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, 2016

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 21, 2016
Class A Common Shares	6,242,838
Class B Common Shares	771,825

1

 THE L. S. STARRETT COMPANY

CONTENTS

			Page No.
Part I.	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets – March 31, 2016 (unaudited) and June 30, 2015	3
		Consolidated Statements of Operations – three and nine months ended March 31, 2016 and March 31, 2015 (unaudited)	4
		Consolidated Statements of Comprehensive Income (Loss) – three and nine months ended March 31, 2016 and March 31, 2015 (unaudited)	5
		Consolidated Statements of Stockholders' Equity – nine months ended March 31, 2016 (unaudited)	6
		Consolidated Statements of Cash Flows - nine months ended March 31, 2016 and March 31, 2015 (unaudited)	7
		Notes to Unaudited Consolidated Financial Statements	8-12
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12-15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 4.	Controls and Procedures	15
Part II.	Other Information:
	Item 1A.	Risk Factors	16
	Item 6.	Exhibits	16
SIGNATURES			17

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets

(in thousands except share data)

	March 31, 2016 (unaudited)			June 30, 2015
ASSETS
Current assets:
Cash	$	22,231		$	11,108
Short-term investments		-			7,855
Accounts receivable (less allowance for doubtful accounts of $746 and $612, respectively)		31,738			40,311
Inventories		57,663			63,003
Current deferred income tax assets		4,274			4,554
Prepaid expenses and other current assets		5,897			6,582
Total current assets		121,803			133,413
Property, plant and equipment, net		42,555			44,413
Income taxes receivable		2,730			3,383
Deferred income tax assets, net of current portion		18,573			18,803
Intangible assets, net		6,647			7,125
Goodwill		3,034			3,034
Other assets		2,185			2,101
Total assets	$	197,527		$	212,272
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	1,531		$	1,552
Accounts payable		10,415			9,471
Accrued expenses		5,347			7,011
Accrued compensation		4,022			5,565
Total current liabilities		21,315			23,599
Long-term debt, net of current portion		17,500			18,552
Other income tax obligations		4,615			4,607
Deferred income tax liabilities		1,441			1,548
Postretirement benefit and pension obligations		46,081			49,536
Total liabilities		90,952			97,842
Stockholders' equity:
ClClass A Common stock $1 par (20,000,000 shares authorized; 6,236,900 outstanding at March 31, 2016 and 6,223,558 outstanding at June 30, 2015)		6,237			6,224
ClClass B Common stock $1 par (10,000,000 shares authorized; 772,500 outstanding at March 31, 2016 and 789,069 outstanding at June 30, 2015)		773			789
Additional paid-in capital		55,020			54,869
Retained earnings		96,933			98,164
Accumulated other comprehensive loss		(52,388	)		(45,616	)
Total stockholders' equity		106,575			114,430
Total liabilities and stockholders’ equity	$	197,527		$	212,272

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
	3/31/2016			3/31/2015			3/31/2016			3/31/2015
Net sales	$	50,329		$	56,116		$	155,038		$	180,109
Cost of goods sold		35,596			37,422			108,454			120,108
Gross margin		14,733			18,694			46,584			60,001
% of Net sales		29.3	%		33.3	%		30.0	%		33.3	%
Selling, general and administrative expenses		13,819			15,574			44,288			52,112
Operating income		914			3,120			2,296			7,889
Other income		285			388			377			1,683
Income before income taxes		1,199			3,508			2,673			9,572
Income tax expense		602			1,071			1,796			3,765
Net income	$	597		$	2,437		$	877		$	5,807
Basic income per share	$	.09		$	0.35		$	.13		$	0.83
Diluted income per share	$	.08		$	0.35		$	.12		$	0.83
Weighted average outstanding shares used in per share calculations:
Basic		7,013			6,992			7,016			6,977
Diluted		7,031			7,045			7,045			7,024
Dividends per share	$	0.10		$	0.10		$	0.30		$	0.30

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
	3/31/2016		3/31/2015			3/31/2016			3/31/2015
Net income	$	597	$	2,437		$	877		$	5,807
Other comprehensive income (loss):
Translation gain (loss)		2,906		(8,952	)		(6,772	)		(20,720	)
Pension and postretirement plans, net of tax of  $0,$0,$0 and $22 respectively		-		-			-			(22	)
Other comprehensive income (loss)		2,906		(8,952	)		(6,772	)		(20,742	)
Total comprehensive income (loss)	$	3,503	$	(6,515	)	$	(5,895	)	$	(14,935	)

See Notes to Unaudited Consolidated Financial Statements

5

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

For the Nine Months Ended March 31, 2016

(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, 2015	$	6,224		$	789		$	54,869		$	98,164		$	(45,616	)	$	114,430
Total comprehensive income (loss)		-			-			-			877			(6,772	)		(5,895	)
Dividends ($0.30 per share)		-			-			-			(2,108	)		-			(2,108	)
Repurchase of shares		(37	)		(3	)		(406	)		-			-			(446	)
Issuance of stock		28			9			397			-			-			434
Stock-based compensation		-			-			160			-			-			160
Conversion		22			(22	)		-			-			-			-
Balance March 31, 2016	$	6,237		$	773		$	55,020		$	96,933		$	(52,388	)	$	106,575
Accumulated balance consists of:
Translation loss													$	(44,072	)
Pension and postretirement plans, net of taxes														(8,316	)
													$	(52,388	)

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
	3/31/2016			3/31/2015
Cash flows from operating activities:
Net income	$	877		$	5,807
Non-cash operating activities:
Depreciation		4,385			5,817
Amortization		1,036			951
Stock-based compensation		315			287
Net long-term tax obligations		627			2,893
Deferred taxes		57			821
Unrealized transaction gain		66			(2	)
Income on equity method investment		(89	)		(170	)
Working capital changes:
Accounts receivable		4,744			5,669
Inventories		1,425			(10,607	)
Other current assets		190			(1,399	)
Other current liabilities		441			499
Postretirement benefit and pension obligations		(2,481	)		(4,184	)
Other		60			480
Net cash provided by operating activities		11,653			6,862
Cash flows from investing activities:
Additions to property, plant and equipment		(4,048	)		(4,048	)
Software development		(557	)		(440	)
Purchase of investments		-			(45	)
Proceeds from sale of investments		7,621			201
Net cash provided by (used in) investing activities		3,016			(4,332	)
Cash flows from financing activities:
Proceeds from short-term borrowings		-			922
Proceeds from long-term borrowings		750			-
Long-term debt repayments		(1,822	)		(1,159	)
Proceeds from common stock issued		280			325
Shares repurchased		(446	)		(64	)
Dividends paid		(2,108	)		(2,095	)
Net cash used in financing activities		(3,346	)		(2,071	)
Effect of exchange rate changes on cash		(200	)		(3,046	)
Net increase (decrease) in cash		11,123			(2,587	)
Cash, beginning of period		11,108			16,233
Cash, end of period	$	22,231		$	13,646
Supplemental cash flow information:
Interest paid	$	487		$	547
Income taxes paid, net		732			1,238

