accordion provision, a $12.1 million term loan and a $7 million capital expenditure draw down credit facility. The Facilities are secured by a valid first-priority security interest on substantially all existing and future assets of the Company and its domestic subsidiaries. At December 31, 2022 the Company has excess availability on the revolving line of credit and the capital expenditure drawn down facility of $21.8 million.

The Company has approved a $5 million dollar expansion at our precision granite manufacturing facility in Waite Park, MN in order to meet continued high demand for its products anticipated over the next several years. The project is expected to continue throughout fiscal 2023 and into the first quarter of fiscal 2024, and will be financed by use of the $7 million capital expenditure draw down facility which remains unused, and a combination of the revolving line of credit and current cash availability.

The effective interest rate on the borrowings under the Loan and Security Agreement during the three months ended December 31, 2022 and 2021 was 5.0% and 1.9% respectively.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires management to make judgments, assumptions and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Judgments, assumptions, and estimates are used for, but not limited to, inventory allowances; income tax reserves; long lived assets and goodwill impairment; as well as employee turnover, discount and return rates used to calculate pension obligations.

Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires management to exercise judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the Company’s condensed consolidated financial statements.

During the three months ended December 31, 2022, there were no material changes to our critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year ended June 30, 2022, filed with the SEC on August 25, 2022.

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, 2022.

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, 2022, 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. There have not been any changes in the Company’s internal control over financial reporting during the six months of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements and other matters. We do not believe we are currently party to any pending legal action, arbitration proceeding or governmental proceeding, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business or operating results. We are not a party to any material proceedings in which any director, member of senior management or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

ITEM 1A.    RISK FACTORS

There have been no material changes from the risk factors set forth in the Company’s Annual Report on Form 10-K

for the year ended June 30, 2022.

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ITEM 6.    EXHIBITS

Exhibit Number	Description of Exhibit
10.1*	The L.S. Starrett Company 2022 Employees’ Stock Purchase Plan, filed herewith.
31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1+	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, 2022 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 Condensed Consolidated Financial Statements, tagged as blocks of text.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

+ Furnished, not filed.

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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 4, 2023	/S/ Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	February 4, 2023	/S/ John C. Tripp
		John C. Tripp - Treasurer and CFO (Principal Accounting Officer)

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EX-10.1

THE L.S. STARRETT COMPANY

2022 EMPLOYEES’ STOCK PURCHASE PLAN

Section 1. Purpose and Scope of Plan.

The L.S. Starrett Company 2022 Employees’ Stock Purchase Plan (the “Plan”) is intended to provide a convenient means by which eligible employees of The L.S. Starrett Company (the “Company”) and of such subsidiaries of the Company as the Board of Directors of the Company may from time to time designate (“participating subsidiaries”) may save regularly through voluntary, systematic payroll deductions and use such savings to purchase shares of stock of the Company (“Stock”) at an option price, and thereby acquire an interest in the future of the Company. For all purposes of the Plan, the term “Stock” shall include Class A Common Stock of the Company and, to such extent (if any) as the Board of Directors of the Company may determine consistent with the purposes of the Plan, Class B Common Stock of the Company. The principal difference between the Class A Stock and the Class B Stock is their respective voting rights. Class B Stock is otherwise identical to the Class A Stock except (i) that it is generally non-transferable except to lineal descendants, (ii) cannot receive more dividends per share than the Class A Stock and (iii) can be converted to Class A Stock at any time. Like previous employee stock purchase plans of the Company that have been in effect for many years, the primary purpose of the Plan is to provide a convenient means for eligible employees to acquire an interest in the future of the Company by purchasing its Stock at a discounted price, as described below. The Plan is not intended to be used as a buy and sell plan while the participant is actively employed.

For these purposes, the Company has established this Plan under which it will issue an aggregate of not more than 500,000 authorized but unissued shares of Class A or Class B shares of Stock pursuant to the exercise of options granted only to employees who meet the eligibility requirements set forth in Section 2 hereof. Said options shall, subject to the Company’s right to discontinue the Plan at its discretion at any time, be granted by the Company from time to time over a five-year period commencing with the effective date of the Plan as specified in Section 20 hereof.

For purposes of the Plan, the term “subsidiary” shall mean a “subsidiary corporation” within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as it may from time to time be amended (the “Code”).

Section 2. Eligible Employees.

Each employee of the Company and its participating subsidiaries having at least six months of continuous service on the date of grant of an option will be eligible to participate in the Plan, subject to the provisions of Section 19 hereof. Notwithstanding the foregoing, an employee who is a citizen or resident of a foreign jurisdiction (without regard to whether such employee is also a citizen of the United States or resident alien in the United States) shall not be eligible to participate in the Plan if the grant of an option to such employee is prohibited under the laws of the employee’s foreign jurisdiction or compliance with the laws of the foreign jurisdiction would cause the Plan or an option to violate the requirements of Section 423 of the Code. Individuals who are not employees of the Company or of a subsidiary (including, for the avoidance of doubt, non-employee directors of the Company or of a subsidiary) are not eligible to participate.

By electing to participate in the Plan, each eligible employee agrees to provide such information, as may be requested by the Company, about any disposition of Stock made by him or her within two years after the date of grant of the option and within one year after the employee’s acquisition of such Stock.

Section 3. Term of Options.

Subject to the terms of the Plan, no option under the Plan may be exercised after 27 months from the date of its grant, or such earlier date as may be provided by the Company in its sole discretion in a manner consistent with and to the extent permitted by Section 423 of the Code.

Section 4. Purchase Price.

The purchase price of the Stock issued pursuant to the exercise of an option granted under the Plan shall be 85% of the fair market value of the Stock at (i) the time of grant of the option or (ii) the time at which such option is exercised, whichever is less. The fair market value of the Stock shall be determined by the Company.

Section 5. Number of Shares.

Each employee will be entitled to purchase a maximum of 9,600 shares under the Plan in a single offering period (or such lower amount as may be prescribed under Section 423 of the Code), subject to proportionate

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reduction in the event the number of shares then being offered under the Plan is over-subscribed. In addition, no employee will be granted an option that would permit him or her to purchase shares under the Plan and all employee stock purchase plans of the Company and its subsidiaries to accrue at a rate that exceeds $25,000 in fair market value of Stock (or such other maximum as may be prescribed from time to time by the Code), as determined at the time of grant in accordance with Section 423(b)(8) of the Code, for each calendar year during which any option is outstanding.

Section 6. Method of Participation.

The Company will notify eligible employees of its intention to grant options and each employee will indicate the number of shares for which he or she wishes to subscribe. Thereafter, the Company will formally grant options for a specified number of shares, exercisable on a specified date two years from the date of grant.

Section 7. Method of Payment.

An employee who receives an option must execute and deliver to the Company a payroll deduction and participation authorization form in accordance with the procedures prescribed by, and in a form acceptable to, the Company authorizing payroll deductions to be made from his or her compensation over the two-year period following the option grant. The employee may make advance cash payments in any amount at any time during such two years, but such advance cash payments shall not accelerate the exercise date of the option.

