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	March 31, 2014
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
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). 

YES ☒     NO ☐

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

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	April 30, 2014
Class A Common Shares	6,146,108
Class B Common Shares	795,366

1

 THE L. S. STARRETT COMPANY

CONTENTS

				Page No.
Part I.		Financial Information:
		Item 1.	Financial Statements
			Consolidated Balance Sheets – March 31, 2014 (unaudited) and June 30, 2013	3
			Consolidated Statements of Operations – three and nine months ended March 31, 2014 and March 31, 2013 (unaudited)	4
			Consolidated Statements of Comprehensive Income (Loss) – three and nine months ended March 31, 2014 and March 31, 2013 (unaudited)	5
			Consolidated Statements of Stockholders' Equity – nine months ended March 31, 2014 and March 31, 2013 (unaudited)	6
			Consolidated Statements of Cash Flows - nine months ended March 31, 2014 and March 31, 2013 (unaudited)	7
			Notes to Unaudited Consolidated Financial Statements	8-12
		Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13-15
		Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
		Item 4.	Controls and Procedures	15
Part II.	Other Information:
	Item 1A.		Risk Factors	15
	Item 6.		Exhibits	16
SIGNATURES				16

2

PART I.                      FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets

(in thousands except share data)

	March 31, 2014 (unaudited)			June 30, 2013
ASSETS
Current assets:
Cash	$	16,101		$	19,755
Short-term investments		8,470			7,657
Accounts receivable (less allowance for doubtful accounts of $707 and $697, respectively)		34,372			37,875
Inventories		65,942			56,501
Current deferred income tax assets		4,965			4,978
Prepaid expenses and other current assets		7,170			7,182
Total current assets		137,020			133,948
Property, plant and equipment, net		51,147			51,200
Long-term taxes receivable		3,770			3,770
Long-term deferred income tax assets, net of current portion		27,388			28,274
Intangible assets, net		7,989			8,222
Goodwill		3,034			3,034
Other assets		2,526			2,346
Total assets	$	232,874		$	230,794
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	1,535		$	1,557
Accounts payable and accrued expenses		16,845			17,084
Accrued compensation		5,904			5,304
Total current liabilities		24,284			23,945
Long-term debt, net of current portion		20,596			24,252
Long-term taxes payable		10,484			10,514
Deferred tax liabilities		2,458			2,182
Postretirement benefit and pension obligations		44,516			42,386
Other non-current liability		-			773
Total liabilities		102,338			104,052
Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 6,142,406 outstanding at 3/31/2014 and 6,076,698 outstanding at 6/30/2013)		6,142			6,077
Class B Common stock $1 par (10,000,000 shares authorized; 799,068 outstanding at 3/31/2014 and 750,563 outstanding at 6/30/2013)		799			750
Additional paid-in capital		53,812			52,613
Retained earnings		93,380			91,778
Accumulated other comprehensive loss		(23,597	)		(24,476	)
Total stockholders' equity		130,536			126,742
Total liabilities and stockholders’ equity	$	232,874		$	230,794

See Notes to Unaudited Consolidated Financial Statements

3

THE L. S. STARRETT COMPANY

Consolidated Statements of Operations

(in thousands except per share data) (unaudited)

	3 Months Ended						9 Months Ended
	3/31/2014			3/31/2013			3/31/2014			3/31/2013
Net sales	$	58,281		$	59,864		$	177,609		$	176,630
Cost of goods sold		39,022			43,925			120,196			124,249
Gross margin		19,259			15,939			57,413			52,381
% of Net sales		33.0	%		26.6	%		32.3	%		29.7	%
Selling, general and administrative expenses		16,342			17,701			51,332			54,171
Operating income (loss)		2,917			(1,762	)		6,081			(1,790	)
Other income (expense)		(250	)		526			372			937
Income (loss) before income taxes		2,667			(1,236	)		6,453			(853	)
Income tax expense		985			249			2,773			507
Net income (loss)	$	1,682		$	(1,485	)	$	3,680		$	(1,360	)
Basic and diluted income (loss) per share	$	.24		$	(.22	)	$	.53		$	(.20	)
Weighted average outstanding shares used in per share calculations:
Basic		6,940			6,800			6,919			6,792
Diluted		6,996			6,800			6,964			6,792
Dividends per share	$	.10		$	.10		$	.30		$	.30

See Notes to Unaudited Consolidated Financial Statements

4

THE L. S. STARRETT COMPANY

Consolidated Statements of Comprehensive Income (Loss)

 (in thousands) (unaudited)

	3 Months Ended						9 Months Ended
	3/31/2014			3/31/2013			3/31/2014			3/31/2013
Net income (loss)	$	1,682		$	(1,485	)	$	3,680		$	(1,360	)
Other comprehensive income (loss), net of tax:
Translation gain (loss)		1,868			(913	)		923			(445	)
Pension and postretirement plans		(14	)		(9	)		(44	)		(32	)
Other comprehensive income (loss)		1,854			(922	)		879			(477	)
Total comprehensive income (loss)	$	3,536		$	(2,407	)	$	4,559		$	(1,837	)

5

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

For the Nine Months Ended March 31, 2014 and March 31, 2013

(in thousands except per share data) (unaudited)

	Common Stock Outstanding						Addi- tional Paid-in			Retained			Accumulated Other Com-prehensive
	Class A			Class B			Capital			Earnings			Loss			Total
Balance June 30, 2012	$	6,017		$	753		$	51,941		$	94,661		$	(25,534	)	$	127,838
Total comprehensive income											(1,360	)		(477	)		(1,837	)
Dividends ($0.30 per share)											(2,040	)					(2,040	)
Purchase of stock		(5	)					(57	)								(62	)
Issuance of stock under 1984 ESOP		19						190									209
Issuance of stock under ESPP					20			141									161
Issuance of stock for length of service awards		2						30									32
Stock-based compensation								141									141
Conversion of class B to class A		31			(31	)
Balance March 31, 2013	$	6,064		$	742		$	52,386		$	91,261		$	(26,011	)	$	124,442
Balance June 30, 2013	$	6,077		$	750		$	52,613		$	91,778		$	(24,476	)	$	126,742
Total comprehensive income											3,680			879			4,559
Dividends ($0.30 per share)											(2,078	)					(2,078	)
Issuance of stock under 1984 ESOP		17						188									205
Issuance of stock under 2013 ESOP					76			697									773
Issuance of stock under long term incentive plan		3						36									39
Issuance of stock under ESPP					13			119									132
Issuance of stock for length of service awards		5						54									59
Stock-based compensation								105									105
Conversion of class B to class A		40			(40	)											-
Balance March 31, 2014	$	6,142		$	799		$	53,812		$	93,380		$	(23,597	)	$	130,536
Accumulated balance consists of:
Translation loss													$	(20,710	)
Pension and postretirement plans, net of taxes														(2,887	)
													$	(23,597	)

See Notes to Unaudited Consolidated Financial Statements

6

THE L. S. STARRETT COMPANY

Consolidated Statements of Cash Flows

(in thousands of dollars) (unaudited)