See Notes to Unaudited Consolidated Financial Statements

7

THE L. S. STARRETT COMPANY

Notes to Unaudited Consolidated Financial Statements

March 31, 2016

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

The balance sheet as of June 30, 2015, which has been derived from audited financial statements, and the unaudited interim financial statements as of and for the three and nine months ended March 31, 2016 and March 31, 2015, 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, 2015.  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, 2015 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Note 2: Recent Accounting Pronouncements

In May 2014, the FASB issued a new standard related to the “Revenue from Contracts with Customers” which amends the existing accounting standards for revenue recognition. The standard requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This standard is applicable for fiscal years beginning after December 15, 2017 and for interim periods within those years. Earlier application will be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company expects to adopt this standard on July 1, 2018. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

Accounting Standards Update (ASU) 2015-11, "Inventory - Simplifying the Measurement of Inventory" requires companies to measure most inventory at the lower of cost or net realizable value, thereby simplifying the current guidance under which a company must measure inventory at the lower of cost or market. This Update eliminates the need to determine replacement cost and evaluate whether said cost is within a quantitative range. This Update also further aligns U.S. GAAP and international accounting standards. For public companies, the guidance in ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods thereafter. Early adoption is permitted. Management does not expect ASU 2015-11 to have a material impact on the Company's financial statements and disclosures.

Accounting Standards Update 2015-17, “Balance Sheet Classification of Deferred Taxes” requires that companies classify all deferred taxes as non-current assets or liabilities. This change is applicable for fiscal years beginning after December 15, 2016 and for interim periods within those years. There is no impact to earnings as a result of this change; however, current assets will be reduced by the amount of the current deferred tax asset as that amount will be included with the long term deferred tax asset upon adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this update will increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effect, if any, on its financial statements.

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 on 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.

8

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, 2016, there were 20,000 stock options and 73,367 restricted stock units outstanding. In addition, there were 391,600 shares available for grant under the 2012 Stock Plan as of March 31, 2016.

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

No stock options were granted during the nine months ended March 31, 2016 and 2015.

The weighted average contractual term for stock options outstanding as of March 31, 2016 was 6.75 years.  The aggregate intrinsic value of stock options outstanding as of March 31, 2016 was $0.1 million. Stock options exercisable as of March 31, 2016 were 20,000.

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

There were 40,200 RSU awards with a fair value of $15.11 per RSU granted during the nine months ended March 31, 2016. There were 9,067 RSUs settled during the nine months ended March 31, 2016.  The aggregate intrinsic value of RSU awards outstanding as of March 31, 2016 was $0.8 million.  As of March 31, 2016 all vested awards had been issued and settled.

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

Compensation expense related to all stock based plans for the nine month periods ended March 31, 2016 and 2015 was $0.3 million and $0.2 million, respectively.  As of March 31, 2016, there was $1.1 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost $0.7 million relates to performance based RSU grants that are not expected to be awarded. The remaining $0.4 million is expected to be recognized over a weighted average period of 2.0 years.

Note 4:   Inventories

Inventories consist of the following (in thousands):

	3/31/2016			6/30/2015
	(Unaudited)
Raw material and supplies	$	30,632		$	32,784
Goods in process and finished parts		16,493			18,569
Finished goods		38,885			39,689
		86,010			91,042
LIFO Reserve		(28,347	)		(28,039	)
Inventories	$	57,663		$	63,003

LIFO inventories were $10.7 million and $14.6 million at March 31, 2016 and June 30, 2015, respectively, such amounts being approximately $28.3 million and $28.0 million, respectively, less than if determined on a FIFO basis.  The use of LIFO, as compared to FIFO, resulted in a $0.3 million increase in cost of sales for the nine months ended March 31, 2016 compared to a $0.2 million increase for the nine months ended March 31, 2015.

9

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, 2015 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 exceeds 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 and 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, 2015.

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

	3/31/2016			6/30/2015
	(Unaudited)
Non-compete agreement	$	600		$	600
Trademarks and trade names		1,480			1,480
Completed technology		2,358			2,358
Customer relationships		4,950			4,950
Software development		2,213			1,655
Other intangible assets		325			325
Total		11,926			11,368
Accumulated amortization		(5,279	)		(4,243	)
Total net balance	$	6,647		$	7,125

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 2016 and for each of the next five years and thereafter, is as follows (in thousands):

2016 (Remainder of year)	$	386
2017		1,543
2018		1,475
2019		1,397
2020		873
2021		430
Thereafter		543

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
	3/31/2016 (Unaudited)			3/31/2015 (Unaudited)			3/31/2016 (Unaudited)			3/31/2015 (Unaudited)
Service cost	$	714		$	694		$	2,143		$	2,081
Interest cost		1,732			1,673			5,259			5,085
Expected return on plan assets		(1,560	)		(1,724	)		(4,739	)		(5,236	)
Amortization of net loss		13			7			39			23
	$	899		$	650		$	2,702		$	1,953

10

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

	Three Months Ended						Nine Months Ended
	3/31/2016 (Unaudited)			3/31/2015 (Unaudited)			3/31/2016 (Unaudited)			3/31/2015 (Unaudited)
Service cost	$	26		$	29		$	79		$	85
Interest cost		71			61			215			183
Amortization of prior service credit		(195	)		(200	)		(586	)		(599	)
Amortization of net loss		4			-			11			-
	$	(94	)	$	(110	)	$	(281	)	$	(331	)

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 loss.