For the avoidance of doubt, such payroll deduction authorization may provide for a suspension or reduction in payroll deductions during specified periods (for example, during unpaid leaves of absence), provided that such suspensions and reductions are made available and administered in a manner that is consistent with Section 19 below.

Section 8. Rights as Shareholders.

The employee will not have any rights as a shareholder and will not receive dividends with respect to any shares subject to an option until he or she has been issued the shares.

Section 9. Exercise of Option.

The employee may exercise an option by giving written notice to the Company specifying the number of shares he or she wishes to purchase, and representing that the stock is being acquired for investment and not with any existing intention to resell the stock. The Company is obligated, as soon as practicable after receipt of this notice, to apply the employee’s accumulated payroll deductions and any additional cash contributions made by him or her under the Plan to the purchase price of the shares and to issue and deliver the shares and return any surplus payments. No fractional shares of Stock may be purchased pursuant to the exercise of an option under the Plan. Notwithstanding anything herein to the contrary, the Company's obligation to issue and deliver shares of Stock under the Plan shall be subject to the receipt of any required governmental approval and to applicable New York Stock Exchange requirements.

Section 10. Interest.

Interest will be payable by the Company on any payroll deductions and additional cash contributions accumulated under the Plan. Interest will be computed at a rate determined by the Company.

Section 11. Right to Cancel.

An employee may cancel all or any part of his or her options under the Plan at any time prior to exercise by notice delivered to the Company in accordance with the procedures prescribed by, and in a form acceptable to, the Company. If the employee holds more than one option, the options must be canceled in reverse chronological order of their dates of grant. Upon such cancellation, payments made by the employee with respect to the canceled options will be returned to the employee, with interest, as soon as administratively practicable thereafter.

Section 12. Termination of Employment.

If an employee holds an option at the time his or her employment with the Company or its subsidiaries is terminated either through retirement within three months of the date such option becomes exercisable, or by death, whenever occurring, such employee or his or her legal representative may, by written notice delivered to the Company (as described in Section 9 above) on or before the option exercise date, either cancel the option and receive, with interest, the total amount of payments made by the employee or pay the amount which is necessary

126372177_2

to complete payment for the shares. The failure of the employee or his or her legal representative to file a written notice will be treated as an election to cancel the options and receive the payments due on cancellation. Upon termination of employment with the Company or its subsidiaries for any other reason, all options granted under this Plan held by an employee will automatically and immediately terminate, and any payments made with respect thereto will be returned to the employee with interest.

Section 13. Employee's Rights Not Transferable.

All employees granted options under the Plan will have the same rights and privileges consistent with the requirements set forth in Section 423 of the Code, except for employees who are participants in certain sub-plans, as described in Section 17. Any option granted under the Plan will be exercisable during the employee’s lifetime only by the employee and may not be sold, pledged, assigned or otherwise transferred in any manner, except as permitted by the applicable laws of decent and distribution in the case of the employee’s death. An employee’s violation of these restrictions may lead to termination of his or her options by the Company.

Section 14. Employment Rights.

Nothing in the Plan is to be construed so as to give any employee the right to be retained in the service of the Company or any subsidiary nor to give the Company or any subsidiary the right to require the employee remain in its service or to interfere with an employee’s right to terminate employment at any time.

Section 15. Change in Capitalization.

In the event there is a change in the outstanding stock of the Company due to a stock dividend, split-up, recapitalization, merger, consolidation or other reorganization, the aggregate number and class of shares available under the Plan and under any outstanding options, as well as the option price, will be appropriately adjusted, but only if the Company determines that the adjustment will not constitute a modification of options granted under the Plan or otherwise disqualify the Plan under Section 423 of the Code.

Section 16. Administration of the Plan.

The Company will administer the Plan, determine all questions arising thereunder and adopt, administer and interpret the rules and regulations relating to the Plan as it deems necessary or advisable. All determinations and decisions by the Company regarding the interpretation or application of the Plan will be final and binding on all persons.

Section 17. Sub-Plans; Amendment and Termination of the Plan.

The Company reserves the right to amend, suspend or terminate the Plan at any time, but cannot make a Plan amendment relating to the aggregate number of shares available under the Plan or the class of employees eligible to participate without the approval of the holders of the Company’s Common Stock.

If the Company terminates the Plan, it may leave outstanding options in place or provide for acceleration of the option exercise date.

Notwithstanding the foregoing or any provision of the Plan to the contrary, the Company may, in its sole discretion, amend the terms of the Plan, or an option, in order to reflect the impact of local law outside of the United States as applied to one or more employees who are citizens or residents of a foreign jurisdiction and may, where appropriate, establish one or more sub-plans to reflect such amended provisions; provided, however, in no event shall any sub-plan (a) be considered part of the Plan for purposes of Section 423 of the Code or (b) cause the Plan (other than the sub-plan) to fail to satisfy the requirements of Section 423 of the Code. In the event of any inconsistency between a sub-plan and the Plan document, the terms of the sub-plan shall govern with respect to any employees who are citizens or residents of a foreign jurisdiction. For the avoidance of doubt, shares of Stock purchased under a sub-plan shall reduce the maximum aggregate number of shares available for purchase pursuant to Section 1.

Section 18. Approval of Stockholders.

The Plan shall not have any force or effect unless it shall have been approved within 12 months before or after its adoption by the Board of Directors by a majority of the votes cast at a duly held stockholders’ meeting at which a quorum representing a majority of all outstanding Stock is, either in person or by proxy, present and voting on the Plan.

Section 19. Compliance with Code.

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Notwithstanding any other provisions of the Plan:

No option shall be granted hereunder if it could cause the Plan or any other options issued hereunder to fail to qualify under Section 423 of the Code. Without limiting the foregoing, all employees granted options under the Plan shall have the same rights and privileges, subject to and consistent with the provisions of Section 423(b)(5) of the Code.

No employee shall be granted an option if such employee, immediately after the grant of an option, would own or would be deemed to own (in accordance with the provisions of Sections 423 and 424(d) of the Code) Stock possessing 5% or more of the total combined voting power or value of all classes of Stock of the Company or of its parent or subsidiary corporations, as defined in Section 424 of the Code.

No employee shall be granted an option under the Plan that would permit his rights to purchase shares of Stock under all employee stock purchase plans of the Company and its parent and subsidiary corporations, as defined in Section 424 of the Code, to accrue at a rate that exceeds $25,000 in fair market value of such Stock (determined at the time the option is granted) for each calendar year during which any such option granted to such employee is outstanding at any time.

Section 20. Effective Date.

The effective date of the Plan shall be October 19, 2022.

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EX-31.1

EXHIBIT 31.1

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 4, 2023	/S/	Douglas A. Starrett
			Douglas A. Starrett
			Chief Executive Officer

EX-31.2

EXHIBIT 31.2

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 4, 2023	/S/	John C. Tripp
			John C. Tripp
			Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS

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

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

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (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 4, 2023	/S/ Douglas A. Starrett
		Douglas A. Starrett
		Chief Executive Officer
Date	February 4, 2023	/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.