	9 Months Ended
	3/31/2014			3/31/2013
Cash flows from operating activities:
Net income	$	3,680		$	(1,360	)
Non-cash operating activities:
Depreciation		6,093			6,434
Amortization		873			861
Stock-based compensation		105			141
Issuance of stock for length of service awards		59			32
Issuance of stock under long term incentive plan		39			-
Net long-term tax obligations		-			(282	)
Deferred taxes		1,221			1,356
Unrealized transaction gain		(4	)		(9	)
Income on equity method investment		(196	)		(390	)
Working capital changes:
Accounts receivable		4,447			6,725
Inventories		(8,801	)		3,799
Other current assets		(15	)		1,118
Other current liabilities		(238	)		(9,821	)
Postretirement benefit and pension obligations		1,338			651
Other		(525	)		(66	)
Net cash provided by operating activities		8,076			9,189
Cash flows from investing activities:
Additions to property, plant and equipment		(6,258	)		(6,129	)
Purchase of investments		(79	)		(1,662	)
Proceeds from sale of investments		-			-
Net cash used in investing activities		(6,337	)		(7,791	)
Cash flows from financing activities:
Short-term debt repayments		(26	)		(187	)
Proceeds from long-term borrowings		500			1,500
Long-term debt repayments		(4,150	)		(5,473	)
Proceeds from common stock issued		337			370
Shares purchased		-			(62	)
Dividends paid		(2,078	)		(2,040	)
Net cash used in financing activities		(5,417	)		(5,892	)
Effect of exchange rate changes on cash		24			(173	)
Net decrease in cash		(3,654	)		(4,667	)
Cash, beginning of period		19,755			17,502
Cash, end of period	$	16,101		$	12,835
Supplemental cash flow information:
Interest paid	$	627		$	729
Income taxes paid, net		2,727			1,570
Supplemental disclosure of non-cash activities:
Issuance of stock under 2013 ESOP	$	773		$	-

See Notes to Unaudited Consolidated Financial Statements

7

THE L. S. STARRETT COMPANY

Notes to Unaudited Consolidated Financial Statements

March 31, 2014

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

The balance sheet as of June 30, 2013, which has been derived from audited financial statements, and the unaudited interim financial statements 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 reporting.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited 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 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013.  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 preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2013 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. There were no changes in any of the Company’s significant accounting policies during the nine months ended March 31, 2014.

Note 2: Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU No. 2013-11 resolves the diversity in practice regarding the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU comes into effect for the first annual period beginning after December 15, 2013. The Company does not expect adoption of ASU No. 2013-11 to affect results of operations or cash flows however, adoption is expected to result in a reduction of long-term deferred income tax assets and a reduction of equal amount in long-term taxes payable.

Note 3:  Stock-based Compensation

On September 5, 2012, the Board of Directors adopted The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”). The 2012 stock plan was approved by shareholders October 17, 2012. The 2012 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2012 Stock Plan provides for the issuance of up to 500,000 shares of common stock.

Options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of March 31, 2014, there were 20,500 stock options and 8,200 restricted stock units outstanding. In addition, there were 471,300 shares available for grant under the 2012 Stock Plan as of March 31, 2014.

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

The fair value of stock options issued during the 9 months ended March 31, 2013 of $3.82 was estimated using the following assumptions:

Risk-free interest rate	1.0	%
Expected life (years)	6.0
Expected stock volatility	52.3	%
Expected dividend yield	4.0	%

8

The weighted average contractual term for stock options outstanding as of March 31, 2014 was 8.75 years.  The aggregate intrinsic value of stock options outstanding as of March 31, 2014 was $0.1 million. One third of the stock options were exercisable as of March 31, 2014.

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

There were 2,733 RSU awards vested and issued during the nine months ended March 31, 2014. The aggregate intrinsic value of RSU awards outstanding as of March 31, 2014 was $0.1 million. One third of the RSU awards had vested as of March 31, 2014.

On February 5, 2013, the Board of Directors adopted The L.S. Starrett Company 2013 Employee Stock Ownership Plan (the “2013 ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income.  The plan is intended as an employee stock ownership plan within the meaning of Section 4975 (e) (7) of the Internal Revenue Code of 1986, as amended. U.S. employees who have completed a year of service as of December 31, 2012 were eligible to participate.

On June 5, 2013, the Board of Directors approved a contribution to the 2013 ESOP for fiscal 2013 in the amount of two percent of each participant’s compensation (as defined in the Plan). Compensation expense related to the 2013 ESOP of $0.8 million was recognized in the year ended June 30, 2013. The $0.8 million liability was included in other non-current liabilities on the Consolidated Balance Sheet on June 30, 2013. Shares of Class B common stock were contributed to the 2013 ESOP on July 30, 2013 in order to fund this liability.

Compensation expense related to all stock based plans for the nine month period ended March 31, 2014 and March 31, 2013 was $0.1 million and $0.1 million respectively.  As of March 31, 2014, there was $0.1 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. The cost is expected to be recognized over a weighted average period of 1.7 years.

Note 4:   Inventories

Inventories consist of the following (in thousands):

	3/31/2014			6/30/2013
Raw material and supplies	$	30,248		$	29,565
Goods in process and finished parts		19,086			20,256
Finished goods		45,990			37,507
		95,324			87,328
LIFO Reserve		(29,382	)		(30,827	)
Inventories	$	65,942		$	56,501

LIFO inventories were $13.5million and $12.9 million at March 31, 2014 and June 30, 2013 respectively, or approximately $29.4 million and $ 30.8 million, respectively, less than their balances accounted for on a FIFO basis.  The use of LIFO, as compared to FIFO, resulted in a $1.4 million decrease in cost of sales for the nine months ended March 31, 2014 compared to a $4.1 million increasein the nine months ended March 31, 2013. The use of LIFO, as compared to FIFO, resulted in a $0.9 million decrease in cost of sales for the three months ended March 31, 2014 compared to a $3.1 million increase in cost of sales in the three months ended March 31, 2013.

Note 5:   Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 gave rise to a goodwill asset balance. The Company performed a qualitative analysis in accordance with ASU 2011-08 for its October 1, 2013 annual assessment of goodwill (commonly referred to as “Step Zero”). From a qualitative perspective, in evaluating whether it is more likely than not that the fair value of the reporting unit is not less than its respective carrying amount, relevant events and circumstances were taken into account, with greater weight assigned to events and circumstances that most affect the fair value or the carrying amounts of its assets. Items that were considered included, but were not limited to, the following: macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in management or key personnel. After assessing these and other factors the Company determined that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount as of October 1, 2013.

9

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

	3/31/2014			6/30/2013
Non-compete agreement	$	600		$	600
Trademarks and trade names		1,480			1,480
Completed technology		2,358			2,010
Customer relationships		4,950			4,950
Software development		927			635
Other intangible assets		325			325
Total		10,640			10,000
Accumulated amortization		(2,651	)		(1,778	)
Total net balance	$	7,989		$	8,222

Amortizable intangible assets are being amortized on a straight-line basis over the period of expected economic benefit.

The estimated useful lives of the intangible assets subject to amortization are 14 years for trademarks and trade names, 8 years for non-compete agreements, 10 years for completed technology,  8 years for customer relationships and 5 years for software development.

The estimated aggregate amortization expense for the remainder of fiscal 2014 and for each of the next five years and thereafter, is as follows (in thousands):

2014 (Remainder of year)	$	322
2015		1,288
2016		1,288
2017		1,286
2018		1,218
2019		1,126
Thereafter		1,461

Note 6:  Pension and Post-retirement Benefits

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

	Three Months Ended						Nine Months Ended
	3/31/2014			3/31/2013			3/31/2014			3/31/2013
Service cost	$	716		$	734		$	2,139		$	2,210
Interest cost		1,746			1,477			5,197			4,464
Expected return on plan assets		(1,589	)		(1,490	)		(4,732	)		(4,497	)
Amortization of prior service cost		29			59			87			176
Amortization of net gain		2			-			8			-
	$	904		$	780		$	2,699		$	2,353

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

	Three Months Ended						Nine Months Ended
	3/31/2014			3/31/2013			3/31/2014			3/31/2013
Service cost	$	25		$	127		$	202		$	383
Interest cost		66			136			331			409
Amortization of prior service credit		(260	)		(185	)		(511	)		(557	)
Amortization of accumulated loss		(1	)		40			(1	)		119
	$	(170	)	$	118		$	21		$	354

10

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, which is the same as the fiscal year end of the Company. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of the accumulated other comprehensive income (loss).