Effective March 31, 2015, the Company terminated the eligibility of employees ages 55 - 64 years old to enter into the Post-retirement Medical Plan.

Note 7:   Debt

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

	3/31/2016 (Unaudited)		6/30/2015
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,525	$	1,474
Capitalized leases		6		78
		1,531		1,552
Long-term debt
Loan and Security Agreement		17,500		18,552
	$	19,031	$	20,104

The Company amended its Loan and Security Agreement, which includes a Line of Credit and a Term Loan, in January 2015 with changes that took effect on April 25, 2015.  Borrowings under the Line of Credit may not exceed $23.0 million.  The agreement expires on April 30, 2018 and has an interest rate of LIBOR plus 1.5%.  As of March 31, 2016, $9.4 million was outstanding on the Line of Credit.

The financial covenants of the amended Loan and Security Agreement are: 1) funded debt to EBITDA, excluding non-cash and retirement benefit expenses (“maximum leverage”), not to exceed 2.25 to 1.0 2) annual capital expenditures not to exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1.0 and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time.  The Company was in compliance with all debt covenants as of March 31, 2016.

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 $9.6 million at March 31, 2016, is subject to the same financial covenants contained in the Loan and Security Agreement.

The effective interest rate on the Line of Credit under the Loan and Security Agreement for the nine months ended March 31, 2016 and 2015 was 2.2% and 2.0%, respectively.

11

Note 8:   Income Taxes

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

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

The effective tax rate for the third quarter of fiscal 2016 was 50.2% and the effective tax rate for the third quarter of fiscal 2015 was 30.5%. For the first nine months of fiscal 2016, the effective tax rate was 67.2% and for the first nine months of fiscal 2015, it was 39.3%. The tax rate is higher than the U.S. statutory rate for the year to date results in part due to losses in some foreign jurisdictions for which no tax benefit is recognized. In the third quarter of fiscal 2016, there was a benefit of $140,000 to reflect the reversal of the valuation allowance to recognize the benefit of foreign subsidiary tax loss carryforwards. In the first nine months of fiscal 2016, there were additional discrete reductions of tax expense of $216,000 for tax return to provision adjustments. In addition, there were discrete increases of $70,000 for interest on audit exposures. In the first nine months of fiscal 2015, there were discrete reductions to tax expense of $66,000 related to use of tax loss carryforwards, $42,000 for reduction in audit exposure due to the expiration of the statute of limitations and $332,000 related to return to provision adjustments; the last item was fully booked in the third quarter which is the primary reason for the tax rate in this quarter being lower than the U.S. statutory rate.

U.S. Federal tax returns through fiscal 2012 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from years before fiscal 2013 are still subject to adjustment. As of March 31, 2016, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the years 2010 – 2015. The Company has identified no new uncertain tax positions during the nine month period ended March 31, 2016 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 the Company’s financial position.

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 utilize the U.S. federal NOL carryforwards. In certain other countries where Company operations are in a loss position, the deferred tax assets for tax loss carryforwards and other temporary differences are fully offset by a valuation allowance.

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.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three months Ended March 31, 2016 and March 31, 2015

Overview

The Company operates as a global business and is impacted by worldwide economic, political and industrial shifts. A slowdown in the manufacturing sector coupled with a retrenchment in the oil patch negatively impacted revenue in North America, while the international markets continue to be stagnant in Europe, recessionary in Latin America and softening in China. In addition, the strong U. S. dollar has negatively impacted demand for domestic products and reduced foreign subsidiary’s contribution to consolidated sales.

Net sales decreased $5.8 million or 10% from $56.1 million in fiscal 2015 to $50.3 million in fiscal 2016 with International accounting for $4.3 million or 75% of the shortfall. Operating income declined $2.2 million due to $4.0 million erosion in gross margin more than offset a $1.8 million decrease in selling, general and administrative expenses.

12

Net Sales

North American sales decreased $1.5 million or 4% from $34.0 million in fiscal 2015 to $32.5 million in fiscal 2016 as a weakening in manufacturing activity resulted in reduced demand for precision hand tool and saw products more than offsetting continued gains in capital equipment metrology products.

International sales declined $4.3 million or 19% from $22.1 million in fiscal 2015 to $17.8 million in fiscal 2016 as a recession in Brazil; an economic slowdown in China; the unfavorable pricing impact of a strong dollar; and $3.3 million in currency losses all contributed to difficult trading overseas.

Gross Margin

Gross margin decreased $4.0 million or 21% from 33% of sales in fiscal 2015 to 29% of sales in fiscal 2016 with the profit impact of lower revenues and margin decline representing $1.9 million and $2.1 million, respectively.

North American gross margins decreased $2.7 million from $12.1 million or 36% of sales in fiscal 2015 to $9.4 million or 29% of sales in fiscal 2016. The reduced gross margins were the result of a revenue decline in precision hand tool and saw product lines without a comparable reduction in overhead costs more than offsetting gains in the capital equipment gross margins.

International gross margins declined $1.3 million from $6.6 million in fiscal 2015 to $5.3 million in fiscal 2016 with volume declines and unfavorable exchange rates impacting Brazil performance by $0.4 and $0.8 million, respectively

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $1.8 million or 12% from 15.6 million in fiscal 2015 to $13.8 million in fiscal 2016.

North American expenses decreased $0.2 million from $8.4 million in fiscal 2015 to $8.2 million in fiscal 2016 as reduced salaries and incentive compensation more than offset higher employee benefits, professional fees and marketing expenses.

International expenses declined $1.6 million or 22% as the strong dollar resulted in a $0.8 million decrease in Brazilian expenses expressed in U. S. dollars as the Brazilian currency declined 24% in the quarter versus the prior year. In addition to currency differences, Brazil reduced salaries, employee benefits, and professional fees $0.7 million in constant exchanges rates.

Other Income

Other income declined $0.1 million due to reduced interest income as foreign exchange and interest expense remained level in both periods

Income Taxes

The effective tax rate for the third quarter of fiscal 2016 and 2015 was 50% and 31%, respectively. The quarterly tax rate increased due to losses in some foreign subsidiaries for which no tax benefit is recognized. The tax rate was reduced by discrete benefits of $0.1 million in fiscal 2016 and $0.3 million in fiscal 2015.