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Cover page - shares	6 Months Ended
	Dec. 31, 2022	Jan. 17, 2023
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Dec. 31, 2022
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
Entity Central Index Key	0000093676
Current Fiscal Year End Date	--06-30
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2
Amendment Flag	false
Class A Common Shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		6,804,246
Class B Common Shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		622,645

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2022	Jun. 30, 2022
Current assets:
Cash	$ 8,957	$ 14,523
Accounts receivable (less allowance for credit losses of $806 and $796, respectively)	38,151	42,961
Inventories	70,088	66,900
Prepaid expenses and other current assets	9,727	8,669
Total current assets	126,923	133,053
Property, plant and equipment, net	38,121	37,116
Right of use assets	5,379	5,540
Deferred tax assets, net	13,943	14,924
Intangible assets, net	4,450	4,640
Goodwill	1,015	1,015
Other assets	3,280	3,266
Total assets	193,111	199,554
Current liabilities:
Current maturities of debt	5,259	6,547
Current lease liability	2,025	1,530
Accounts payable	13,017	14,624
Accrued expenses	10,335	11,776
Accrued compensation	4,697	6,703
Total current liabilities	35,333	41,180
Other tax obligations	2,974	2,936
Long-term lease liability	3,529	4,166
Long-term debt, net of current portion	20,313	24,905
Postretirement benefit and pension obligations	23,052	23,938
Total liabilities	85,201	97,125
Stockholders' equity:
Additional paid-in capital	57,454	57,143
Retained earnings	94,246	89,059
Accumulated other comprehensive loss	(51,217)	(51,066)
Total stockholders' equity	107,910	102,429
Total liabilities and stockholders’ equity	193,111	199,554
Class A Common Shares
Stockholders' equity:
Common stock	$ 6,803	$ 6,683
Common stock, shares, outstanding (in shares)	6,802,549	6,682,521
Class B Common Shares
Stockholders' equity:
Common stock	$ 624	$ 610
Common stock, shares, outstanding (in shares)	624,321	610,087

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Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2022	Jun. 30, 2022
Allowance for credit losses	$ 806	$ 796
Class A Common Shares
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares, outstanding (in shares)	6,802,549	6,682,521
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)	624,321	610,087

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Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2022	Dec. 31, 2021
Income Statement [Abstract]
Net sales	$ 66,775	$ 61,318	$ 127,236	$ 122,832
Cost of goods sold	45,199	42,368	85,460	83,737
Gross profit	$ 21,576	$ 18,950	$ 41,776	$ 39,095
% of Net sales	32.30%	30.90%	32.80%	31.80%
Restructuring charges	$ 54	$ 0	$ 244	$ 0
Selling, general and administrative expenses	15,561	14,749	31,855	30,762
Operating income	5,961	4,201	9,677	8,333
Other (expense), net	(1,121)	(662)	(1,797)	(436)
Income before income taxes	4,840	3,539	7,880	7,897
Income tax expense	1,709	1,011	2,693	2,137
Net income	$ 3,131	$ 2,528	$ 5,187	$ 5,760
Basic income per share (in dollars per share)	$ 0.42	$ 0.35	$ 0.71	$ 0.80
Diluted income per share (in dollars per share)	$ 0.42	$ 0.34	$ 0.69	$ 0.77
Weighted average outstanding shares used in per share calculations:
Basic (in shares)	7,405	7,243	7,354	7,185
Diluted (in shares)	7,541	7,492	7,511	7,473

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Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2022	Dec. 31, 2021
Statement of Comprehensive Income [Abstract]
Net income	$ 3,131	$ 2,528	$ 5,187	$ 5,760
Other comprehensive income (loss):
Currency translation gain (loss), net of tax	(2,716)	871	90	4,482
Pension and postretirement plans, net of tax	(36)	(67)	(61)	(133)
Other comprehensive income (loss)	2,680	(938)	(151)	(4,615)
Total comprehensive income	$ 5,811	$ 1,590	$ 5,036	$ 1,145

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Condensed 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, 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)
Issuance of stock	117	7	8	102
Stock-based compensation	237	11		226
Conversion		7	(7)
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)
Accumulated other comprehensive loss	(51,066)
Beginning balance at Jun. 30, 2022	102,429	6,683	610	57,143	89,059	(51,066)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	(775)				2,056	(2,831)
Repurchase of shares	(6)		(1)	(5)
Stock-based compensation	185	76		109
Conversion		12	(12)
Ending balance at Sep. 30, 2022	101,833	6,771	597	57,247	91,115	(53,897)
Beginning balance at Jun. 30, 2022	102,429	6,683	610	57,143	89,059	(51,066)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	5,036
Ending balance at Dec. 31, 2022	107,910	6,803	624	57,454	94,246	(51,217)
Beginning balance at Sep. 30, 2022	101,833	6,771	597	57,247	91,115	(53,897)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Total comprehensive income (loss)	5,811				3,131	2,680
Repurchase of shares	(3)			(3)
Issuance of stock	84	0	34	50
Stock-based compensation	185	25		160
Conversion		7	(7)
Ending balance at Dec. 31, 2022	107,910	$ 6,803	$ 624	$ 57,454	$ 94,246	(51,217)
Accumulated balance consists of:
Translation loss						(60,166)
Pension and postretirement plans, net of taxes						$ 8,949
Accumulated other comprehensive loss	$ (51,217)

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Cash flows from operating activities:
Net income	$ 5,187	$ 5,760
Non-cash operating activities:
Depreciation	2,585	2,567
Amortization	720	660
Stock-based compensation	370	411
Net long-term tax obligations	91	86
Deferred taxes	977	305
Postretirement benefit and pension obligations	314	(706)
Working capital changes:
Accounts receivable	4,530	(1,619)
Inventories	(3,307)	(6,002)
Other current assets	(1,098)	(1,063)
Other current liabilities	(4,818)	(3,767)
Prepaid pension expense	(1,147)	(2,071)
Other	70	872
Net cash provided by (used in) operating activities	4,474	(4,567)
Cash flows from investing activities:
Purchases of property, plant and equipment	(3,713)	(4,457)
Software development	(477)	(533)
Net cash (used in) investing activities	(4,190)	(4,990)
Cash flows from financing activities:
Proceeds from borrowing	1,575	29,605
Debt repayments	(7,508)	(20,244)
Proceeds from common stock issued	84	117
Shares repurchased	(9)	(23)
Net cash (used in) provided by financing activities	(5,858)	9,455
Effect of exchange rate changes on cash	8	434
Net (decrease) increase in cash	(5,566)	332
Cash, beginning of period	14,523	9,105
Cash, end of period	8,957	9,437
Supplemental cash flow information:
Interest paid	802	465
Income taxes paid, net	$ 3,360	$ 2,222

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Basis of Presentation and Summary of Significant Account Policies

6 Months Ended

Dec. 31, 2022

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Account Policies

Basis of Presentation and Summary of Significant Accounting Policies

The unaudited interim condensed consolidated financial statements as of and for the six months ended December 31, 2022 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 condensed 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 condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022. The balance sheet as of June 30, 2022 has been derived from the audited condensed consolidated financial statements as of and for the year ended June 30, 2022. 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.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for doubtful accounts is the Company's estimate of current expected credit losses on its existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines the receivable will not be recovered.

Fair Value Measurements

Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of their short-term maturity. See Notes 10 and 11 within the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for financial assets and liabilities held at carrying amount on the condensed consolidated balance sheet.

