10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	December 25, 2010
OR
o	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
Former name, address and fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x    NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act, (Check One):
Large Accelerated Filer o    Accelerated Filer  x   Non-Accelerated Filer o    Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES  o   NO x

Common Shares outstanding as of	January 31, 2011
Class A Common Shares	5,896,317
Class B Common Shares	802,871

1

THE L. S. STARRETT COMPANY

CONTENTS

	Page No.
Part I.     Condensed Consolidated Unaudited Financial Statements:
Item 1.    Financial Statements
Consolidated Balance Sheets- December 25, 2010 (unaudited) and June 26, 2010	3
Consolidated Statements of Operations- thirteen and twenty-six weeks ended December 25, 2010 and December 26, 2009 (unaudited)	4
Consolidated Statements of Cash Flows- twenty-six weeks ended December 25, 2010 and December 26, 2009 (unaudited)	5
Consolidated Statements of Stockholders' Equity - twenty-six weeks ended December 25, 2010 and December 26, 2009 (unaudited)	6
Notes to unaudited Consolidated Financial Statements	7-10
Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations	10-12
Item 3.     Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.     Controls and Procedures	12-13
Part II.                     Other information:
Item 1.     Legal Proceedings	13
Item 1A.  Risk Factors	13
Item 6.      Exhibits	13
SIGNATURES	13

2

Part I.           Financial Information

Item 1.          Condensed Consolidated Unaudited Financial Statements

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets

(in thousands of dollars except share data)

	Dec. 25 2010 (unaudited)			June 26 2010 (audited)
ASSETS
Current assets:
Cash	$	21,625		$	20,478
Investments		-			1,250
Accounts receivable (less allowance for doubtful accounts of $634 and $607)		37,313			33,707
Inventory		51,478			46,156
Deferred income tax asset		3,396			3,300
Prepaid expenses, taxes and other current assets		8,226			5,510
Total current assets		122,038			110,401
Property, plant and equipment, at cost (less accumulated depreciation of $127,122 and $120,943)		55,333			56,529
Property held for sale		2,699			2,699
Intangible assets (less accumulated amortization of $5,597 and $4,973)		679			1,303
Other assets		474			280
Long-term taxes receivable		2,807			2,807
Long-term deferred income tax asset		26,048			26,115
Total assets	$	210,078		$	200,134
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities	$	5,306		$	2,696
Accounts payable and accrued expenses		17,502			17,740
Accrued salaries and wages		4,404			5,037
Total current liabilities		27,212			25,473
Long-term taxes payable		9,281			9,132
Deferred income taxes		2,464			2,436
Long-term debt		587			706
Postretirement benefit liability		31,723			30,005
Total liabilities		71,267			67,752
Stockholders' equity:
Class A Common $1 par (20,000,000 shares authorized) 5,890,309 outstanding on 12/25/10 and 5,858,700 outstanding on 6/26/10		5,890			5,859
Class B Common $1 par (10,000,000 shares authorized) 803,913 outstanding on 12/25/10 and 821,204 outstanding on 6/26/10		804			821
Additional paid-in capital		50,531			50,373
Retained earnings reinvested and employed in the business		123,917			122,724
Accumulated other comprehensive loss		(42,331	)		(47,395	)
Total stockholders' equity		138,811			132,382
Total liabilities and stockholders’ equity	$	210,078		$	200,134

See Notes to Unaudited Consolidated Financial Statements

3

THE L. S. STARRETT COMPANY

Consolidated Statements of Operations

(in thousands of dollars except per share data)(unaudited)