Net Income

The Company recorded net income of $0.6 million or $0.08 per diluted share in the third quarter of fiscal 2016 compared to net income of $2.4 million or $0.35 per share in fiscal 2015 principally due to reduced operating income and a higher effective tax rate.

Nine months ended March 31, 2016 and March 31, 2015

Overview 

Net sales declined $25.1 million or 14% from $180.1 million in fiscal 2015 to $155.0 million in fiscal 2016 with North America and International posting declines of $4.3 and $20.8 million, respectively. Operating income decreased $5.6 million in fiscal 2016 from $7.9 million in fiscal 2015 to $2.3 million in fiscal 2016 as lower sales and related gross margins more than offset reduced selling, general and administrative expenses.

13

Net Sales

North American sales decreased $4.3 million or 4% from $103.5 million in fiscal 2015 to $99.2 million in fiscal 2016 as demand for all precision hand tools declined, particularly in the oil and agricultural sectors.

International sales declined $20.8 million or 27% from $76.6 million in fiscal 2015 to $55.8 million in fiscal 2016 with unfavorable exchange rates representing $15.0 million. The impact of a recessionary economic environment was significant in Brazil as revenue declined 8% in local currency.

Gross Margin

Gross margin decreased $13.4 million or 22% from 33% of sales in fiscal 2015 to 30% of sales in fiscal 2016 with the profit impact of lower revenues and margin decline representing $8.4 and $5.0 million, respectively.

North American gross margins decreased $5.4 million or 16% in fiscal 2016 compared to fiscal 2015 as a result of reduced precision hand tool and saw product line revenues and increased costs.

International gross margins declined $8.0 million with weakening currencies representing $4.7 million. Excluding foreign exchange economic factors impacting margins, volume declines represented $1.5 and $1.1 million in Brazil and Europe, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expense decreased $7.8 million or 15% from $52.1 million in fiscal 2015 to $44.3 million in fiscal 2016.

North American expenses decreased $2.4 million or 9% due to termination of profit sharing in November of 2014 related to the Bytewise acquisition; lower incentive compensation; reduced professional fees; and completion of software amortization in fiscal 2015 related to a new ERP system.

International expenses decreased $5.4 million or 22% due to a $4.9 foreign currency reduction for expenses expressed in U. S. dollars, primarily due to a weakening of the Brazilian Real relative to the U. S. dollar. In addition, reduced spending for salaries, employee benefits and commissions contributed a combined $0.6 million.

Other Income

Other income declined $1.3 million principally due to lower interest income and the devalued Chinese Yuan, which increased our Chinese subsidiary’ U. S. dollar denominated liabilities.

Income Taxes

The effective tax rate for the first nine months of fiscal 2016 and 2015 was 67% and 39%, respectively. The tax rate for the first nine months ended March 31, 2016 and 2015 increased as a result of losses in some foreign subsidiaries for which no tax benefit was recognized and was reduced by net discrete benefits of $0.3 million in fiscal 2016 and $0.4 million in fiscal 2015.

Net Income

The Company recorded net income of $0.9 million or $0.12 per diluted share in the first three quarters of fiscal 2016 compared to net income of $5.8 million or $0.83 per share in fiscal 2015 principally due to lower operating income, reduced other income and a higher effective tax rate.

14

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Nine Months Ended
	3/31/2016			3/31/2015
Cash provided by operating activities	$	11,653		$	6,862
Cash provided by (used in) investing activities		3,016			(4,332	)
Cash used in financing activities		(3,346	)		(2,071	)
Effect of exchange rate changes on cash		(200	)		(3,046	)
Net increase (decrease) in cash	$	11,123		$	(2,587	)

Net cash for the nine months ended March 31, 2016 increased $11.1 million from June 30, 2015 as improved working capital and the sale of investments of $6.8 and $7.6 million, respectively, offset by $4.0 in property, plant and equipment expenditures.

Net cash for the nine months ended March 31, 2016 improved $13.7 million compared to the nine months ended March 31, 2015 primarily due to the sale of investments of $7.6 million, improved working capital and a reduced impact of foreign currency exchange rates on cash balances.

Liquidity and Credit Arrangements

The Company believes it maintains sufficient liquidity and has the resources to fund its operations.  In addition to its cash, 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, 2016.  Availability under the agreement is further reduced by open letters of credit totaling $0.9 million. The Loan and Security Agreement was renewed in January 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, 2016, the Company was in compliance with all debt covenants related to its Loan and Security Agreement. The Loan and Security Agreement expires on April 30, 2018.

The effective interest rate on the borrowings under the Loan and Security Agreement during the nine months ended March 31, 2016 and 2015 was 2.2% and 2.0% respectively.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements 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, 2015.

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, 2016, and they have concluded that our disclosure controls and procedures were effective as of such date. All information required to be filed in this report was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2016, 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 during the quarter ended March 31, 2016.

15

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, 2015. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2015.

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.

10.1 The L.S. Starrett Company 2012 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.2 to The L.S. Starrett Company’s Registration Statement on Form S-8 (File No. 333-184934) filed November 14, 2012).

101 The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statement of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text.

16

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	April 21, 2016	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	April 21, 2016	/S/R. Francis J. O’Brien
		Francis J. O’Brien - Treasurer and CFO (Principal Accounting Officer)

17

EX-31.A

EXHIBIT 31.a

CERTIFICATIONS

I, Douglas A. Starrett, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: April 21, 2016	/S/	Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer

EX-31.B

EXHIBIT 31.b

CERTIFICATIONS

I, Francis J. O’Brien, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: April 21, 2016	/S/	Francis J. O’Brien
		Francis J. O’Brien Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATIONS

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

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

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (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 21, 2016	/S/ Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer
Date	April 21, 2016	/S/ Francis J. O’Brien
		Francis J. O’Brien Chief Financial Officer