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 condensed consolidated financial statements and accompanying notes. Note 2 within the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q to the Company’s condensed consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2022 describes the significant accounting policies and methods used in the preparation of the condensed consolidated financial statements.

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Recently Adopted Accounting Pronouncements	6 Months Ended
	Dec. 31, 2022
Accounting Standards Update and Change in Accounting Principle [Abstract]
Recently Adopted Accounting Pronouncements	Recently Adopted Accounting PronouncementsIn June 2016, the FASB issued ASU 2016-13 "Financial Instruments -Credit Losses" (ASC 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 historic 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 pronouncement was extended for Small Reporting Companies and for the Company beginning July 1, 2022. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

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Segment Information

6 Months Ended

Dec. 31, 2022

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 condensed 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, 2022. The Company’s business is aggregated into two reportable segments based on geography of operations: North American Operations ("North America") and International Operations (“International”). 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 our Annual Report on Form 10-K for the year ended June 30, 2022. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated		Total
Three Months ended December 31, 2022
Sales1	$	39,687	$	27,088	$	—	$	66,775
Operating Income (Loss)	$	3,681	$	3,893	$	(1,613)	$	5,961
Three Months ended December 31, 2021
Sales2	$	32,666	$	28,652	$	—	$	61,318
Operating Income (Loss)	$	1,549	$	4,394	$	(1,742)	$	4,201

1.Excludes $707 of North American segment intercompany sales to the International segment, and $4,250 of International segment intercompany sales to the North American segment.

2.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.

	North American Operations		International Operations		Unallocated		Total
Six months ended December 31, 2022
Sales1	$	76,170	$	51,066	$	—	$	127,236
Operating Income (Loss)	$	6,878	$	6,729	$	(3,930)	$	9,677
Six months ended December 31, 2021
Sales2	$	66,475	$	56,357	$	—	$	122,832
Operating Income (Loss)	$	4,050	$	7,977	$	(3,694)	$	8,333

1.Excludes $1,635 of North American segment intercompany sales to the International segment, and $9,285 of International segment intercompany sales to the North American segment.

2.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.

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Revenue from Contracts with Customers

6 Months Ended

Dec. 31, 2022

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customer

Revenue from Contracts with CustomersUnder ASC Topic 606, the Company is required to present a refund liability and a return asset within the Unaudited Condensed Consolidated Balance Sheet. As of December 31, 2022 and June 30, 2022, 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, 2022 and June 30, 2022 was $0.1 million

and $0.2 million, respectively. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the Condensed 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 $0.5 million and $0.9 million at December 31, 2022 and June 30, 2022, respectively, located in Accounts Payable in the Condensed 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 and six months ended December 31, 2022 and 2021 (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
North America
United States	$	37,620	$	30,912	$	71,892	$	62,932
Canada & Mexico	2,067		1,754		4,278		3,543
	39,687		32,666		76,170		66,475
International
Brazil	20,057		18,687		37,305		37,890
United Kingdom	3,294		4,729		6,494		9,697
China	1,978		2,244		3,665		3,862
Australia & New Zealand	1,759		2,992		3,601		4,908
	27,088		28,652		51,066		56,357
Total Sales	$	66,775	$	61,318	$	127,236	$	122,832

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Leases

6 Months Ended

Dec. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Leases

Leases

Operating lease cost amounted to $0.5 million and $1.0 million for the three and six months ended December 31, 2022 and $0.8 million and $1.6 million for the three and six months ended December 31, 2021. As of December 31, 2022, the Company’s right-of-use assets "ROU", lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,379	$	5,553	$	6,775

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 3.8 years. As of December 31, 2022, the Company’s financing leases are not material. The foreign exchange impact affecting the operating leases are, also, not material.

During the quarter ended December 31, 2022 the Company renewed its leases in both Australia (ends September 2026) and New Zealand (ends April 2025) and recorded $0.6 million in new leases as ROU assets. 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.

At December 31, 2022 the Company had the following fiscal year minimum operating lease commitments (in thousands):

	Operating Lease Commitments
2023 remaining	$	1,076
2024	2,013
2025	1,587
2026	1,293
2027	713
Thereafter	93
Subtotal	$	6,775
Imputed interest	(1,222)
Total	5,553

The Company entered into $1.0 million, in new operating lease commitments in the three and six months ended December 31, 2022, of which $0.6 million is for the Australia and New Zealand renewals, and incurred immaterial increases due to foreign exchange translation of ROU assets during the three and six months ended December 31, 2022.

In July 2021, 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 rental income is recorded in Other Income in the Company's Condensed Consolidated Statement of Operations.

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Stock-based Compensation	6 Months Ended
	Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]
Stock-based Compensation	Stock-based CompensationCompensation expense related to all stock-based plans for the three and six months ended December 31, 2022 were $0.2 million and $0.3 million as compared to the prior year three and six months of $0.2 million and $0.3 million, respectively.

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Inventories

6 Months Ended

Dec. 31, 2022

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories consist of the following (in thousands):

	12/31/2022		06/30/2022
Raw material and supplies	$	38,002	$	35,752
Goods in process and finished parts	22,007		22,268
Finished goods	36,198		35,589
	96,207		93,609
LIFO Reserve	(26,119)		(26,709)
	$	70,088	$	66,900

Of the Company’s $70.1 million and $66.9 million total inventory at December 31, 2022 and June 30, 2022, respectively, the $26.1 million and $26.7 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 $41.4 million on a FIFO basis and $15.3 million on a LIFO basis at December 31, 2022. The Core U.S. business had total inventory, on a FIFO basis, of $39.3 million and $12.6 million on a LIFO basis as of June 30, 2022. The use of LIFO, as compared to FIFO, resulted in, during the three months and six months ended December 31, 2022, a $0.1 million increase and $0.6 million decrease in cost of sales as compared to a $0.9 million increase and a $0.9 million decrease in the three and six months ended December 31, 2021.

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Goodwill and Intangible Assets

6 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible AssetsAmortizable intangible assets consist of the following (in thousands):

	12/31/2022		6/30/2022
Trademarks and trade names	$	2,070	$	2,070
Customer relationships	630		630
Software development	11,746		11,269
Gross intangible assets	14,446		13,969
Accumulated amortization and impairment	(9,996)		(9,329)
Net intangible assets	$	4,450	$	4,640

The estimated useful lives of the intangible assets subject to amortization range between 5 years for software development and 20 years for trademark and trade name assets.

The goodwill balance at December 31, 2022, gross $4.7 million and accumulated impairment of $3.7 million. There is no change in the six months ended December 31, 2022 to the net goodwill balance of $1.0 million.