	13 Weeks Ended						26 Weeks Ended
	12/25/2010			12/26/2009			12/25/2010			12/26/2009
Net sales	$	57,290		$	50,535		$	114,829		$	91,108
Cost of goods sold		38,612			34,634			77,479			65,175
Gross margin		18,678			15,901			37,350			25,933
% of Net Sales		32.6	%		31.5	%		32.5	%		28.5	%
Selling and general expense		16,365			14,359			33,752			28,712
Operating income (loss)		2,313			1,542			3,598			(2,779	)
Other income (expense)		354			(254	)		537			(642	)
Earnings (loss) before income taxes		2,667			1,288			4,135			(3,421	)
Income tax expense		1,361			1,600			2,006			22
Net earnings  (loss)	$	1,306		$	(312	)	$	2,129		$	(3,443	)
Basic earnings (loss) per share	$	0.20		$	(0.05	)	$	0.32		$	(0.52	)
Diluted earnings (loss) per share	$	0.19		$	(0.05	)	$	0.32		$	(0.52	)
Average outstanding shares used in per share calculations (in thousands):
Basic		6,691			6,666			6,687			6,658
Diluted		6,714			6,666			6,706			6,658
Dividends per share	$	.08		$	.06		$	.14		$	.18

See Notes to Unaudited Consolidated Financial Statements

4

THE L. S. STARRETT COMPANY

Consolidated Statements of Cash Flows

(in thousands of dollars)(unaudited)

	26 Weeks Ended
	12/25/2010			12/26/2009
Cash flows from operating activities:
Net earnings (loss)	$	2,129		$	(3,443	)
Non-cash items included:
Depreciation		4,659			4,532
Amortization		624			590
Fixed asset impairment		-			72
Net long-term tax payable		104			(454	)
Deferred taxes		201			(1,448	)
Unrealized transaction (gains) losses		(113	)		(303	)
Retirement benefits		1,727			1,451
Equity loss on investment in private software development company		418			—
Working capital changes
Receivables		(1,617	)		(2,727	)
Inventories		(3,489	)		10,900
Other current assets		(2,763	)		1,270
Other current liabilities		(1,851	)		1,556
Prepaid pension cost and other		230			(329	)
Net cash provided by operating activities		259			11,667
Cash flows from investing activities:
Additions to plant and equipment		(2,433	)		(4,132	)
Decrease in investments		1,250			618
Earn out paid for Kinemetric Engineering		-			(110	)
Investment in private software development company		(600	)		-
Net cash (used in)  by investing activities		(1,783	)		(3,624	)
Cash flows from financing activities:
Proceeds from short-term borrowings		3,385			14,049
Short-term debt repayments		(788	)		(18,127	)
Proceeds from long-term borrowings		-			129
Long-term debt repayments		(130	)		(361	)
Proceeds from common stock issued		139			260
Dividends paid		(936	)		(1,199	)
Net cash provided by (used in) financing activities		1,670			(5,249	)
Effect of exchange rate changes on cash		1,001			295
Net increase in cash		1,147			3,089
Cash, beginning of period		20,478			10,248
Cash, end of period	$	21,625		$	13,337

See Notes to Unaudited Consolidated Financial Statements

5

 THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

For the Twenty-six Weeks Ended December 25, 2010 and December 26, 2009

(in thousands of dollars except per share data)(unaudited)

	Common Stock  Outstanding ($1 Par)					Addi- tional Paid-in Capital		Retained Earnings			Accumulated Other Com-prehensive Loss			Total
	Class A		Class B
Balance June 27, 2009	$	5,770	$	869		$	49,984	$	127,707		$	(41,452	)	$	142,878
Comprehensive income:
Net loss									(3,443	)					(3,443	)
Unrealized net gain on investments												6			6
Translation gain, net												5,894			5,894
Total comprehensive income															2,457
Dividends ($.18 per share)									(1,199	)					(1,199	)
Treasury shares:
Issued		29					222								251
Issuance of stock under ESPP				1			40								41
Conversion		13		(13	)										0
Balance December 26, 2009	$	5,812	$	857		$	50,246	$	123,065		$	(35,552	)	$	144,428
Balance June 26, 2010	$	5,859	$	821		$	50,373	$	122,724		$	(47,395	)	$	132,382
Comprehensive income:
Net earnings									2,129						2,129
Minimum pension liability												78			78
Translation gain, net												4,986			4,986
Total comprehensive income															7,193
Dividends ($.14 per share)									(936	)					(936	)
Treasury shares:
Issued		12					104								116
Issuance of stock under ESPP				2			54								56
Conversion		19		(19	)
Balance December 25, 2010	$	5,890	$	804		$	50,531	$	123,917		$	(42,331	)	$	138,811
Cumulative Balance:
Translation loss												(6,585	)
Amounts not recognized as a component of net periodic benefit cost												(35,746	)
											$	(42,331	)