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

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

XML

Document And Entity Information - shares	9 Months Ended
	Mar. 31, 2016	Apr. 21, 2016
Common Class B [Member]
Entity Common Stock, Shares Outstanding (in shares)		771,825
Common Class A [Member]
Entity Common Stock, Shares Outstanding (in shares)		6,242,838
Entity Registrant Name	STARRETT L S CO
Entity Central Index Key	0000093676
Trading Symbol	scx
Current Fiscal Year End Date	--06-30
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Common Class A [Member]
Stockholders' equity:
Common stock	$ 6,237	$ 6,224
Common Class B [Member]
Stockholders' equity:
Common stock	773	789
Cash	$ 22,231	11,108
Short-term investments		7,855
Accounts receivable (less allowance for doubtful accounts of $746 and $612, respectively)	$ 31,738	40,311
Inventories	57,663	63,003
Current deferred income tax assets	4,274	4,554
Prepaid expenses and other current assets	5,897	6,582
Total current assets	121,803	133,413
Property, plant and equipment, net	42,555	44,413
Income taxes receivable	2,730	3,383
Deferred income tax assets, net of current portion	18,573	18,803
Intangible assets, net	6,647	7,125
Goodwill	3,034	3,034
Other assets	2,185	2,101
Total assets	197,527	212,272
Notes payable and current maturities of long-term debt	1,531	1,552
Accounts payable	10,415	9,471
Accrued expenses	5,347	7,011
Accrued compensation	4,022	5,565
Total current liabilities	21,315	23,599
Long-term debt, net of current portion	17,500	18,552
Other income tax obligations	4,615	4,607
Deferred income tax liabilities	1,441	1,548
Postretirement benefit and pension obligations	46,081	49,536
Total liabilities	90,952	97,842
Additional paid-in capital	55,020	54,869
Retained earnings	96,933	98,164
Accumulated other comprehensive loss	(52,388)	(45,616)
Total stockholders' equity	106,575	114,430
Total liabilities and stockholders’ equity	$ 197,527	$ 212,272

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Common Class A [Member]
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, Authorized (in shares)	20,000,000	20,000,000
Common stock, Outstanding (in shares)	6,236,900	6,223,558
Common Class B [Member]
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, Authorized (in shares)	10,000,000	10,000,000
Common stock, Outstanding (in shares)	772,500	789,069
Allowance for doubtful accounts	$ 746	$ 612

XML

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Net sales	$ 50,329	$ 56,116	$ 155,038	$ 180,109
Cost of goods sold	35,596	37,422	108,454	120,108
Gross margin	$ 14,733	$ 18,694	$ 46,584	$ 60,001
% of Net sales	29.30%	33.30%	30.00%	33.30%
Selling, general and administrative expenses	$ 13,819	$ 15,574	$ 44,288	$ 52,112
Operating income	914	3,120	2,296	7,889
Other income	285	388	377	1,683
Income before income taxes	1,199	3,508	2,673	9,572
Income tax expense	602	1,071	1,796	3,765
Net income	$ 597	$ 2,437	$ 877	$ 5,807
Basic income per share (in dollars per share)	$ 0.09	$ 0.35	$ 0.13	$ 0.83
Diluted income per share (in dollars per share)	$ 0.08	$ 0.35	$ 0.12	$ 0.83
Weighted average outstanding shares used in per share calculations:
Basic (in shares)	7,013	6,992	7,016	6,977
Diluted (in shares)	7,031	7,045	7,045	7,024
Dividends per share declared (in dollars per share)	$ 0.10	$ 0.10	$ 0.30	$ 0.30

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Net income	$ 597	$ 2,437	$ 877	$ 5,807
Other comprehensive income (loss):
Translation gain (loss)	$ 2,906	$ (8,952)	$ (6,772)	(20,720)
Pension and postretirement plans, net of tax of $0,$0,$0 and $22 respectively				(22)
Other comprehensive income (loss)	$ 2,906	$ (8,952)	$ (6,772)	(20,742)
Total comprehensive income (loss)	$ 3,503	$ (6,515)	$ (5,895)	$ (14,935)

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parentheticals) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Pension and postretirement plans, tax	$ 0	$ 0	$ 0	$ 22,000

XML

Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member] Common Class A [Member]	Common Stock [Member] Common Class B [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Accumulated balance consists of:
						$ (45,616)
Balance at Jun. 30, 2015	$ 6,224	$ 789	$ 54,869	$ 98,164	$ (45,616)	114,430
Total comprehensive income (loss)				877	$ (6,772)	(5,895)
Dividends ($0.30 per share)				$ (2,108)		(2,108)
Repurchase of shares	$ (37)	$ (3)	$ (406)			(446)
Issuance of stock	$ 28	$ 9	397			434
Stock-based compensation			$ 160			$ 160
Conversion	$ 22	$ (22)
Balance at Mar. 31, 2016	$ 6,237	$ 773	$ 55,020	$ 96,933	$ (52,388)	$ 106,575
Accumulated balance consists of:
Translation loss					(44,072)
Pension and postretirement plans, net of taxes					(8,316)
					$ (52,388)	$ (52,388)

XML

Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals)	9 Months Ended
	Mar. 31, 2016 $ / shares
Retained Earnings [Member]
Dividends per share declared (in dollars per share)	$ 0.20
Dividends per share declared (in dollars per share)	$ 0.30

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities:
Net income	$ 877	$ 5,807
Non-cash operating activities:
Depreciation	4,385	5,817
Amortization	1,036	951
Stock-based compensation	315	287
Net long-term tax obligations	627	2,893
Deferred taxes	57	821
Unrealized transaction gain	66	(2)
Income on equity method investment	(89)	(170)
Working capital changes:
Accounts receivable	4,744	5,669
Inventories	1,425	(10,607)
Other current assets	190	(1,399)
Other current liabilities	441	499
Postretirement benefit and pension obligations	(2,481)	(4,184)
Other	60	480
Net cash provided by operating activities	11,653	6,862
Cash flows from investing activities:
Additions to property, plant and equipment	(4,048)	(4,048)
Software development	$ (557)	(440)
Purchase of investments		(45)
Proceeds from sale of investments	$ 7,621	201
Net cash provided by (used in) investing activities	$ 3,016	(4,332)
Cash flows from financing activities:
Proceeds from short-term borrowings		$ 922
Proceeds from long-term borrowings	$ 750
Long-term debt repayments	(1,822)	$ (1,159)
Proceeds from common stock issued	280	325
Shares repurchased	(446)	(64)
Dividends paid	(2,108)	(2,095)
Net cash used in financing activities	(3,346)	(2,071)
Effect of exchange rate changes on cash	(200)	(3,046)
Net increase (decrease) in cash	11,123	(2,587)
Cash, beginning of period	11,108	16,233
Cash, end of period	22,231	13,646
Supplemental cash flow information:
Interest paid	487	547
Income taxes paid, net	$ 732	$ 1,238