Effective December 31, 2013, the Company terminated eligibility for employees ages 55 -64 years old in the Postretirement Medical Plan.

Note 7:   Debt

Debt, including capitalized lease obligations, is comprised of the following (in thousands):

	3/31/2014		6/30/2013
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,394	$	1,348
Short-term foreign credit facility		-		27
Capitalized leases		141		182
		1,535		1,557
Long-term debt
Loan and Security Agreement		20,484		24,037
Capitalized leases		112		215
		20,596		24,252
	$	22,131	$	25,809

The Company executed an amendment to its Loan and Security Agreement (Line of Credit) as of April 25, 2012.  The Line of Credit is effective for three years commencing April 25, 2012 and expires on April 30, 2015.  The agreement continues the previous line of $23.0 million and interest rate of LIBOR plus 1.5%.  On September 7, 2012, the Company completed another amendment to change the financial covenants.  

On May 9, 2013, the Company further amended the agreement to adjust the covenant for a current funded debt to EBITDA ratio from 1.45 to 1, to 2.25 to 1 for the fourth quarter of fiscal 2013 and the first quarter of fiscal 2014. Thereafter, and through the end of the agreement on April 30, 2015, the funded debt to EBITDA covenant returned to 1.45 to 1.

On December 23, 2013, the Company amended the loan agreement to reverse the portion of the May 9, 2013 agreement that called for the funded debt to EBITDA ratio to revert back to 1.45 to 1 from 2.25 to 1, beginning with the second quarter of fiscal 2014. Under this new agreement the maximum ratio of funded debt to EBITDA will remain 2.25 to 1 for the remaining term of the loan.

The material financial covenants of the amended Loan and Security Agreement are now: 1) funded debt to EBITDA, excluding non-cash and retirement benefit expenses (“maximum leverage”), not to exceed 2.25 to 1, 2) annual capital expenditures not to exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1 and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time.

The effective interest rate on the Line of Credit under the Loan and Security Agreement for the nine months ended March 31, 2014 and 2013 was 2.01% and 1.80%, respectively.

On November 22, 2011, in conjunction with the Bytewise acquisition, the Company entered into a $15.5 million term loan (the “Term Loan”) under the existing Loan and Security Agreement with TD Bank N.A.  The term loan is a ten year loan bearing a fixed interest rate of 4.5% and is payable in fixed monthly payments of principal and interest of $160,640.  The term loan, which had a balance of $12.5 million at March 31, 2014, is subject to the same financial covenants as the Loan and Security Agreement.

The Company was in compliance with its debt covenants as of March 31, 2014.

Note 8:   Income Tax

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

11

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

The tax expense for the third quarter of fiscal 2014 was $985,000 on profit before tax of $2,667,000 (an effective tax rate of 36.9%). The tax expense for the third quarter of fiscal 2013 was $249,000 on a loss before tax for the quarter of $1,236,000 (an effective tax rate of (20.1%)). For the first nine months of fiscal 2014, tax expense was $2,773,000 on profit before tax of $6,453,000 (an effective tax rate of 43.0%) and for the first nine months of 2013, tax expense was $507,000 on a loss before tax of $853,000 (an effective tax rate of (59.4%)). The tax expense in the third quarter of fiscal 2014 included a discrete item for the impact of return to provision adjustments to reduce tax expense by $109,000. In addition, there was a discrete tax charge of $278,000 in the first quarter of fiscal 2014 for the effect of a tax rate decrease in the UK applied to the net deferred tax assets in that country and there was a $67,000 benefit recognized in the second quarter for the benefit of losses in China recognized against current year profits. The primary reasons for the negative effective tax rate in the third quarter of fiscal 2013 are as follows: 1. no tax benefit was recognized for losses in certain foreign subsidiaries; 2. there was a cash dividend from the Company’s subsidiary in Australia which caused a discrete increase to tax expense of $178,000; 3.  there was a reduction in the effective state tax rate applied to deferred tax balances (based on both actual and expected future state tax apportionments and profitability) which caused a discrete tax expense of $675,000; 4. the changes on the fiscal 2012 tax return from amounts estimated at provision, including the impact of a changed position on the 2012 and prior year returns to take the foreign tax credit rather than a deduction, created a discrete tax benefit of $414,000; and 5. other discrete taxes increased tax expense by $66,000 In the first quarter of fiscal 2013, a discrete tax benefit was booked reducing the Company’s net tax liability for uncertain tax positions of $91,000.

U.S. Federal tax returns through fiscal 2010 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from years before fiscal 2011 are still subject to review and adjustment. In international jurisdictions including Argentina, Australia, Brazil, Canada, China, Germany, Japan, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. In the second quarter of fiscal 2014, the Company was notified by tax authorities in China of a tax review and they have requested certain documentation for the calendar years 2010 and 2012. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2008 – 2013.

The Company has identified no new uncertain tax positions during the nine month period ended March 31, 2014 for which it is currently likely that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

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

No valuation allowance has been recorded for the Company’s domestic federal net operating loss (NOL) carry forwards. The Company continues to believe that due to forecasted future taxable income and certain tax planning strategies available, it is more likely than not that it will be able to realize the benefit of the federal NOL carry forwards. $67,000 of the valuation allowance for subsidiary NOL’s in China has been released to reflect a tax benefit against current year profits.

Note 9:  Contingencies

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

12

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three Months Ended March 31, 2014 and March 31, 2013

Overview

The Company enjoyed improved operating results in the third quarter of fiscal 2014 despite slower revenue growth and a stronger U.S. dollar which hampered progress internationally. Net sales decreased $1.6 million or 3% from $59.9 million in fiscal 2013 to $58.3 million in fiscal 2014 as lower shipments and unfavorable exchange rates in South America more than offset precision hand tools and capital equipment gains in North America and strong growth in China. Operating income increased $4.7 million due to a $3.3 million improvement in gross margin and a $1.4 million reduction in selling, general and administrative expenses.

Net Sales

North American sales increased $0.9 million or 3% from $32.3 million in fiscal 2013 to $33.2 million in fiscal 2014 as a recovery in manufacturing resulted in increased demand for precision hand tools and capital equipment metrology products.

International sales declined $2.5 million or 8% from $27.6 million in fiscal 2013 to $25.1 million in fiscal 2014 as growth of $0.7 million in China was offset by reduced Latin American demand of $0.5 million and a weakening Brazilian Real of $2.5 million.

Gross Margin

Gross margin increased $3.3 million or 21% from 27% of sales in fiscal 2013 to 33% of sales in fiscal 2014 with margin improvement representing $3.7 million partially offset by the impact of lower sales of $0.4 million.

North American gross margins increased $3.6 million from $7.4 million in fiscal 2013 to $11.0 million in fiscal 2014. A favorable sales mix with an increase in our high margin capital equipment metrology business coupled with improved efficiencies in manufacturing was the prime factors contributing to the improved gross margin performance.

International gross margins declined $0.3 million as the $0.7 million negative impact of a weaker Brazilian Real more than offset higher revenue and improved margins in both Europe and Asia.

Selling, General & Administrative Expenses

Selling, general and administrative expenses declined $1.4 million or 8% primarily due to lower salaries and benefits of $0.6 million, and reduced information technology, professional fees and marketing expenses of $0.4 million.

North American expenses decreased $0.3 million from $9.0 million in fiscal 2013 to $8.7 million in fiscal 2014 as a result of lower employee compensation and benefits.

International expenses declined $1.1 million due to lower employee compensation and benefits and a $0.7 million savings related to a weaker Brazilian real.

Other Income (expense)

Other expense increased $0.8 million due to foreign currency translation losses of $0.4 million in fiscal 2014 compared to gains of $0.5 million in fiscal 2013.