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Accrued Expenses

6 Months Ended

Dec. 31, 2022

Payables and Accruals [Abstract]

Accrued Expenses

Accrued Expenses

The following table represents accrued expenses from the Condensed Consolidated Balance Sheets (in thousands)

	12/31/2022		06/30/2022
Sales related programs (commissions, rebates, distributor programs, warranty and related)	$	3,043	$	2,733
Income taxes	773		2,420
Professional fees	1,402		1,758
Other	1,579		1,463
Current portion pension cost	1,308		1,289
Taxes other than income tax	1,174		1,243
Workers compensation and employee deposits	432		518
Freight	624		352
Total	$	10,335	$	11,776

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Pension and Post-retirement Benefits

6 Months Ended

Dec. 31, 2022

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), in the Condensed 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, allocated based on headcount. Net periodic benefit cost and expected return consist of the following (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
Interest cost	1,408		1,031		2,890		2,064
Expected return on plan assets	(960)		(1,098)		(1,992)		(2,198)
Amortization of net loss	10		15		20		28
Expected net cost (benefit) total	$	458	$	(52)	$	918	$	(106)

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

	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
Service cost	$	5	$	9	$	11	$	18
Interest cost	17		13		35		25
Amortization of prior service credit	(368)		(369)		(737)		(737)
Amortization of net loss	45		47		89		94
Total net (benefit)	$	(301)	$	(300)	$	(602)	$	(600)

For the three months and six months ended December 31, 2022, the Company contributed in the U.S. $0.7 million. In the UK pension plans the Company contributed $0.2 million and $0.4 million for the same periods. Based upon the actuarial valuations performed on the Company’s defined benefit plans as of June 30, 2022, the contribution for fiscal 2023 for the U.S. plans would require a contribution of $1.4 million and the U.K. plan would require $0.8 million. However, as a result of the American Rescue Plan Act of 2021, the minimum required company contribution for the U.S. Plan was reduced. The Company believes that government regulation is only a small part of deciding the pension funding, and as a result, may contribute more than the federal requirement. The Company contributed $2.5 million in total during fiscal year 2022, with $1.5 million in the U.S. and $1.0 million in the U.K. The Company continues evaluating the U.S. future contribution on a quarterly basis. The Company currently believes contributions in fiscal year 2023 will be similar to the prior year.

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, 2022

Debt Disclosure [Abstract]

Debt

Debt

Debt is comprised of the following (in thousands):

	12/31/2022		06/30/2022
Short-term and current maturities
Loan and security agreement (term loan)	1,495		1,495
Brazil loans	3,764		5,052
	5,259		6,547
Long-term debt (net of current portion)
Loan and security agreement (term loan)	9,504		10,252
Loan and security agreement (line of credit)	8,897		11,397
Brazil loans	2,373		3,771
Debt reacquisition cost	(461)		(515)
	20,313		24,905
Total debt	$	25,572	$	31,452

On April 29, 2022, the Company and certain of the Company’s domestic subsidiaries entered into a Loan and Security agreement (the "Loan and Security Agreement") with HSBC Bank USA ("the Lender"). The Company incurred debt re-acquisition cost of $0.5 million which are recorded net of debt and amortized over five years.

These new credit facilities replaced the Company’s previous TD Bank credit facilities and are comprised of a $30 million revolving Loan and Security Agreement Line of Credit ("Line of Credit") with a $10 million uncommitted accordion provision, a Loan and Security Agreement Term Loan ("the Term Loan") with original principal of $12.1 million and a $7 million Capital Expenditure draw down credit facility (collectively, the "Facilities"). The Facilities are secured by a valid first-priority security interest on substantially all existing and future assets of the Company and its domestic subsidiaries.

The interest rate on the Facilities is based on a grid which uses the percentage of the remaining availability of the revolving credit line to determine the floating margin to be added to the one month or three months Secured Overnight Financing Rate, (SOFR). The Facilities mature on April 29, 2027.

Availability under the revolving line of credit is secured by and subject to a borrowing base comprised of eligible inventory and accounts receivable. The percentage of receivables included in the borrowing base is 90% for domestic investment grade and foreign insured accounts, 85% for domestic accounts that are neither investment grade nor insured, and 75% of foreign uninsured accounts. The percentage of inventory included in the borrowing base is the lower of 65% of the value of eligible inventory at cost or 85% of the net orderly liquidation value of eligible inventory at cost. Receivables and inventory are reported monthly to HSBC and subject to an annual field exam and inventory appraisal by an independent auditor commissioned by the Bank. The Company believes that the agreement provides an initial borrowing base sufficient for current domestic working capital needs and flexibility to accommodate potential growth-related working capital needs.

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 $30.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

Availability under the Term Loan was comprised of 70% of the fair market value of the Borrower's eligible real estate, which included facilities located in Westlake, Ohio, and Waite Park, Minnesota and totaled $4.6 million; and 85% of the net orderly liquidation value of the Borrowers’ machinery and equipment, capped at $7.5 million. The real estate portion of the Term facility is subject to a 12.5 year straight line amortization paid quarterly, and the machinery and equipment portion of the facility is subject to a 6.67 year straight line amortization, also paid quarterly. The Term Loan is subject to equal quarterly installments of $373,650, payable on the last day of each fiscal quarter.

The capital expenditure loan facility is available for the purchase of new machinery and equipment at 80% of the net invoice value of new machinery and equipment purchases, with a draw period of eighteen months past the closing date, with any amount outstanding under the facility subject to a 3.75% amortization rate per quarter.

The Facilities contain financial covenants with respect to a minimum fixed charge coverage ratio of 1.00, measured on a trailing twelve-month basis, for both the U.S. borrowing companies tested quarterly and the Consolidated L.S. Starrett Company tested semi-annually. The Loan and Security agreement also contains the customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions, fundamental corporate changes, excess pension contributions, and certain customary events of default. Upon the occurrence or continuation of an event of default, the Lender may terminate all commitments and facilities, and require the immediate payment of the entire unpaid principal balances, accrued interest, and all other obligations.

The TD Bank loan was retired in the quarter ended June 2022.

In Brazil, the Company is actively mitigating this consequence of the build-up of ICMS (translate to "Tax on Commerce and Services") credits 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. The Brazilian federal tax authority has approved the Company's application and now it is awaiting state tax approval. This new methodology is common for similar sized, export focused companies in Brazil. The ICMS balance as of June 30, 2022 was $5.4 million and as of December 31, 2022 was $5.2 million. The ICMS balance increased $0.2 million versus the quarter ended September 30, 2022 due to currency exchange. The Company expects a lower balance by the fiscal year end. The ICMS is an asset and its build-up was one of the reasons that Brazilian operation incurred more debt. The balance is located on the Condensed Consolidated Balance Sheets in prepaid expenses and other current assets.

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. Included in the table below are $0.6 million of financing on purchased fixed assets. The Company’s Brazilian subsidiary has the following loans as of December 31, 2022 (in thousands):

Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Brasil	4.52%	October 2021	September 2024	$	4,000
Itau	4.98%	February 2022	February 2024	1,523
Itau	4.95%	August 2022	July 2025	437
Brasil	3.80%	September 2022	August 2024	125
Brasil	4.18%	September 2022	September 2023	52
				$	6,137

Total debt was reduced by $3.8 million and $5.9 million during the three and six months ended December 31, 2022, respectively, and the Brazilian loans were reduced by $1.0 million and $2.7 million in the three and six months ended December 31, 2022, respectively.