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

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

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, 2015, which has been derived from audited financial statements, and the unaudited interim financial statements as of and for the three and nine months ended March 31, 2016 and March 31, 2015, 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, 2015.  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, 2015 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

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Note 2 - Recent Accounting Pronouncements

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

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

Note 2: Recent A ccounting Pronouncements

In May 2014, the FASB issued a new standard related to the “Revenue from Contracts with Customers” which amends the existing accounting standards for revenue recognition. The standard requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This standard is applicable for fiscal years beginning after December 15, 2017 and for interim periods within those years. Earlier application will be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.. The Company expects to adopt this standard on July 1, 2018. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

Accounting Standards Update (ASU) 2015-11, "Inventory - Simplifying the Measurement of Inventory" requires companies to measure most inventory at the lower of cost or net realizable value, thereby simplifying the current guidance under which a company must measure inventory at the lower of cost or market. This Update eliminates the need to determine replacement cost and evaluate whether said cost is within a quantitative range. This Update also further aligns U.S. GAAP and international accounting standards. For public companies, the guidance in ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods thereafter. Early adoption is permitted. Management does not expect ASU 2015-11 to have a material impact on the Company's financial statements and disclosures.

Accounting Standards Update 2015-17, “Balance Sheet Classification of Deferred Taxes” requires that companies classify all deferred taxes as non-current assets or liabilities. This change is applicable for fiscal years beginning after December 15, 2016 and for interim periods within those years. There is no impact to earnings as a result of this change; however, current assets will be reduced by the amount of the current deferred tax asset as that amount will be included with the long term deferred tax asset upon adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02,

Leases (Topic 842)

. The amendments in this update will increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effect, if any, on its financial statements.

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Note 3 - Stock-based Compensation

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

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 on 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, 2016, there were 20,000 stock options and 73,367 restricted stock units outstanding. In addition, there were 391,600 shares available for grant under the 2012 Stock Plan as of March 31, 2016.

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

No stock options were granted during the nine months ended March 31, 2016 and 2015.

The weighted average contractual term for stock options outstanding as of

March 31, 2016 was 6.75 years.  The aggregate intrinsic value of stock options outstanding as of

March 31, 2016 was $0.1 million. Stock options exercisable as of

March 31, 2016 were 20,000.

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

There were 40,200 RSU awards with a fair value of $15.11 per RSU granted during the nine months ended March 31, 2016. There were 9,067 RSUs settled during the nine months ended March 31, 2016.  The aggregate intrinsic value of RSU awards outstanding as of March 31, 2016 was $0.8 million.  As of March 31, 2016 all vested awards had been issued and settled.

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

Compensation expense related to all stock based plans for the nine month periods ended March 31, 2016 and 2015 was $0.3 million and $0.2 million, respectively.  As of March 31, 2016, there was $1.1 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost $0.7 million relates to performance based RSU grants that are not expected to be awarded. The remaining $0.4 million is expected to be recognized over a weighted average period of 2.0 years.

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Note 4 - Inventories

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note 4:   Inventories

Inventories consist of the following (in thousands):

	3/31/2016			6/30/2015
	(Unaudited)
Raw material and supplies	$	30,632		$	32,784
Goods in process and finished parts		16,493			18,569
Finished goods		38,885			39,689
		86,010			91,042
LIFO Reserve		(28,347	)		(28,039	)
Inventories	$	57,663		$	63,003

LIFO inventories were $10.7 million and $14.6 million at March 31, 2016 and June 30, 2015, respectively, such amounts being approximately $28.3 million and $28.0 million, respectively, less than if determined on a FIFO basis.  The use of LIFO, as compared to FIFO, resulted in a $0.3 million increase in cost of sales for the nine months ended March 31, 2016 compared to a $0.2 million increase for the nine months ended March 31, 2015.

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Note 5 - Goodwill and Intangible Assets

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

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, 2015 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 exceeds 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 and 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, 2015.

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

	3/31/2016			6/30/2015
	(Unaudited)
Non-compete agreement	$	600		$	600
Trademarks and trade names		1,480			1,480
Completed technology		2,358			2,358
Customer relationships		4,950			4,950
Software development		2,213			1,655
Other intangible assets		325			325
Total		11,926			11,368
Accumulated amortization		(5,279	)		(4,243	)
Total net balance	$	6,647		$	7,125

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 2016 and for each of the next five years and thereafter, is as follows (in thousands):

2016 (Remainder of year)	$	386
2017		1,543
2018		1,475
2019		1,397
2020		873
2021		430
Thereafter		543

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Note 6 - Pension and Post-retirement Benefits

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

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
	3/31/2016 (Unaudited)			3/31/2015 (Unaudited)			3/31/2016 (Unaudited)			3/31/2015 (Unaudited)
Service cost	$	714		$	694		$	2,143		$	2,081
Interest cost		1,732			1,673			5,259			5,085
Expected return on plan assets		(1,560	)		(1,724	)		(4,739	)		(5,236	)
Amortization of net loss		13			7			39			23
	$	899		$	650		$	2,702		$	1,953

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

	Three Months Ended						Nine Months Ended
	3/31/2016 (Unaudited)			3/31/2015 (Unaudited)			3/31/2016 (Unaudited)			3/31/2015 (Unaudited)
Service cost	$	26		$	29		$	79		$	85
Interest cost		71			61			215			183
Amortization of prior service credit		(195	)		(200	)		(586	)		(599	)
Amortization of net loss		4			-			11			-
	$	(94	)	$	(110	)	$	(281	)	$	(331	)

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 loss.

Effective March 31, 2015, the Company terminated the eligibility of employees ages 55 - 64 years old to enter into the Post-retirement Medical Plan.

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Note 7 - Debt

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 7:   Debt

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

	3/31/2016 (Unaudited)		6/30/2015
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,525	$	1,474
Capitalized leases		6		78
		1,531		1,552
Long-term debt
Loan and Security Agreement		17,500		18,552
	$	19,031	$	20,104

The Company amended its Loan and Security Agreement, which includes a Line of Credit and a Term Loan, in January 2015 with changes that took effect on April 25, 2015.  Borrowings under the Line of Credit may not exceed $23.0 million.  The agreement expires on April 30, 2018 and has an interest rate of LIBOR plus 1.5%.  As of March 31, 2016, $9.4 million was outstanding on the Line of Credit.