Income Tax Expense

The Company reported income tax expense of $1.0 million on profit before tax of $2.7 million for an effective tax rate of 36.9% in the third quarter of fiscal 2014.  This compares to an income tax expense of $0.2 million on a loss before tax of $1.2 million for a negative effective tax rate of (20.1%) in the third quarter of fiscal 2013.  The increase in tax expense results from higher profitability in fiscal 2014 and from the impact of discrete items included in tax expense as explained in the tax footnote.

Net Income

The Company recorded net income of $1.7 million or $0.24 per share in the third quarter of fiscal 2014 compared to a net loss of $1.5 million or $0.22 per share in fiscal 2013 principally due to improved gross margins and a lower selling, general and administrative expenses.

Nine Months Ended March 31, 2014 and March 31, 2013

Overview 

Net sales increased $1.0 million from $176.6 million in fiscal 2013 to $177.6 million in fiscal 2014 despite a $6.9 foreign exchange reduction related to the weaker Brazilian Real. Operating income increased $7.9 million with a $6.1 million profit in fiscal 2014 compared to a $1.8 million loss in fiscal 2013 due to improved gross margins and lower selling, general and administrative expenses.

13

Net Sales

North American sales increased $3.6 million or 4% from $92.1 million in fiscal 2013 to $95.7 million in fiscal 2014 led by a strong rebound in optical, vision and laser metrology capital equipment products.

International sales declined $2.7 million or 3% from $84.6 million in fiscal 2013 to $81.9 million in fiscal 2014 with combined gains in Europe, Brazil and Asia of $4.0 million or 6% offset by a $6.9 million foreign currency loss related to a weaker Brazilian Real.

Gross Margin

Gross margin increased $5.0 million or 10% and improved from 30% of sales in fiscal 2013 to 32% of sales in fiscal 2014 primarily as a result of reduced costs implemented in the second half of fiscal 2013.

North American gross margins increased $4.4 million in fiscal 2014 and improved from 28% of sales in 2013 to 31% of sales in 2014 as a result of higher sales of high margin capital equipment products and reduced costs.

International gross margins increased $0.6 million and improved from 32% of sales in fiscal 2013 to 34% of sales in fiscal 2014 as higher sales and improved efficiencies in Europe and China more than offset the impact of a $2.4 million cost increase related to the weaker Brazilian Real.

Selling, General and Administrative Expenses

Selling, general and administrative expense declined $2.9 million or 5% from $54.2 million in fiscal 2013 to $51.3 million in fiscal 2014 with lower salaries and benefits representing $1.2 million. In addition, marketing and professional fees declined $0.8 and $0.4 million, respectively.

North American expenses declined $0.1 million principally due to lower marketing expenses. 

International expenses declined $2.8 million or 20% with a weaker Brazilian Real representing $2.0 million. Reduced Information Technology and marketing expenses were the primary savings beyond the currency effect.

Other Income

Other income declined $0.6 million primarily due foreign currency translations losses of $0.5 million in fiscal 2014 compared to gains of $0.4 million in fiscal 2013.

Income Tax Expense

The Company reported income tax expense of $2.8 million on profit before tax of $6.5 million for an effective tax rate of 43.0% for the nine months ended March 31, 2014.  This compares to an income tax expense of $0.5 million on a loss before tax of $0.9 million for a negative effective tax rate of (59.4%) in the nine months ended March 31, 2013.  The increase in tax expense results from higher profitability in fiscal 2014 and from the impact of discrete items included in tax expense as explained in the tax footnote.

Net Income

The Company recorded net income of $3.7 million or $0.53 per share in fiscal 2014 compared to net loss of $1.4 million or $0.20 per share in fiscal 2013 principally due to an increase gross margin coupled with lower selling, general and administrative expenses.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Nine Months Ended
	3/31/2014			3/31/2013
Cash provided by operating activities	$	8,076		$	9,189
Cash used in investing activities		(6,337	)		(7,791	)
Cash used in financing activities		(5,417	)		(5,892	)
Effect of exchange rate changes on cash		24			(173	)
Net decrease in cash	$	(3,654	)	$	(4,667	)

Net cash declined $3.7 million as a $8.1 million contribution from operations was more than offset by disbursements for capital equipment, debt repayments and dividends.

14

Net cash flow for the nine months ending March 31, 2014 improved $1.0 million compared to the same period in fiscal 2013 due principally to lower capital expenditures and reduced debt repayments.

Liquidity and Credit Arrangements

The Company believes it maintains sufficient liquidity and has the resources to fund its operations.  In addition to its cash and investments, the Company maintains a $23 million line of credit in connection with its Loan and Security Agreement, of which, $9.4 million was outstanding as of March 31, 2014.  Availability under the agreement is reduced by open letters of credit totaling $0.6 million. The Loan and Security Agreement matures in April of 2015.  The Loan and Security Agreement contains financial covenants with respect to leverage, tangible net worth, and interest coverage, and also contains customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions and fundamental corporate changes, and certain customary events of default.  As of March 31, 2014, the Company was in compliance with all debt covenants related to its Loan and Security Agreement.

The effective interest rate on the borrowings under the Loan and Security Agreement during the nine months ended March 31, 2014 was 2.0%.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

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 the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013.

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 March 31, 2014, 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. 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. Based on the evaluation of our disclosure controls and procedures as of March 31, 2014, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

There have been no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II.            OTHER INFORMATION

ITEM 1A.          RISK FACTORS

SAFE HARBOR STATEMENT

UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q contains forward-looking statements about the Company’s business, competition, sales, expenditures, foreign operations, plans for reorganization, interest rate sensitivity, debt service, liquidity and capital resources, and other operating and capital requirements. In addition, forward-looking statements may be included in future Company documents and in oral statements by Company representatives to securities analysts and investors.  The Company is subject to risks that could cause actual events to vary materially from such forward-looking statements.  You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. “Risk Factors” in our Form 10-K for the year ended June 30, 2013. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2013.

15

ITEM 6.             EXHIBITS

31a	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31b	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32	Certifications of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 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 Statements of Stockholders' Equity, (v)the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.

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	May 5, 2014	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	May 5, 2014	/S/R. Francis J. O’Brien
		Francis J. O’Brien - Treasurer and CFO (Principal Financial Officer)

16

EX-31

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	April 30, 2014	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)

EX-31

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	April 30, 2014	/S/R. Francis J. O’Brien
		Francis J. O’Brien - Treasurer and CFO (Principal Financial Officer)

EX-32

EXHIBIT 32

CERTIFICATIONS

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

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

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (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	April 30, 2014	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	April 30, 2014	/S/R. Francis J. O’Brien
		Francis J. O’Brien - Treasurer and CFO (Principal Financial Officer)

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

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

XML

Note 7 - Debt (Details) (USD $)	1 Months Ended	9 Months Ended			0 Months Ended			1 Months Ended	9 Months Ended
	Nov. 22, 2011	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 London Interbank Offered Rate (LIBOR) [Member]	May 09, 2013 Fourth Quarter 2013 and First Quarter 2014 [Member] Originally Agreement [Member]	May 09, 2013 Fourth Quarter 2013 and First Quarter 2014 [Member] Amended Agreement [Member]	May 09, 2013 Thereafter [Member] Amended Agreement [Member]	Dec. 23, 2013 Thereafter [Member] New Amended Agreement [Member]	Mar. 31, 2014 Maximum [Member]	Mar. 31, 2014 Minimum [Member]
Note 7 - Debt (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity (in Dollars)		$ 23,000,000
Debt Instrument, Basis Spread on Variable Rate				1.50%
Current Funded Debt to EBITDA Ratio					1.45	2.25	1.45	2.25	2.25
Annual Capital Expenditures (in Dollars)									15,000,000
Debt Service Coverage Rate										1.25
undefined (in Dollars)		10,000,000
Line of Credit Facility, Interest Rate During Period		2.01%	1.80%
Debt Instrument, Face Amount (in Dollars)	15,500,000
Term Loan Number of Years	10 years
Debt Instrument, Interest Rate, Stated Percentage	4.50%
Line of Credit Facility, Periodic Payment (in Dollars)	160,640
Line of Credit Facility, Amount Outstanding (in Dollars)		$ 12,500,000

XML

Note 3 - Stock-Based Compensation (Details) - Weighted Average Assumptions	9 Months Ended
	Mar. 31, 2013
Weighted Average Assumptions [Abstract]
Risk-free interest rate	1.00%
Expected life (years)	6 years
Expected stock volatility	52.30%
Expected dividend yield	4.00%

XML

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

9 Months Ended

Mar. 31, 2014

Disclosure Text Block [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

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

The balance sheet as of June 30, 2013, which has been derived from audited financial statements, and the unaudited interim financial statements 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 reporting.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited 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 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013.  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 preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2013 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. There were no changes in any of the Company’s significant accounting policies during the nine months ended March 31, 2014.