See Notes to Unaudited Consolidated Financial Statements

6

THE L. S. STARRETT COMPANY

Notes to unaudited Consolidated Financial Statements

Note 1:       Basis of Presentation

In the opinion of management, the accompanying financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of December 25, 2010 and June 26, 2010; the results of operations for the thirteen and twenty-six weeks ended December 25, 2010 and December 26, 2009; the cash flows for the twenty-six weeks ended December 25, 2010 and December 26, 2009; and changes in stockholders' equity for the twenty-six weeks ended December 25, 2010 and December 26, 2009.

The Company follows the same accounting policies in the preparation of interim statements as described in the Company's Annual Report filed on Form 10-K for the year ended June 26, 2010, and these financial statements should be read in conjunction with said Annual Report on Form 10-K.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  The second footnote to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the fiscal year ended June 26, 2010 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Note 2:       Cash and Investments

The Company has categorized its financial assets, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets recorded on the balance sheets are categorized based on the inputs to the valuation techniques as follows:

o Level 1 – Financial assets whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which the company has the ability to access at the measurement date (examples include active exchange-traded equity securities and most U.S. Government and agency securities).

o Level 2 - Financial assets whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based upon quoted prices of instruments with similar attributes in active markets.

o Level 3 – Financial assets whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect management’s own view about the assumptions a market participant would use in pricing the asset.

As of December 25, 2010 and June 26, 2010, the Company’s Level 1 financials assets were as follows (in thousands):

	Level 1
	12/25/2010		6/26/2010
International Bonds (Puerto Rican Debt Obligations)		-	$	1,250
		-	$	1,250

As of December 25, 2010 and June 26, 2010, the Company did not have any Level 2 or 3 financial assets.

7

Note 3:      Inventory (in thousands)

	Dec 25  2010			June 26  2010
Raw Material & Supplies	$	32,011		$	27,251
Goods in Process and Finished Parts		21,216			19,136
Finished Goods		22,943			24,960
		76,170			71,347
LIFO Reserve		(24,692	)		(25,191	)
Net Inventory	$	51,478		$	46,156

LIFO inventories were $12.7 million and $12.3 million at December 25, 2010 and June 26, 2010, respectively, such amounts being approximately $24.7 million and $25.2 million, respectively, less than if determined on a FIFO basis.  The impact of LIFO on a year-to-date second quarter basis was a $0.5 million reduction in cost of sales in fiscal 2011 compared to a $2.1 million reduction in cost of sales in fiscal 2010.

Note 4:      Pension and Post Retirement Benefits

Net periodic benefit costs for the Company's defined benefit pension plans consist of the following (in thousands):

	Thirteen Weeks Ended December						Twenty-six Weeks Ended December
	2010			2009			2010			2009
Service cost	$	575		$	486		$	1,149		$	973
Interest cost		1,618			1,574			3,229			3,154
Expected return on plan assets		(1,866	)		(1,783	)		(3,727	)		(3,571	)
Amortization of prior service cost		157			96			314			192
Amortization of unrecognized loss		680			701			1,360			1,403
	$	1,164		$	1,074		$	2,325		$	2,151

Net periodic benefit costs for the Company's postretirement medical plan consists of the following (in thousands):

	Thirteen Weeks Ended December						Twenty-six Weeks Ended December
	2010			2009			2010			2009
Service cost	$	92		$	85		$	184		$	169
Interest cost		151			169			302			339
Amortization of prior service benefit		(226	)		(226	)		(453	)		(453	)
Amortization of unrecognized loss		7			-			14			-
	$	24		$	28		$	47		$	55