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Income Taxes

6 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Tax expense for the three month period ended December 31, 2022 was $1.7 million on profit before tax of $4.8 million (an effective tax rate of 35%). Tax expense for the three month period ended December 31, 2021 was $1.0 million on profit before tax of $3.5 million (an effective tax rate of 29%). The effective tax rate for the three month periods ended December 31, 2022 and 2021 were 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. Tax expense for the three month period ended December 31, 2022 reflects the impact of final U.S. foreign tax credit regulations effective in fiscal 2023 that result in an increase in tax expense from the GILTI inclusion.

Tax expense for the six month period ended December 31, 2022 was $2.7 million on profit before tax of $7.9 million (an effective tax rate of 34%). Tax expense for the six month period ended December 31, 2021 was $2.1 million on profit before tax of $7.9 million (an effective tax rate of 27%). The effective tax rate for the six month periods ended December 31, 2022 and 2021 were 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. Tax expense for the six month period ended December 31, 2022 reflects the impact of final U.S. foreign tax credit regulations effective in fiscal 2023 that result in an increase in tax expense from the GILTI inclusion. In the six months ended December 31, 2022 the GILTI impact resulted in a 6.2% rate as compared to the six months ended December 31, 2021 resulting in a rate of 1.2%.

The Company has considered the positive and negative evidence to determine the need for a valuation allowance offsetting the deferred tax assets in the U.S. and has concluded that a partial valuation allowance is required against foreign tax credit carryforwards and certain state net operating loss carryforwards at December 31, 2022 and June 30, 2022. The Company had long term tax obligations related primarily to transfer pricing adjustments at December 31, 2022 and June 30, 2022.

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Contingencies	6 Months Ended
	Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract]
Contingencies	ContingenciesThe Company is involved in certain legal matters, which arise, in the normal course of business. Although the outcomes of these legal matters are inherently difficult to predict, management does not expect the resolution of these legal matters to have a material adverse effect 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, 2022

Accounting Policies [Abstract]

Basis of Accounting

The unaudited interim condensed consolidated financial statements as of and for the six months ended December 31, 2022 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 condensed 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 condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022. The balance sheet as of June 30, 2022 has been derived from the audited condensed consolidated financial statements as of and for the year ended June 30, 2022. 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.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at invoiced amount and do not bear interest. Allowance for doubtful accounts is the Company's estimate of current expected credit losses on its existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines the receivable will not be recovered.

Fair Value Measurements

Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of their short-term maturity. See Notes 10 and 11 within the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for financial assets and liabilities held at carrying amount on the condensed consolidated balance sheet.

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 condensed consolidated financial statements and accompanying notes. Note 2 within the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q to the Company’s condensed consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2022 describes the significant accounting policies and methods used in the preparation of the condensed consolidated financial statements.

Recently adopted accounting pronouncements

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments -Credit Losses" (ASC 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 historic 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 pronouncement was extended for Small Reporting Companies and for the Company beginning July 1, 2022. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

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Segment Information (Tables)

6 Months Ended

Dec. 31, 2022

Segment Reporting [Abstract]

Summary of financial results for reportable segments

	North American Operations		International Operations		Unallocated		Total
Three Months ended December 31, 2022
Sales1	$	39,687	$	27,088	$	—	$	66,775
Operating Income (Loss)	$	3,681	$	3,893	$	(1,613)	$	5,961
Three Months ended December 31, 2021
Sales2	$	32,666	$	28,652	$	—	$	61,318
Operating Income (Loss)	$	1,549	$	4,394	$	(1,742)	$	4,201

1.Excludes $707 of North American segment intercompany sales to the International segment, and $4,250 of International segment intercompany sales to the North American segment.

2.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.

	North American Operations		International Operations		Unallocated		Total
Six months ended December 31, 2022
Sales1	$	76,170	$	51,066	$	—	$	127,236
Operating Income (Loss)	$	6,878	$	6,729	$	(3,930)	$	9,677
Six months ended December 31, 2021
Sales2	$	66,475	$	56,357	$	—	$	122,832
Operating Income (Loss)	$	4,050	$	7,977	$	(3,694)	$	8,333

1.Excludes $1,635 of North American segment intercompany sales to the International segment, and $9,285 of International segment intercompany sales to the North American segment.

2.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.

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Revenue from Contracts with Customers (Tables)

6 Months Ended

Dec. 31, 2022

Revenue from Contract with Customer [Abstract]

Disaggregation of revenue

	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
North America
United States	$	37,620	$	30,912	$	71,892	$	62,932
Canada & Mexico	2,067		1,754		4,278		3,543
	39,687		32,666		76,170		66,475
International
Brazil	20,057		18,687		37,305		37,890
United Kingdom	3,294		4,729		6,494		9,697
China	1,978		2,244		3,665		3,862
Australia & New Zealand	1,759		2,992		3,601		4,908
	27,088		28,652		51,066		56,357
Total Sales	$	66,775	$	61,318	$	127,236	$	122,832

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Leases (Tables)

6 Months Ended

Dec. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Summary of lease assets and liabilities

As of December 31, 2022, the Company’s right-of-use assets "ROU", lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,379	$	5,553	$	6,775

Fiscal year minimum operating lease commitments

At December 31, 2022 the Company had the following fiscal year minimum operating lease commitments (in thousands):

	Operating Lease Commitments
2023 remaining	$	1,076
2024	2,013
2025	1,587
2026	1,293
2027	713
Thereafter	93
Subtotal	$	6,775
Imputed interest	(1,222)
Total	5,553

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Inventories (Tables)

6 Months Ended

Dec. 31, 2022

Inventory Disclosure [Abstract]

Schedule of inventories

Inventories consist of the following (in thousands):

	12/31/2022		06/30/2022
Raw material and supplies	$	38,002	$	35,752
Goods in process and finished parts	22,007		22,268
Finished goods	36,198		35,589
	96,207		93,609
LIFO Reserve	(26,119)		(26,709)
	$	70,088	$	66,900

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Amortizable intangible assets

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

	12/31/2022		6/30/2022
Trademarks and trade names	$	2,070	$	2,070
Customer relationships	630		630
Software development	11,746		11,269
Gross intangible assets	14,446		13,969
Accumulated amortization and impairment	(9,996)		(9,329)
Net intangible assets	$	4,450	$	4,640

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Payables and Accruals (Tables)

6 Months Ended

Dec. 31, 2022

Payables and Accruals [Abstract]

Schedule of Accrued Expenses

The following table represents accrued expenses from the Condensed Consolidated Balance Sheets (in thousands)

	12/31/2022		06/30/2022
Sales related programs (commissions, rebates, distributor programs, warranty and related)	$	3,043	$	2,733
Income taxes	773		2,420
Professional fees	1,402		1,758
Other	1,579		1,463
Current portion pension cost	1,308		1,289
Taxes other than income tax	1,174		1,243
Workers compensation and employee deposits	432		518
Freight	624		352
Total	$	10,335	$	11,776

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Pension and Post-retirement Benefits (Tables)

6 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

Schedule of net benefit costs

Net periodic benefit cost and expected return consist of the following (in thousands):

	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
Interest cost	1,408		1,031		2,890		2,064
Expected return on plan assets	(960)		(1,098)		(1,992)		(2,198)
Amortization of net loss	10		15		20		28
Expected net cost (benefit) total	$	458	$	(52)	$	918	$	(106)