XML

Note 5 - Goodwill and Intangible Assets (Details) - Finite-Lived Intangible Assets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Jun. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 10,640	$ 10,000
Accumulated amortization	(2,651)	(1,778)
Total net balance	7,989	8,222
Noncompete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	600	600
Trademarks and Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	1,480	1,480
Completed Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	2,358	2,010
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	4,950	4,950
Software Developement [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	927	635
Other Intangible Assets [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 325	$ 325

XML

Note 5 - Goodwill and Intangible Assets (Details)	9 Months Ended
	Mar. 31, 2014
Trademarks and Trade Names [Member]
Note 5 - Goodwill and Intangible Assets (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life	14 years
Noncompete Agreements [Member]
Note 5 - Goodwill and Intangible Assets (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life	8 years
Completed Technology [Member]
Note 5 - Goodwill and Intangible Assets (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life	10 years
Customer Relationships [Member]
Note 5 - Goodwill and Intangible Assets (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life	8 years
Software Developement [Member]
Note 5 - Goodwill and Intangible Assets (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life	5 years

XML

Note 5 - Goodwill and Intangible Assets (Details) - Estimated Aggregate Amortization Expense (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Estimated Aggregate Amortization Expense [Abstract]
2014 (Remainder of year)	$ 322
2015	1,288
2016	1,288
2017	1,286
2018	1,218
2019	1,126
Thereafter	$ 1,461

XML

Note 6 - Pension and Post-retirement Benefits (Details) - Net Periodic Benefit Costs for Defined Benefit Pension Plans (Pension Plan, Defined Benefit [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Pension Plan, Defined Benefit [Member]
Note 6 - Pension and Post-retirement Benefits (Details) - Net Periodic Benefit Costs for Defined Benefit Pension Plans [Line Items]
Service cost	$ 716	$ 734	$ 2,139	$ 2,210
Interest cost	1,746	1,477	5,197	4,464
Expected return on plan assets	(1,589)	(1,490)	(4,732)	(4,497)
Amortization of prior service cost	29	59	87	176
Amortization of net gain	2		8
	$ 904	$ 780	$ 2,699	$ 2,353

XML

Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities:
Net income	$ 3,680	$ (1,360)
Non-cash operating activities:
Depreciation	6,093	6,434
Amortization	873	861
Stock-based compensation	105	141
Issuance of stock for length of service awards	59	32
Issuance of stock under long term incentive plan	39
Net long-term tax obligations		(282)
Deferred taxes	1,221	1,356
Unrealized transaction gain	(4)	(9)
Income on equity method investment	(196)	(390)
Working capital changes:
Accounts receivable	4,447	6,725
Inventories	(8,801)	3,799
Other current assets	(15)	1,118
Other current liabilities	(238)	(9,821)
Postretirement benefit and pension obligations	1,338	651
Other	(525)	(66)
Net cash provided by operating activities	8,076	9,189
Cash flows from investing activities:
Additions to property, plant and equipment	(6,258)	(6,129)
Purchase of investments	(79)	(1,662)
Proceeds from sale of investments	0	0
Net cash used in investing activities	(6,337)	(7,791)
Cash flows from financing activities:
Short-term debt repayments	(26)	(187)
Proceeds from long-term borrowings	500	1,500
Long-term debt repayments	(4,150)	(5,473)
Proceeds from common stock issued	337	370
Shares purchased		(62)
Dividends paid	(2,078)	(2,040)
Net cash used in financing activities	(5,417)	(5,892)
Effect of exchange rate changes on cash	24	(173)
Net decrease in cash	(3,654)	(4,667)
Cash, beginning of period	19,755	17,502
Cash, end of period	16,101	12,835
Supplemental cash flow information:
Interest paid	627	729
Income taxes paid, net	2,727	1,570
The 2013 ESOP [Member]
Supplemental disclosure of non-cash activities:
Issuance of stock under 2013 ESOP	$ 773

XML

Note 6 - Pension and Post-retirement Benefits (Details) - Net Periodic Benefit Costs for Postretirement Medical Plan (Postretirement Medical and Life Insurance Plan [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Postretirement Medical and Life Insurance Plan [Member]
Note 6 - Pension and Post-retirement Benefits (Details) - Net Periodic Benefit Costs for Postretirement Medical Plan [Line Items]
Service cost	$ 25	$ 127	$ 202	$ 383
Interest cost	66	136	331	409
Amortization of prior service credit	(260)	(185)	(511)	(557)
Amortization of accumulated loss	(1)	40	(1)	119
	$ (170)	$ 118	$ 21	$ 354

XML

Consolidated Balance Sheets (Current Period Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Jun. 30, 2013
Current assets:
Cash	$ 16,101	$ 19,755
Short-term investments	8,470	7,657
Accounts receivable (less allowance for doubtful accounts of $707 and $697, respectively)	34,372	37,875
Inventories	65,942	56,501
Current deferred income tax assets	4,965	4,978
Prepaid expenses and other current assets	7,170	7,182
Total current assets	137,020	133,948
Property, plant and equipment, net	51,147	51,200
Long-term taxes receivable	3,770	3,770
Long-term deferred income tax assets, net of current portion	27,388	28,274
Intangible assets, net	7,989	8,222
Goodwill	3,034	3,034
Other assets	2,526	2,346
Total assets	232,874	230,794
Current liabilities:
Notes payable and current maturities of long-term debt	1,535	1,557
Accounts payable and accrued expenses	16,845	17,084
Accrued compensation	5,904	5,304
Total current liabilities	24,284	23,945
Long-term debt, net of current portion	20,596	24,252
Long-term taxes payable	10,484	10,514
Deferred tax liabilities	2,458	2,182
Postretirement benefit and pension obligations	44,516	42,386
Other non-current liability		773
Total liabilities	102,338	104,052
Stockholders' equity:
Total stockholders' equity	130,536	126,742
Total liabilities and stockholders’ equity	232,874	230,794
Common Class A [Member]
Stockholders' equity:
Common Stock	6,142	6,077
Additional paid-in capital	53,812	52,613
Retained earnings	93,380	91,778
Accumulated other comprehensive loss	(23,597)	(24,476)
Common Class B [Member]
Stockholders' equity:
Common Stock	$ 799	$ 750