8

Note 5:       Notes payable and current maturities

Notes payable and current maturities are comprised of the following (in thousands):

	December 25, 2010		June 26, 2010
Loan and Security Agreement	$	5,000	$	1,700
Short-term foreign credit facility		47		730
Other		259		266
	$	5,306	$	2,696

Note 6:     Income Tax

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

The Company has substantially concluded all U.S. federal income tax matters for years through fiscal 2006. As of December 25, 2010, the Company did not have any income tax audits in progress in the numerous federal, state, local and international jurisdictions in which we operate. In international jurisdictions including Argentina, Australia, Brazil, Canada, China, UK, Germany, New Zealand, Dominican Republic and Mexico, which comprise a significant portion of the Company’s operations, the years that may be examined vary, with the earliest year being 2004.

The Company has identified no new uncertain tax positions during the twenty six week period ended December 25, 2010 for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

No valuation allowance has been recorded for the domestic federal net operating losses (NOL) as the Company continues to believe that based on forecasted future taxable income and certain tax planning strategies available, it is more likely than not that it will be able to utilize its tax operating loss carry forward assets.

The effective tax rate for fiscal 2011 second quarter was 51%.  Excluding the valuation allowance for Argentina of $463 thousand, which is discussed below, the effective tax rate would have been 34%.

Based upon government regulations and updated business conditions in Argentina, the company recorded a $463 thousand valuation allowance against a deferred tax asset in the second quarter of fiscal 2011.

Note 7:     Fair Value

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate value.

o Cash and short term instruments

The carrying amount approximates fair value because of the short maturity of those investments

o Long term investments

The fair value of some investments are estimated on quoted market prices for those or similar investments.

o Short and long term debt

The fair value of the Company’s short and long term debt is estimated on quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.

9

The estimated fair value of the Company’s financial instruments is as follows in thousands (000):

	December 25, 2010				June 26, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash	$	21,625	$	21,625	$	20,478	$	20,478
Short term debt		5,306		5,306		2,696		2,696
Investments		-		-		1,250		1,250
Long term debt		587		587		706		706

Note 8:   Investment

The Company entered into an investment agreement with a private software development company in the fourth quarter of fiscal 2010.  Under the agreement the Company will invest $1.5 million over twelve to eighteen months and will receive 36% equity in the software development company.  The Company has invested $0.85 million and, in the second quarter of fiscal 2011, recorded a $0.4 million loss under the equity method of accounting, such loss is included in other income (expense) in the Consolidated Statement of Operations.  The $0.45 million net carrying value of the investment as of December 25, 2010 is included in other long term assets in the Consolidated Balance Sheet.

Note 9:              Subsequent Events

The Company has evaluated events occurring subsequent to December 25, 2010 through the date of issuance of the financial statements and determined there were no material subsequent events to be disclosed.

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 25, 2010 AND DECEMBER 26, 2009

Overview

Net sales increased $6.8 million or 13.4% from $50.5 million to $57.3 million.  A weaker U. S. dollar translated into a $0.5 million of the revenue increase.  Operating income improved $0.8 million as a $2.8 million improvement in gross margin more than offset a $2.0 million increase in selling and general expenses. Net income increased $1.6 million from a loss of $0.3 million ($0.05 per share) in the fiscal 2010 quarter compared to a profit of $1.3 million ($0.20 per share) in the fiscal 2011 quarter, principally due to aforementioned reasons and a lower effective tax rate.

Net Sales

Net sales in North America increased $4.4 million or 19% from $23.4 million to $27.8 million as strong gains in the industrial sector more than offset declines in the construction markets.  International net sales increased $2.4 million or 9% from $27.1 million to $29.5 million, led by Southeast Asia and South America.

Gross Margin

Gross margin improved $2.8 million from $15.9 million (31.5% of revenue) to $18.7 million (32.6% of revenue) with North America and International posting gains of $0.9 million and $1.9 million, respectively.  North American gross margins as a percentage of revenue declined 1.5% from 29.9% to 28.4% as a $1.3 million volume increase was offset by a $0.4 million margin erosion.  This decrease in margin was the result of an unfavorable product mix and increased labor costs.  International gross margins improved 3.8% from 32.8% to 36.6% principally as a result of improved efficiencies driven by increased sales revenue.