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

	Three Months Ended				Six Months Ended
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
Service cost	$	5	$	9	$	11	$	18
Interest cost	17		13		35		25
Amortization of prior service credit	(368)		(369)		(737)		(737)
Amortization of net loss	45		47		89		94
Total net (benefit)	$	(301)	$	(300)	$	(602)	$	(600)

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Debt (Tables)

6 Months Ended

Dec. 31, 2022

Debt Disclosure [Abstract]

Debt schedule

Debt is comprised of the following (in thousands):

	12/31/2022		06/30/2022
Short-term and current maturities
Loan and security agreement (term loan)	1,495		1,495
Brazil loans	3,764		5,052
	5,259		6,547
Long-term debt (net of current portion)
Loan and security agreement (term loan)	9,504		10,252
Loan and security agreement (line of credit)	8,897		11,397
Brazil loans	2,373		3,771
Debt reacquisition cost	(461)		(515)
	20,313		24,905
Total debt	$	25,572	$	31,452

Schedule of short-term debt, Brazilian subsidiary

The Company’s Brazilian subsidiary has the following loans as of December 31, 2022 (in thousands):

Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Brasil	4.52%	October 2021	September 2024	$	4,000
Itau	4.98%	February 2022	February 2024	1,523
Itau	4.95%	August 2022	July 2025	437
Brasil	3.80%	September 2022	August 2024	125
Brasil	4.18%	September 2022	September 2023	52
				$	6,137

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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, 2022	Dec. 31, 2021	Dec. 31, 2022	Dec. 31, 2021
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	$ 66,775	$ 61,318	$ 127,236	$ 122,832
Operating Income (Loss)	5,961	4,201	9,677	8,333
Unallocated
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	0	0	0	0
Operating Income (Loss)	(1,613)	(1,742)	(3,930)	(3,694)
North American Operations
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	39,687	32,666	76,170	66,475
North American Operations | Operating Segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	39,687	32,666	76,170	66,475
Operating Income (Loss)	3,681	1,549	6,878	4,050
North American Operations | Intercompany sales
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Intercompany sales	707	930	1,635	1,679
International Operations | Operating Segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Sales	27,088	28,652	51,066	56,357
Operating Income (Loss)	3,893	4,394	6,729	7,977
International Operations | Intercompany sales
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Intercompany sales	$ 4,250	$ 4,412	$ 9,285	$ 9,748

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Revenue from Contracts with Customers - Narrative (Details)	6 Months Ended
	Dec. 31, 2022 USD ($) segment	Jun. 30, 2022 USD ($)
Revenue from Contract with Customer [Abstract]
Customer return asset	$ 100,000	$ 200,000
Customer refund liability	200,000	100,000
Contract asset	0	0
Contract liability	$ 500,000	$ 900,000
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, 2022	Dec. 31, 2021	Dec. 31, 2022	Dec. 31, 2021
Disaggregation of Revenue [Line Items]
Net sales	$ 66,775	$ 61,318	$ 127,236	$ 122,832
North America
Disaggregation of Revenue [Line Items]
Net sales	39,687	32,666	76,170	66,475
International
Disaggregation of Revenue [Line Items]
Net sales	27,088	28,652	51,066	56,357
United States | North America
Disaggregation of Revenue [Line Items]
Net sales	37,620	30,912	71,892	62,932
Canada & Mexico | North America
Disaggregation of Revenue [Line Items]
Net sales	2,067	1,754	4,278	3,543
Brazil | International
Disaggregation of Revenue [Line Items]
Net sales	20,057	18,687	37,305	37,890
United Kingdom | International
Disaggregation of Revenue [Line Items]
Net sales	3,294	4,729	6,494	9,697
China | International
Disaggregation of Revenue [Line Items]
Net sales	1,978	2,244	3,665	3,862
Australia & New Zealand | International
Disaggregation of Revenue [Line Items]
Net sales	$ 1,759	$ 2,992	$ 3,601	$ 4,908

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Leases - Narrative (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)	Jun. 30, 2022 USD ($)	Sep. 30, 2021 USD ($) ft²	Jul. 31, 2021 USD ($)
Lessee, Lease, Description [Line Items]
Operating lease cost	$ 500	$ 800	$ 1,000	$ 1,600
Weighted average discount rate	9.00%		9.00%
Weighted average remaining lease term	3 years 9 months 18 days		3 years 9 months 18 days
Operating lease commitments	$ 1,000		$ 1,000
Right of use assets	5,379		5,379		$ 5,540	$ 2,600
Annual rent income from lease							$ 200
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
Australia & New Zealand
Lessee, Lease, Description [Line Items]
Operating lease commitments	600		600
Right of use assets	$ 600		$ 600

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Leases - Summary of lease assets and liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Jun. 30, 2022	Sep. 30, 2021
Commitments and Contingencies Disclosure [Abstract]
Right-of-Use Assets	$ 5,379	$ 5,540	$ 2,600
Operating Lease Obligations	5,553
Remaining Cash Commitment	$ 6,775

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Leases - Fiscal year minimum operating lease commitments (Details) $ in Thousands	Dec. 31, 2022 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2023 remaining	$ 1,076
2024	2,013
2025	1,587
2026	1,293
2027	713
Thereafter	93
Subtotal	6,775
Imputed interest	(1,222)
Total	$ 5,553

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Stock-based Compensation (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2022	Dec. 31, 2021
The 2012 Stock Incentive Plan
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Compensation expense related to stock-based plans	$ 0.2	$ 0.2	$ 0.3	$ 0.3

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Inventories - Components of Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Jun. 30, 2022
Inventory Disclosure [Abstract]
Raw material and supplies	$ 38,002	$ 35,752
Goods in process and finished parts	22,007	22,268
Finished goods	36,198	35,589
Total before LIFO reserve	96,207	93,609
LIFO Reserve	(26,119)	(26,709)
Total	$ 70,088	$ 66,900

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Inventories (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2022	Dec. 31, 2021	Jun. 30, 2022
Inventory Disclosure [Abstract]
Inventories	$ 70,088		$ 70,088		$ 66,900
Inventory, LIFO Reserve	26,119		26,119		26,709
Inventory difference using FIFO basis	41,400		41,400		39,300
LIFO inventory amount	15,300		15,300		$ 12,600
Effect of LIFO Reserve on income	$ 100	$ 900	$ (600)	$ (900)

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Goodwill and Intangible Assets - Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Jun. 30, 2022
Finite-Lived Intangible Assets [Line Items]
Gross intangible assets	$ 14,446	$ 13,969
Accumulated amortization and impairment	(9,996)	(9,329)
Net intangible assets	4,450	4,640
Trademarks and trade names
Finite-Lived Intangible Assets [Line Items]
Gross intangible assets	2,070	2,070
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Gross intangible assets	630	630
Software development
Finite-Lived Intangible Assets [Line Items]
Gross intangible assets	$ 11,746	$ 11,269