XML

Consolidated Statements of Stockholders' Equity (Unaudited) (USD $) In Thousands	Common Class A [Member] The 1984 ESOP [Member]	Common Class A [Member]	Common Class B [Member] The 2013 ESOP [Member]	Common Class B [Member]	Additional Paid-in Capital [Member] The 1984 ESOP [Member]	Additional Paid-in Capital [Member] The 2013 ESOP [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	The 1984 ESOP [Member]	The 2013 ESOP [Member]	Total
Balance at Jun. 30, 2012		$ 6,017		$ 753			$ 51,941	$ 94,661	$ (25,534)			$ 127,838
Total comprehensive income								(1,360)	(477)			(1,837)
Dividends								(2,040)				(2,040)
Purchase of stock		(5)					(57)					(62)
Issuance of stock dividends under ESOP	19				190					209
Issuance of stock under ESPP				20			141					161
Issuance of stock for length of service awards		2					30					32
Stock-based compensation							141					141
Conversion of common stock		31		(31)
Balance at Mar. 31, 2013		6,064		742			52,386	91,261	(26,011)			124,442
Balance at Jun. 30, 2013		6,077		750			52,613	91,778	(24,476)			126,742
Translation loss									(20,710)
Pension and postretirement plans, net of taxes									(2,887)
									(23,597)
Total comprehensive income								3,680	879			4,559
Dividends								(2,078)				(2,078)
Issuance of stock dividends under ESOP	17		76		188	697				205	773
Issuance of stock under long term incentive plan		3					36					39
Issuance of stock under ESPP				13			119					132
Issuance of stock for length of service awards		5					54					59
Stock-based compensation							105					105
Conversion of common stock		40		(40)
Balance at Mar. 31, 2014		$ 6,142		$ 799			$ 53,812	$ 93,380	$ (23,597)			$ 130,536

XML

Note 8 - Income Tax (Details) (USD $)	3 Months Ended			9 Months Ended		3 Months Ended			9 Months Ended	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Sep. 30, 2012	Mar. 31, 2014	Mar. 31, 2013	Sep. 30, 2013 Foreign Tax Authority [Member] United Kingdom [Member]	Dec. 31, 2013 Foreign Tax Authority [Member] CHINA	Mar. 31, 2013 Foreign Tax Authority [Member] AUSTRALIA	Mar. 31, 2014 CHINA	Mar. 31, 2014 Impact of Return to Provision Adjustments [Member]	Mar. 31, 2013 Reduction in Effective State Tax Rate [Member]	Mar. 31, 2013 Changed Position on Prior Returns [Member]	Mar. 31, 2013 Other Discrete Taxes [Member]
Note 8 - Income Tax (Details) [Line Items]
Income Tax Expense (Benefit)	$ 985,000	$ 249,000		$ 2,773,000	$ 507,000
Income (Loss) from Continuing Operations before Income Taxes, Extraordinary Items, Noncontrolling Interest	2,667,000	(1,236,000)		6,453,000	(853,000)
Effective Income Tax Rate Reconciliation, Percent	36.90%	20.10%		43.00%	59.40%
Other Tax Expense (Benefit)							(67,000)	178,000		(109,000)	675,000	(414,000)	66,000
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Amount						278,000
Unrecognized Tax Benefits, Period Increase (Decrease)			(91,000)
Valuation Allowance, Deferred Tax Asset, Change in Amount									$ (67,000)

XML

Note 6 - Pension and Post-retirement Benefits (Tables)

9 Months Ended

Mar. 31, 2014

Pension Plan, Defined Benefit [Member]

Note 6 - Pension and Post-retirement Benefits (Tables) [Line Items]

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended						Nine Months Ended
	3/31/2014			3/31/2013			3/31/2014			3/31/2013
Service cost	$	716		$	734		$	2,139		$	2,210
Interest cost		1,746			1,477			5,197			4,464
Expected return on plan assets		(1,589	)		(1,490	)		(4,732	)		(4,497	)
Amortization of prior service cost		29			59			87			176
Amortization of net gain		2			-			8			-
	$	904		$	780		$	2,699		$	2,353

Postretirement Medical and Life Insurance Plan [Member]

Note 6 - Pension and Post-retirement Benefits (Tables) [Line Items]

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended						Nine Months Ended
	3/31/2014			3/31/2013			3/31/2014			3/31/2013
Service cost	$	25		$	127		$	202		$	383
Interest cost		66			136			331			409
Amortization of prior service credit		(260	)		(185	)		(511	)		(557	)
Amortization of accumulated loss		(1	)		40			(1	)		119
	$	(170	)	$	118		$	21		$	354

XML

Note 3 - Stock-Based Compensation (Details) (USD $)	9 Months Ended			9 Months Ended						12 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Jun. 30, 2013	Mar. 31, 2014 Employee Stock Option [Member]	Mar. 31, 2014 Employee Stock Option [Member] Minimum [Member]	Mar. 31, 2014 Employee Stock Option [Member] Maximum [Member]	Mar. 31, 2014 Restricted Stock Units (RSUs) [Member]	Mar. 31, 2014 Restricted Stock Units (RSUs) [Member] Minimum [Member]	Mar. 31, 2014 Restricted Stock Units (RSUs) [Member] Maximum [Member]	Jun. 30, 2013 The 2013 ESOP [Member]
Note 3 - Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	500,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period					1 year	3 years		1 year	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period				10 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number				20,500
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number							8,200
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant				471,300
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value				$ 3.82
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term				8 years 9 months
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value				$ 100,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period							2,733
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value							100,000
Allocated Share-based Compensation Expense	100,000	100,000								800,000
Other Liabilities, Noncurrent			773,000							800,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 100,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	1 year 255 days

XML

Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals) (USD $)	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Dividends per share	$ 0.10	$ 0.10	$ 0.30	$ 0.30

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2014	Jun. 30, 2013
Allowance for doubtful accounts (in Dollars)	$ 707	$ 697
Common Class A [Member]
Par Value (in Dollars per share)	$ 1	$ 1
Shares Authorized	20,000,000	20,000,000
Shares Outstanding	6,142,406	6,076,698
Common Class B [Member]
Par Value (in Dollars per share)	$ 1	$ 1
Shares Authorized	10,000,000	10,000,000
Shares Outstanding	799,068	750,563

XML

Note 9 - Contingencies

9 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Note 9:  Contingencies

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

XML

Document And Entity Information	9 Months Ended
	Mar. 31, 2014	Apr. 30, 2014 Common Class A [Member]	Apr. 30, 2014 Common Class B [Member]
Document Information [Line Items]
Entity Registrant Name	STARRETT L S CO
Document Type	10-Q
Current Fiscal Year End Date	--06-30
Entity Common Stock, Shares Outstanding		6,146,108	795,366
Amendment Flag	false
Entity Central Index Key	0000093676
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3

XML

Accounting Policies, by Policy (Policies)

9 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

The balance sheet as of June 30, 2013, which has been derived from audited financial statements, and the unaudited interim financial statements 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 reporting.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited 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 financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013.  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 preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes.  Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2013 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. There were no changes in any of the Company’s significant accounting policies during the nine months ended March 31, 2014.

New Accounting Pronouncements, Policy [Policy Text Block]

In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU No. 2013-11 resolves the diversity in practice regarding the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU comes into effect for the first annual period beginning after December 15, 2013. The Company does not expect adoption of ASU No. 2013-11 to affect results of operations or cash flows however, adoption is expected to result in a reduction of long-term deferred income tax assets and a reduction of equal amount in long-term taxes payable.