The financial covenants of the amended Loan and Security Agreement are: 1) funded debt to EBITDA, excluding non-cash and retirement benefit expenses (“maximum leverage”), not to exceed 2.25 to 1.0 2) annual capital expenditures not to exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1.0 and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time.  The Company was in compliance with all debt covenants as of March 31, 2016.

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 $9.6 million at March 31, 2016, is subject to the same financial covenants contained in the Loan and Security Agreement.

The effective interest rate on the Line of Credit under the Loan and Security Agreement for the nine months ended March 31, 2016 and 2015 was 2.2% and 2.0%, respectively.

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Note 8 - Income Taxes

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 8:   Income Taxes

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

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

The effective tax rate for the third quarter of fiscal 2016 was 50.2% and the effective tax rate for the third quarter of fiscal 2015 was 30.5%. For the first nine months of fiscal 2016, the effective tax rate was 67.2% and for the first nine months of fiscal 2015, it was 39.3%. The tax rate is higher than the U.S. statutory rate for the year to date results in part due to losses in some foreign jurisdictions for which no tax benefit is recognized. In the third quarter of fiscal 2016, there was a benefit of $140,000 to reflect the reversal of the valuation allowance to recognize the benefit of foreign subsidiary tax loss carryforwards. In the first nine months of fiscal 2016, there were additional discrete reductions of tax expense of $216,000 for tax return to provision adjustments. In addition, there were discrete increases of $70,000 for interest on audit exposures. In the first nine months of fiscal 2015, there were discrete reductions to tax expense of $66,000 related to use of tax loss carryforwards, $42,000 for reduction in audit exposure due to the expiration of the statute of limitations and $332,000 related to return to provision adjustments; the last item was fully booked in the third quarter which is the primary reason for the tax rate in this quarter being lower than the U.S. statutory rate.

U.S. Federal tax returns through fiscal 2012 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from years before fiscal 2013 are still subject to adjustment. As of March 31, 2016, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the years 2010 – 2015. The Company has identified no new uncertain tax positions during the nine month period ended March 31, 2016 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 the Company’s financial position.

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 utilize the U.S. federal NOL carryforwards. In certain other countries where Company operations are in a loss position, the deferred tax assets for tax loss carryforwards and other temporary differences are fully offset by a valuation allowance.

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Note 9 - Contingencies

9 Months Ended

Mar. 31, 2016

Notes to Financial Statements

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.

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Significant Accounting Policies (Policies)

9 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

The balance sheet as of June 30, 2015, which has been derived from audited financial statements, and the unaudited interim financial statements as of and for the three and nine months ended March 31, 2016 and March 31, 2015, 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, 2015.  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, 2015 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

New Accounting Pronouncements, Policy [Policy Text Block]

In May 2014, the FASB issued a new standard related to the “Revenue from Contracts with Customers” which amends the existing accounting standards for revenue recognition. The standard requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This standard is applicable for fiscal years beginning after December 15, 2017 and for interim periods within those years. Earlier application will be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.. The Company expects to adopt this standard on July 1, 2018. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

Accounting Standards Update (ASU) 2015-11, "Inventory - Simplifying the Measurement of Inventory" requires companies to measure most inventory at the lower of cost or net realizable value, thereby simplifying the current guidance under which a company must measure inventory at the lower of cost or market. This Update eliminates the need to determine replacement cost and evaluate whether said cost is within a quantitative range. This Update also further aligns U.S. GAAP and international accounting standards. For public companies, the guidance in ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods thereafter. Early adoption is permitted. Management does not expect ASU 2015-11 to have a material impact on the Company's financial statements and disclosures.

Accounting Standards Update 2015-17, “Balance Sheet Classification of Deferred Taxes” requires that companies classify all deferred taxes as non-current assets or liabilities. This change is applicable for fiscal years beginning after December 15, 2016 and for interim periods within those years. There is no impact to earnings as a result of this change; however, current assets will be reduced by the amount of the current deferred tax asset as that amount will be included with the long term deferred tax asset upon adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02,

Leases (Topic 842)

. The amendments in this update will increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effect, if any, on its financial statements.

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Note 4 - Inventories (Tables)

9 Months Ended

Mar. 31, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	3/31/2016			6/30/2015
	(Unaudited)
Raw material and supplies	$	30,632		$	32,784
Goods in process and finished parts		16,493			18,569
Finished goods		38,885			39,689
		86,010			91,042
LIFO Reserve		(28,347	)		(28,039	)
Inventories	$	57,663		$	63,003

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Note 5 - Goodwill and Intangible Assets (Tables)

9 Months Ended

Mar. 31, 2016

Notes Tables

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

	3/31/2016			6/30/2015
	(Unaudited)
Non-compete agreement	$	600		$	600
Trademarks and trade names		1,480			1,480
Completed technology		2,358			2,358
Customer relationships		4,950			4,950
Software development		2,213			1,655
Other intangible assets		325			325
Total		11,926			11,368
Accumulated amortization		(5,279	)		(4,243	)
Total net balance	$	6,647		$	7,125

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

2016 (Remainder of year)	$	386
2017		1,543
2018		1,475
2019		1,397
2020		873
2021		430
Thereafter		543

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

9 Months Ended

Mar. 31, 2016

Post Retirement Medical and Life Insurance Plan [Member]

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended						Nine Months Ended
	3/31/2016 (Unaudited)			3/31/2015 (Unaudited)			3/31/2016 (Unaudited)			3/31/2015 (Unaudited)
Service cost	$	26		$	29		$	79		$	85
Interest cost		71			61			215			183
Amortization of prior service credit		(195	)		(200	)		(586	)		(599	)
Amortization of net loss		4			-			11			-
	$	(94	)	$	(110	)	$	(281	)	$	(331	)

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended						Nine Months Ended
	3/31/2016 (Unaudited)			3/31/2015 (Unaudited)			3/31/2016 (Unaudited)			3/31/2015 (Unaudited)
Service cost	$	714		$	694		$	2,143		$	2,081
Interest cost		1,732			1,673			5,259			5,085
Expected return on plan assets		(1,560	)		(1,724	)		(4,739	)		(5,236	)
Amortization of net loss		13			7			39			23
	$	899		$	650		$	2,702		$	1,953