10

Selling and General Expenses

Selling and general expenses increased $2.0 million or 14% from $14.4 million to $16.4 million with North America and International posting increases of $1.4 and $0.6 million, respectively.  The North American increase reflects increased wages related to the restoration of a 10% reduction in management salaries; higher commissions based upon revenue improvement; higher employee benefits costs; and the amortization expense of the new ERP system. Higher selling expenses were the key driver in the International increase.

Earnings Before Taxes

Earnings before taxes increased $1.4 million from $1.3 million in fiscal 2010 to $2.7 million in fiscal 2011.  In the second quarter of fiscal 2011, the Company prevailed on an outstanding non-income tax lawsuit with the Brazilian government resulting in a $0.9 million gain.  This gain has been recorded in the second quarter as a $0.4 million reduction in selling and general expenses and $0.5 million increase in interest income, which is included in other income (expense).  The improvement was the result of a $0.8 million gain in operating income and a $0.6 million favorable swing in other income. The primary factors influencing the improved other income were lower interest expense and lower foreign exchange losses offsetting a $0.4 million equity loss in a private software development comp any.

SIX MONTHS ENDED DECEMBER 25, 2010 AND DECEMBER 26, 2009

Overview

Net sales increased $23.7 million or 26% from $91.1 million to $114.8 million. A weaker U. S. dollar translated into $2.4 million or 10% of the revenue gain.  Operating income increased $6.4 million as an increase in gross margins more than offset higher selling and general expenses.

Net Sales

Net sales in North America increased $11.8 million or 27% as a continued recovery in the industrial sector mitigated a decline in the construction market.  Increased demand for precision tools and capital equipment from our Tru-Stone and Kinemetric divisions led the North American performance. International net sales increased $11.9 million or 25% due to the relative strength of the South American and Southeast Asia regions.

Gross Margin

Gross margins increased $11.4 million or 44% with volume representing $6.7 million and improved margins accounting for $4.7 million.  North American margins improved 5.2% from 23.6% to 28.8% largely due to a favorable product mix led by a strong recovery by the Tru Sone division.  International margins improved 3.0% from 33.0% to 36.0% led by a 2.6% improvement in Brazil.

Selling and General Expenses

Selling and general expenses increased $5.0 million or 18% with North America and International posting increases of $2.6 million and $2.4 million, respectively.  The North American increase reflects higher wages related to the restoration of a 10% reduction in management salaries; higher commissions based upon revenue growth; increased employee benefits costs; and the amortization expense of the new ERP system.  Higher selling expenses were the prime driver resulting in the International expense increase.

Earnings Before Taxes

Earning before taxes increased $7.6 million from a loss of $3.4 million in fiscal 2010 to a profit of $4.1 million in fiscal 2011.  The improvement was the result of a $6.4 million gain in operating income and a $1.2 million favorable swing in other income.  The improved other income was due to lower interest expense coupled with lower foreign exchange losses offsetting $0.4 million equity loss in a private software development company.

11

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	26 Weeks Ended
	12/25/10			12/26/09
Cash provided by operations	$	259		$	11,667
Cash (used in) from investing activities		(1,783	)		(3,624	)
Cash provided (used in) from financing activities		1,670			(5,249	)
Effect of exchange rates changes on cash		1,001			295
Net increase in cash	$	1,147		$	3,089

Cash increased $1.1 million as increased borrowings and favorable foreign exchange more than offset higher working capital requirements.  The $11.4 million swing in cash provided by operations from $11.6 million in fiscal 2010 to $0.3 million in fiscal 2011 was due to the economic recovery resulting in an increase in accounts receivables of $4.4 million related to higher sales and increased inventories of $14.4 million to support revenue growth   partially offset by higher net income of $5.6 million.