XML

Consolidated Statements of Operations (Unaudited) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Net sales	$ 58,281,000	$ 59,864,000	$ 177,609,000	$ 176,630,000
Cost of goods sold	39,022,000	43,925,000	120,196,000	124,249,000
Gross margin	19,259,000	15,939,000	57,413,000	52,381,000
% of Net sales	33.00%	26.60%	32.30%	29.70%
Selling, general and administrative expenses	16,342,000	17,701,000	51,332,000	54,171,000
Operating income (loss)	2,917,000	(1,762,000)	6,081,000	(1,790,000)
Other income (expense)	(250,000)	526,000	372,000	937,000
Income (loss) before income taxes	2,667,000	(1,236,000)	6,453,000	(853,000)
Income tax expense	985,000	249,000	2,773,000	507,000
Net income (loss)	$ 1,682,000	$ (1,485,000)	$ 3,680,000	$ (1,360,000)
Basic and diluted income (loss) per share (in Dollars per share)	$ 0.24	$ (0.22)	$ 0.53	$ (0.20)
Weighted average outstanding shares used in per share calculations:
Basic (in Shares)	6,940	6,800	6,919	6,792
Diluted (in Shares)	6,996	6,800	6,964	6,792
Dividends per share (in Dollars per share)	$ 0.10	$ 0.10	$ 0.30	$ 0.30

XML

Note 4 - Inventories

9 Months Ended

Mar. 31, 2014

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 4:   Inventories

Inventories consist of the following (in thousands):

	3/31/2014			6/30/2013
Raw material and supplies	$	30,248		$	29,565
Goods in process and finished parts		19,086			20,256
Finished goods		45,990			37,507
		95,324			87,328
LIFO Reserve		(29,382	)		(30,827	)
Inventories	$	65,942		$	56,501

LIFO inventories were $13.5million and $12.9 million at March 31, 2014 and June 30, 2013 respectively, or approximately $29.4 million and $ 30.8 million, respectively, less than their balances accounted for on a FIFO basis.  The use of LIFO, as compared to FIFO, resulted in a $1.4 million decrease in cost of sales for the nine months ended March 31, 2014 compared to a $4.1 million increase in the nine months ended March 31, 2013. The use of LIFO, as compared to FIFO, resulted in a $0.9 million decrease in cost of sales for the three months ended March 31, 2014 compared to a $3.1 million increase in cost of sales in the three months ended March 31, 2013.

XML

Note 3 - Stock-Based Compensation

9 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 3:  Stock-based Compensation

On September 5, 2012, the Board of Directors adopted The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”). The 2012 stock plan was approved by shareholders October 17, 2012. The 2012 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2012 Stock Plan provides for the issuance of up to 500,000 shares of common stock.

Options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of March 31, 2014, there were 20,500 stock options and 8,200 restricted stock units outstanding. In addition, there were 471,300 shares available for grant under the 2012 Stock Plan as of March 31, 2014.

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

The fair value of stock options issued during the 9 months ended March 31, 2013 of $3.82 was estimated using the following assumptions:

Risk-free interest rate	1.0	%
Expected life (years)	6.0
Expected stock volatility	52.3	%
Expected dividend yield	4.0	%

The weighted average contractual term for stock options outstanding as of March 31, 2014 was 8.75 years.  The aggregate intrinsic value of stock options outstanding as of March 31, 2014 was $0.1 million. One third of the stock options were exercisable as of March 31, 2014.

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

There were 2,733 RSU awards vested and issued during the nine months ended March 31, 2014. The aggregate intrinsic value of RSU awards outstanding as of March 31, 2014 was $0.1 million. One third of the RSU awards had vested as of March 31, 2014.

On February 5, 2013, the Board of Directors adopted The L.S. Starrett Company 2013 Employee Stock Ownership Plan (the “2013 ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income.  The plan is intended as an employee stock ownership plan within the meaning of Section 4975 (e) (7) of the Internal Revenue Code of 1986, as amended. U.S. employees who have completed a year of service as of December 31, 2012 were eligible to participate.

On June 5, 2013, the Board of Directors approved a contribution to the 2013 ESOP for fiscal 2013 in the amount of two percent of each participant’s compensation (as defined in the Plan). Compensation expense related to the 2013 ESOP of $0.8 million was recognized in the year ended June 30, 2013. The $0.8 million liability was included in other non-current liabilities on the Consolidated Balance Sheet on June 30, 2013. Shares of Class B common stock were contributed to the 2013 ESOP on July 30, 2013 in order to fund this liability.

Compensation expense related to all stock based plans for the nine month period ended March 31, 2014 and March 31, 2013 was $0.1 million and $0.1 million respectively.  As of March 31, 2014, there was $0.1 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. The cost is expected to be recognized over a weighted average period of 1.7 years.

XML

Note 7 - Debt (Tables)

9 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

	3/31/2014		6/30/2013
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,394	$	1,348
Short-term foreign credit facility		-		27
Capitalized leases		141		182
		1,535		1,557
Long-term debt
Loan and Security Agreement		20,484		24,037
Capitalized leases		112		215
		20,596		24,252
	$	22,131	$	25,809

XML

Note 3 - Stock-Based Compensation (Tables)

9 Months Ended

Mar. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

Risk-free interest rate	1.0	%
Expected life (years)	6.0
Expected stock volatility	52.3	%
Expected dividend yield	4.0	%

XML

Note 7 - Debt

9 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 7:   Debt

Debt, including capitalized lease obligations, is comprised of the following (in thousands):

	3/31/2014		6/30/2013
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,394	$	1,348
Short-term foreign credit facility		-		27
Capitalized leases		141		182
		1,535		1,557
Long-term debt
Loan and Security Agreement		20,484		24,037
Capitalized leases		112		215
		20,596		24,252
	$	22,131	$	25,809

The Company executed an amendment to its Loan and Security Agreement (Line of Credit) as of April 25, 2012.  The Line of Credit is effective for three years commencing April 25, 2012 and expires on April 30, 2015.  The agreement continues the previous line of $23.0 million and interest rate of LIBOR plus 1.5%.  On September 7, 2012, the Company completed another amendment to change the financial covenants.  

On May 9, 2013, the Company further amended the agreement to adjust the covenant for a current funded debt to EBITDA ratio from 1.45 to 1, to 2.25 to 1 for the fourth quarter of fiscal 2013 and the first quarter of fiscal 2014. Thereafter, and through the end of the agreement on April 30, 2015, the funded debt to EBITDA covenant returned to 1.45 to 1.

On December 23, 2013, the Company amended the loan agreement to reverse the portion of the May 9, 2013 agreement that called for the funded debt to EBITDA ratio to revert back to 1.45 to 1 from 2.25 to 1, beginning with the second quarter of fiscal 2014. Under this new agreement the maximum ratio of funded debt to EBITDA will remain 2.25 to 1 for the remaining term of the loan.

The material financial covenants of the amended Loan and Security Agreement are now: 1) funded debt to EBITDA, excluding non-cash and retirement benefit expenses (“maximum leverage”), not to exceed 2.25 to 1, 2) annual capital expenditures not to exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1 and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time.

The effective interest rate on the Line of Credit under the Loan and Security Agreement for the nine months ended March 31, 2014 and 2013 was 2.01% and 1.80%, respectively.

On November 22, 2011, in conjunction with the Bytewise acquisition, the Company entered into a $15.5 million term loan (the “Term Loan”) under the existing Loan and Security Agreement with TD Bank N.A.  The term loan is a ten year loan bearing a fixed interest rate of 4.5% and is payable in fixed monthly payments of principal and interest of $160,640.  The term loan, which had a balance of $12.5 million at March 31, 2014, is subject to the same financial covenants as the Loan and Security Agreement.

The Company was in compliance with its debt covenants as of March 31, 2014.

XML

Note 5 - Goodwill and Intangible Assets

9 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

Note 5:   Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 gave rise to a goodwill asset balance. The Company performed a qualitative analysis in accordance with ASU 2011-08 for its October 1, 2013 annual assessment of goodwill (commonly referred to as “Step Zero”). From a qualitative perspective, in evaluating whether it is more likely than not that the fair value of the reporting unit is not less than its respective carrying amount, relevant events and circumstances were taken into account, with greater weight assigned to events and circumstances that most affect the fair value or the carrying amounts of its assets. Items that were considered included, but were not limited to, the following: macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in management or key personnel. After assessing these and other factors the Company determined that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount as of October 1, 2013.

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

	3/31/2014			6/30/2013
Non-compete agreement	$	600		$	600
Trademarks and trade names		1,480			1,480
Completed technology		2,358			2,010
Customer relationships		4,950			4,950
Software development		927			635
Other intangible assets		325			325
Total		10,640			10,000
Accumulated amortization		(2,651	)		(1,778	)
Total net balance	$	7,989		$	8,222

Amortizable intangible assets are being amortized on a straight-line basis over the period of expected economic benefit.