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Note 7 - Debt (Tables)

9 Months Ended

Mar. 31, 2016

Notes Tables

Schedule of Debt [Table Text Block]

	3/31/2016 (Unaudited)		6/30/2015
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,525	$	1,474
Capitalized leases		6		78
		1,531		1,552
Long-term debt
Loan and Security Agreement		17,500		18,552
	$	19,031	$	20,104

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Note 3 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Millions	9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Minimum [Member] | Employee Stock Option [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Minimum [Member] | Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Maximum [Member] | Employee Stock Option [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Maximum [Member] | Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Employee Stock Option [Member] | The 2012 Stock Incentive Plan [Member]
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	20,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	6 years 273 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 0.1
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	20,000
Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	73,367
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	40,200
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 15.11
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	9,067
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	$ 0.8
The 2012 Stock Incentive Plan [Member] | Total Unrecognized Compensation Including Portion Relating to Grants Not Expected to Be Awarded [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	1.1
The 2012 Stock Incentive Plan [Member] | Portion Relating to RSU Grants Not Expected to be Awarded [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 0.7
The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	391,600
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 0.4
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	2 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	500,000
Allocated Share-based Compensation Expense	$ 0.3	$ 0.2

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Note 4 - Inventories (Details Textual) - USD ($) $ in Millions	9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Jun. 30, 2015
Cost of Sales [Member]
Inventory, LIFO Reserve, Effect on Income, Net	$ 0.3	$ 0.2
LIFO Inventory Amount	10.7		$ 14.6
Inventory Difference Using FIFO Basis	$ 28.3		$ 28.0

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Note 4 - Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Raw material and supplies	$ 30,632	$ 32,784
Goods in process and finished parts	16,493	18,569
Finished goods	38,885	39,689
	86,010	91,042
LIFO Reserve	(28,347)	(28,039)
Inventories	$ 57,663	$ 63,003

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Note 5 - Goodwill and Intangible Assets (Details Textual)	9 Months Ended
	Mar. 31, 2016
Trademarks and Trade Names [Member]
Finite-Lived Intangible Asset, Useful Life	14 years
Noncompete Agreements [Member]
Finite-Lived Intangible Asset, Useful Life	8 years
Completed Technology [Member]
Finite-Lived Intangible Asset, Useful Life	10 years
Customer Relationships [Member]
Finite-Lived Intangible Asset, Useful Life	8 years
Software Developement [Member]
Finite-Lived Intangible Asset, Useful Life	5 years

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Note 5 - Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Noncompete Agreements [Member]
Intangible assets, gross	$ 600	$ 600
Trademarks and Trade Names [Member]
Intangible assets, gross	1,480	1,480
Completed Technology [Member]
Intangible assets, gross	2,358	2,358
Customer Relationships [Member]
Intangible assets, gross	4,950	4,950
Software Developement [Member]
Intangible assets, gross	2,213	1,655
Other Intangible Assets [Member]
Intangible assets, gross	325	325
Intangible assets, gross	11,926	11,368
Accumulated amortization	(5,279)	(4,243)
Total net balance	$ 6,647	$ 7,125

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Note 5 - Estimated Aggregate Amortization Expense (Details) $ in Thousands	Mar. 31, 2016 USD ($)
2016 (Remainder of year)	$ 386
2017	1,543
2018	1,475
2019	1,397
2020	873
2021	430
Thereafter	$ 543

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Note 6 - Net Periodic Costs (Details) - Pension Plan [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Service cost	$ 714	$ 694	$ 2,143	$ 2,081
Interest cost	1,732	1,673	5,259	5,085
Expected return on plan assets	(1,560)	(1,724)	(4,739)	(5,236)
Amortization of net loss	13	7	39	23
	$ 899	$ 650	$ 2,702	$ 1,953

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Note 6 - Net Periodic Benefit Costs for Postretirement Medical Plan (Details) - Post Retirement Medical and Life Insurance Plan [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Service cost	$ 26	$ 29	$ 79	$ 85
Interest cost	71	61	215	183
Amortization of prior service credit	(195)	$ (200)	(586)	$ (599)
Amortization of net loss	4		11
	$ (94)	$ (110)	$ (281)	$ (331)

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Note 7 - Debt (Details Textual)		9 Months Ended
	Nov. 22, 2011 USD ($) Rate	Mar. 31, 2016 USD ($)	Mar. 31, 2015
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		1.50%
Maximum [Member] | Amended Agreement [Member]
Current Funded Debt to EBITDA Ratio		2.25
Maximum [Member]
Annual Capital Expenditures		$ 15,000,000
Minimum [Member]
Debt Service Coverage Rate		1.25
Term Loan [Member]
Long-term Line of Credit		$ 9.60
Debt Instrument, Face Amount	$ 15,500,000
Debt Instrument, Term	10 years
Debt Instrument, Interest Rate, Stated Percentage | Rate	4.50%
Line of Credit Facility, Periodic Payment	$ 160,640
Line of Credit Facility, Maximum Borrowing Capacity		23,000,000
Long-term Line of Credit		9,400,000
Minimum Consolidated Cash and Liquid Investments Pursuant to New Loan and Security Agreement		$ 10,000,000
Line of Credit Facility, Interest Rate During Period		2.20%	2.00%

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Note 7 - Debt Schedule (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Jun. 30, 2015
Notes payable and current maturities of long term debt
Loan and Security Agreement	$ 1,525	$ 1,474
Capitalized leases	6	78
	1,531	1,552
Long-term debt
Loan and Security Agreement	17,500	18,552
	$ 19,031	$ 20,104

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Note 8 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Effective Income Tax Rate Reconciliation, Percent	50.20%	30.50%	67.20%	39.30%
Other Tax Expense (Benefit)	$ (140,000)
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount, Return to Provision Adjustment			$ (216,000)	$ (332,000)
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount, Expiration of Statute of Limitations			70,000	(42,000)
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount, Use of Tax Loss Carryforwards				$ (66,000)
Deferred Tax Assets, Valuation Allowance	$ 0		$ 0