Liquidity and credit arrangements

The Company believes it maintains sufficient liquidity and has the resources to fund its operations in the near term. If the Company is unable to maintain consistent profitability, additional steps will be taken in order to maintain liquidity, including plant consolidations, work force and dividend reductions. In addition to its cash, the Company maintains a $23 million Loan and Security agreement, of which, $5.0 million was outstanding as of December 25, 2010.  This Loan and Security agreement matures as of April 30, 2012.  The Loan and Security agreement was modified in the second quarter of fiscal 2011 and amends certain financial covenants. As of December 25, 2010, the Company is in compliance with all debt covenants related to its Loan and Security Agreement.  The effective interest ra te on the Loan and Security agreement through December 26, 2010 was 2.4%.

INFLATION

The Company has experienced modest inflation relative to its material cost, much of which cannot be passed on to the customer through increased prices.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any material off-balance sheet arrangements.

Item 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes in qualitative and quantitative disclosures about market risk from what was reported in our Annual Report on Form 10-K for the fiscal year ended June 26, 2010.

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 25, 2010 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 that 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. There have been no changes in internal control over financial r eporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting, except as discussed below.

Management’s remediation efforts related to the material weakness that existed as of June 26, 2010, and noted in Item 9A of the Company’s 2010 Annual Report on Form 10-K filed on September 21, 2010, are not complete as of December 25, 2010. The plan includes recruiting additional financial resources and correcting the reporting and control problems associated with the fourth quarter fiscal 2010 ERP implementation.  An update as to the status of managements’ efforts is listed below.

12

o The Company completed the development of an improved financial reporting framework which will facilitate a uniform approach to consolidated and subsidiary financial reporting and analysis.  This project was completed in the second quarter of fiscal 2011.

o The company has added experienced financial resources to its staff and will continue to evaluate further requirements. The plan to correct the major financial reporting and control problems began in October of 2010 and is expected to be completed by the fourth quarter fiscal 2011.

PART II      OTHER INFORMATION

Item 1.         Legal Proceedings

On December 15, 2010, the Company successfully settled an outstanding lawsuit with the Brazilian government.  Under the terms of the agreement, the Brazilian government agreed to the Company’s tax position regarding tax on sales revenues.

Item 1A.      Risk Factors

SAFE HARBOR STATEMENT

UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q contains forward-looking statements about the Company’s business, competition, sales, expenditures, foreign operations, plans for reorganization, interest rate sensitivity, debt service, liquidity and capital resources, and other operating and capital requirements. In addition, forward-looking statements may be included in future Company documents and in oral statements by Company representatives to securities analysts and investors.  The Company is subject to risks that could cause actual events to vary materially from such forward-looking statements.  You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors& #8221; in our Form 10-K for the year ended June 26, 2010. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 26, 2010.

Item 6.         Exhibits

31a Certification of Chief Executive Officer Pursuant to Rules 13a-15(e)/15(d)-15(e) and 13a-15(f)/15(d)-15(f), filed herewith.

31b Certification of Principal Accounting Officer Pursuant to Rules 13a-15(e)/15(d)-15(e) and 13a-15(f)/15(d)-15(f), filed herewith.

32 Certification of Chief Executive Officer and Principal Accounting Officer Pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), filed herewith.

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 3, 2011	S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO
Date	February 3, 2011	S/R. Francis J. O’Brien
		Francis J. O’Brien - Treasurer and CFO

13

EX-31.A

EXHIBIT 31.a

CERTIFICATIONS

I, Douglas A. Starrett, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  February 3, 2011	/S/	Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer

EX-31.B

EXHIBIT 31.b

CERTIFICATIONS

I, Francis J. O’Brien, 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 3, 2011	/S/	Francis J. O’Brien
		Francis J. O’Brien Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATIONS

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections

(a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

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

The Quarterly Report on Form 10-Q for the quarter ended December 25, 2010 (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 3, 2011	/S/ Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer
Date	February 3, 2011	/S/ Francis J. O’Brien
		Francis J. O’Brien 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.