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Goodwill and Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2022	Jun. 30, 2022
Finite-Lived Intangible Assets [Line Items]
Goodwill gross	$ 4,700
Goodwill impairment loss	3,700
Goodwill	$ 1,015	$ 1,015
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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Payables and Accruals (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Jun. 30, 2022
Payables and Accruals [Abstract]
Sales related programs (commissions, rebates, distributor programs, warranty and related)	$ 3,043	$ 2,733
Income taxes	773	2,420
Professional fees	1,402	1,758
Other	1,579	1,463
Current portion pension cost	1,308	1,289
Taxes other than income tax	1,174	1,243
Workers compensation and employee deposits	432	518
Freight	624	352
Total	$ 10,335	$ 11,776

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Pension and Post-retirement Benefits (Details) $ in Millions	3 Months Ended	6 Months Ended	12 Months Ended
	Dec. 31, 2022 USD ($) plan	Dec. 31, 2022 USD ($) plan	Jun. 30, 2022 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Number of defined benefit pension plans | plan	2	2
Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Employer contributions			$ 2.5
Pension Plan | United States
Defined Benefit Plan Disclosure [Line Items]
Employer contributions	$ 0.7	$ 0.7	1.5
Expected employer contributions for remainder of the fiscal year			1.4
Pension Plan | Foreign Plan
Defined Benefit Plan Disclosure [Line Items]
Employer contributions	$ 0.2	$ 0.4	1.0
Expected employer contributions for remainder of the fiscal year			$ 0.8

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Pension and Post-retirement Benefits - Net Periodic Costs (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2022	Dec. 31, 2021
Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Interest cost	$ 1,408	$ 1,031	$ 2,890	$ 2,064
Expected return on plan assets	(960)	(1,098)	(1,992)	(2,198)
Amortization of net loss	10	15	20	28
Total net (benefit)	458	(52)	918	(106)
Post Retirement Medical Plan
Defined Benefit Plan Disclosure [Line Items]
Service cost	5	9	11	18
Interest cost	17	13	35	25
Amortization of prior service credit	(368)	(369)	(737)	(737)
Amortization of net loss	45	47	89	94
Total net (benefit)	$ (301)	$ (300)	$ (602)	$ (600)

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Debt - Debt schedule (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Jun. 30, 2022
Short-term Debt [Abstract]
Loan and Security Agreement	$ 5,259	$ 6,547
Brazil loans	6,137
Short-term and current maturities	5,259	6,547
Long-term Debt, Excluding Current Maturities [Abstract]
Loan and Security Agreement	20,313	24,905
Long-term debt	25,572	31,452
Loan and security agreement (term loan)
Long-term Debt, Excluding Current Maturities [Abstract]
Loan and Security Agreement	9,504	10,252
Loan and Security Agreement (Line of credit)
Long-term Debt, Excluding Current Maturities [Abstract]
Loan and Security Agreement	8,897	11,397
Brazil loans
Long-term Debt, Excluding Current Maturities [Abstract]
Loan and Security Agreement	2,373	3,771
Debt Issuance Costs, Gross	(461)	(515)
Loan and security agreement (term loan)
Short-term Debt [Abstract]
Loan and Security Agreement	1,495	1,495
Brazil loans
Short-term Debt [Abstract]
Brazil loans	$ 3,764	$ 5,052

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Debt - Narrative (Details) - USD ($)		3 Months Ended	6 Months Ended
	Apr. 29, 2022	Dec. 31, 2022	Dec. 31, 2022	Jun. 30, 2022
Debt Instrument [Line Items]
Re-acquisition costs, amortization period (in years)			5 years
Credit limit on revolving loan facility		$ 30,000,000	$ 30,000,000
Commitment fee percentage on line of credit			0.25%
ICMS balance		5,200,000	$ 5,200,000	$ 5,400,000
Period increase in ICMS balance		200,000
HSBC Bank USA
Debt Instrument [Line Items]
Increase in debt	$ 500,000
Brasil Bank
Debt Instrument [Line Items]
Financing on purchased fixed assets			600,000
The Credit Facility | Revolving Credit Facility
Debt Instrument [Line Items]
Credit limit on revolving loan facility	30,000,000
Uncommitted accordion provision	10,000,000
Face value of term loan	12,100,000
Capital Expenditure Draw Down Credit Facility | Revolving Credit Facility
Debt Instrument [Line Items]
Credit limit on revolving loan facility	$ 7,000,000
All Debt
Debt Instrument [Line Items]
Decrease in debt		3,800,000	5,900,000
Brazil Debt
Debt Instrument [Line Items]
Decrease in debt		$ (1,000,000)	$ (2,700,000)
Line of Credit | Loan and Security Agreement
Debt Instrument [Line Items]
Minimum fixed charge coverage ratio	100.00%
Line of Credit | Loan and Security Agreement | Revolving Credit Facility
Debt Instrument [Line Items]
Percentage of receivables included in borrowing base, investment grade	90.00%
Percentage of receivables included in borrowing base, domestic investment grade and foreign insured	85.00%
Percentage of receivables included in borrowing base, foreign uninsured	75.00%
Percentage of eligible inventory included in borrowing base at cost	65.00%
Percentage of receivables included in borrowing base, domestic investment grade and foreign insured	85.00%
Line of Credit | Loan and Security Agreement | Term Loan
Debt Instrument [Line Items]
Percentage of the fair market value of eligible real estate	70.00%
Collateral amount	$ 4,600,000
Percentage of net orderly liquidation value of machinery and equipment	85.00%
Capped value of eligible machinery and equipment	$ 7,500,000
Amortization period for real estate portion	1250.00%
Amortization period for machinery and equipment portion	667.00%
Quarterly term loan payments	$ 373,650
Line of Credit | Loan and Security Agreement | Capital Expenditure Draw Down Credit Facility
Debt Instrument [Line Items]
Percentage of eligible new machinery and equipment	80.00%
Draw down period	18 months
Amortization rate for capital expenditure draw amounts outstanding	3.75%

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Debt - Short-term Debt (Details) $ in Thousands	Dec. 31, 2022 USD ($)
Statement [Line Items]
Brazil loans	$ 6,137
Brasil Bank | 4.52% Short-term loan
Statement [Line Items]
Interest rate	4.52%
Brazil loans	$ 4,000
Brasil Bank | 3.80% Short-term loan
Statement [Line Items]
Interest rate	3.80%
Brazil loans	$ 125
Brasil Bank | 4.18% Short-term loan
Statement [Line Items]
Interest rate	4.18%
Brazil loans	$ 52
Itau Bank | 4.98% Short-term loan
Statement [Line Items]
Interest rate	4.98%
Brazil loans	$ 1,523
Itau Bank | 4.95% Short-term loan
Statement [Line Items]
Interest rate	4.95%
Brazil loans	$ 437

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2022	Dec. 31, 2021
Operating Loss Carryforwards [Line Items]
Income tax expense	$ 1,709	$ 1,011	$ 2,693	$ 2,137
Profit before tax	$ 4,840	$ 3,539	$ 7,880	$ 7,897
Effective income tax rate percentage	35.00%	29.00%	34.00%	27.00%
Effective Income Tax Rate Reconciliation, GILTI, Percent			6.20%	1.20%
Foreign Tax Authority | Secretariat of the Federal Revenue Bureau of Brazil
Operating Loss Carryforwards [Line Items]
Effective income tax rate percentage	34.00%		34.00%