The estimated useful lives of the intangible assets subject to amortization are 14 years for trademarks and trade names, 8 years for non-compete agreements, 10 years for completed technology,  8 years for customer relationships and 5 years for software development.

The estimated aggregate amortization expense for the remainder of fiscal 2014 and for each of the next five years and thereafter, is as follows (in thousands):

2014 (Remainder of year)	$	322
2015		1,288
2016		1,288
2017		1,286
2018		1,218
2019		1,126
Thereafter		1,461

XML

Note 6 - Pension and Post-retirement Benefits

9 Months Ended

Mar. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note 6:  Pension and Post-retirement Benefits

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

	Three Months Ended						Nine Months Ended
	3/31/2014			3/31/2013			3/31/2014			3/31/2013
Service cost	$	716		$	734		$	2,139		$	2,210
Interest cost		1,746			1,477			5,197			4,464
Expected return on plan assets		(1,589	)		(1,490	)		(4,732	)		(4,497	)
Amortization of prior service cost		29			59			87			176
Amortization of net gain		2			-			8			-
	$	904		$	780		$	2,699		$	2,353

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

	Three Months Ended						Nine Months Ended
	3/31/2014			3/31/2013			3/31/2014			3/31/2013
Service cost	$	25		$	127		$	202		$	383
Interest cost		66			136			331			409
Amortization of prior service credit		(260	)		(185	)		(511	)		(557	)
Amortization of accumulated loss		(1	)		40			(1	)		119
	$	(170	)	$	118		$	21		$	354

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, which is the same as the fiscal year end of the Company. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of the accumulated other comprehensive income (loss).

Effective December 31, 2013, the Company terminated eligibility for employees ages 55 -64 years old in the Postretirement Medical Plan.

XML

Note 8 - Income Tax

9 Months Ended

Mar. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 8:   Income Tax

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

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

The tax expense for the third quarter of fiscal 2014 was $985,000 on profit before tax of $2,667,000 (an effective tax rate of 36.9%). The tax expense for the third quarter of fiscal 2013 was $249,000 on a loss before tax for the quarter of $1,236,000 (an effective tax rate of (20.1%)). For the first nine months of fiscal 2014, tax expense was $2,773,000 on profit before tax of $6,453,000 (an effective tax rate of 43.0%) and for the first nine months of 2013, tax expense was $507,000 on a loss before tax of $853,000 (an effective tax rate of (59.4%)). The tax expense in the third quarter of fiscal 2014 included a discrete item for the impact of return to provision adjustments to reduce tax expense by $109,000. In addition, there was a discrete tax charge of $278,000 in the first quarter of fiscal 2014 for the effect of a tax rate decrease in the UK applied to the net deferred tax assets in that country and there was a $67,000 benefit recognized in the second quarter for the benefit of losses in China recognized against current year profits. The primary reasons for the negative effective tax rate in the third quarter of fiscal 2013 are as follows: 1. no tax benefit was recognized for losses in certain foreign subsidiaries; 2. there was a cash dividend from the Company’s subsidiary in Australia which caused a discrete increase to tax expense of $178,000; 3.  there was a reduction in the effective state tax rate applied to deferred tax balances (based on both actual and expected future state tax apportionments and profitability) which caused a discrete tax expense of $675,000; 4. the changes on the fiscal 2012 tax return from amounts estimated at provision, including the impact of a changed position on the 2012 and prior year returns to take the foreign tax credit rather than a deduction, created a discrete tax benefit of $414,000; and 5. other discrete taxes increased tax expense by $66,000 In the first quarter of fiscal 2013, a discrete tax benefit was booked reducing the Company’s net tax liability for uncertain tax positions of $91,000.

U.S. Federal tax returns through fiscal 2010 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from years before fiscal 2011 are still subject to review and adjustment. In international jurisdictions including Argentina, Australia, Brazil, Canada, China, Germany, Japan, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. In the second quarter of fiscal 2014, the Company was notified by tax authorities in China of a tax review and they have requested certain documentation for the calendar years 2010 and 2012. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2008 – 2013.

The Company has identified no new uncertain tax positions during the nine month period ended March 31, 2014 for which it is currently likely that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

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

No valuation allowance has been recorded for the Company’s domestic federal net operating loss (NOL) carry forwards. The Company continues to believe that due to forecasted future taxable income and certain tax planning strategies available, it is more likely than not that it will be able to realize the benefit of the federal NOL carry forwards. $67,000 of the valuation allowance for subsidiary NOL’s in China has been released to reflect a tax benefit against current year profits.

XML

Note 7 - Debt (Details) - Debt Schedule (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Jun. 30, 2013
Debt Schedule [Abstract]
Loan and Security Agreement	$ 1,394	$ 1,348
Short-term foreign credit facility		27
Capitalized leases	141	182
	1,535	1,557
Loan and Security Agreement	20,484	24,037
Capitalized leases	112	215
	20,596	24,252
	$ 22,131	$ 25,809

XML

Note 5 - Goodwill and Intangible Assets (Tables)

9 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	3/31/2014			6/30/2013
Non-compete agreement	$	600		$	600
Trademarks and trade names		1,480			1,480
Completed technology		2,358			2,010
Customer relationships		4,950			4,950
Software development		927			635
Other intangible assets		325			325
Total		10,640			10,000
Accumulated amortization		(2,651	)		(1,778	)
Total net balance	$	7,989		$	8,222

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2014 (Remainder of year)	$	322
2015		1,288
2016		1,288
2017		1,286
2018		1,218
2019		1,126
Thereafter		1,461

XML

Note 4 - Inventories (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013	Jun. 30, 2013
Inventory Disclosure [Abstract]
LIFO Inventory Amount	$ 13.5		$ 13.5		$ 12.9
Inventory Difference Using FIFO Basis	29.4		29.4		30.8
Decrease in Cost of Sales Using LIFO compared to FIFO	0.9		1.4
Increase in Cost of Sales Using LIFO compared to FIFO		$ 3.1		$ 4.1

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013
Net income (loss)	$ 1,682	$ (1,485)	$ 3,680	$ (1,360)
Other comprehensive income (loss), net of tax:
Translation gain (loss)	1,868	(913)	923	(445)
Pension and postretirement plans	(14)	(9)	(44)	(32)
Other comprehensive income (loss)	1,854	(922)	879	(477)
Total comprehensive income (loss)	$ 3,536	$ (2,407)	$ 4,559	$ (1,837)

XML

Note 2 - Recent Accounting Pronouncements

9 Months Ended

Mar. 31, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note 2: Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." ASU No. 2013-11 resolves the diversity in practice regarding the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU comes into effect for the first annual period beginning after December 15, 2013. The Company does not expect adoption of ASU No. 2013-11 to affect results of operations or cash flows however, adoption is expected to result in a reduction of long-term deferred income tax assets and a reduction of equal amount in long-term taxes payable.

XML

Note 4 - Inventories (Details) - Inventory (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Jun. 30, 2013
Inventory [Abstract]
Raw material and supplies	$ 30,248	$ 29,565
Goods in process and finished parts	19,086	20,256
Finished goods	45,990	37,507
	95,324	87,328
LIFO Reserve	(29,382)	(30,827)
Inventories	$ 65,942	$ 56,501

XML

Note 4 - Inventories (Tables)

9 Months Ended

Mar. 31, 2014

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

	3/31/2014			6/30/2013
Raw material and supplies	$	30,248		$	29,565
Goods in process and finished parts		19,086			20,256
Finished goods		45,990			37,507
		95,324			87,328
LIFO Reserve		(29,382	)		(30,827	)
Inventories	$	65,942		$	56,501