10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	December 31, 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	January 31, 2017
Class A Common Shares	6,293,967
Class B Common Shares	765,837

1

 THE L. S. STARRETT COMPANY

CONTENTS

				Page No.
Part I.		Financial Information:
		Item 1.	Financial Statements
			Consolidated Balance Sheets – December 31, 2016 (unaudited) and June 30, 2016	3
			Consolidated Statements of Operations – three and six months ended December 31, 2016 and December 31, 2015 (unaudited)	4
			Consolidated Statements of Comprehensive Income (Loss) – three and six months ended December 31, 2016 and December 31, 2015 (unaudited)	5
			Consolidated Statements of Stockholders' Equity – six months ended December 31, 2016 (unaudited)	6
			Consolidated Statements of Cash Flows - six months ended December 31, 2016 and December 31, 2015 (unaudited)	7
			Notes to Unaudited Consolidated Financial Statements	8-14
		Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14-16
		Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
		Item 4.	Controls and Procedures	16
Part II.	Other Information:
	Item 1A.		Risk Factors	16
	Item 6.		Exhibits	17
SIGNATURES				18

2

PART I.                      FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets

(in thousands except share data)

	December 31, 2016 (unaudited)			June 30, 2016
ASSETS
Current assets:
Cash	$	16,727		$	19,794
Accounts receivable (less allowance for doubtful accounts of $752 and $887, respectively)		31,388			34,367
Inventories		58,204			56,321
Current deferred income tax assets		-			4,518
Prepaid expenses and other current assets		7,316			5,911
Total current assets		113,635			120,911
Property, plant and equipment, net		39,870			41,010
Income taxes receivable		2,517			2,655
Deferred income tax assets, net of current portion		25,069			25,284
Intangible assets, net		6,126			6,490
Goodwill		3,034			3,034
Other assets		2,258			2,214
Total assets	$	192,509		$	201,598
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	1,578		$	1,543
Accounts payable		8,056			8,981
Accrued expenses		5,758			6,372
Accrued compensation		3,924			4,922
Total current liabilities		19,316			21,818
Long-term debt, net of current portion		16,311			17,109
Other income tax obligations		4,609			3,813
Deferred income tax liabilities		-			187
Postretirement benefit and pension obligations		55,308			67,158
Total liabilities		95,544			110,085
Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 6,286,978 outstanding at December 31, 2016 and 6,249,563 outstanding at June 30, 2016)		6,287			6,250
Class B Common stock $1 par (10,000,000 shares authorized; 766,623 outstanding at December 31, 2016 and 772,742 outstanding at June 30, 2016)		767			773
Additional paid-in capital		55,567			55,227
Retained earnings		81,643			81,228
Accumulated other comprehensive loss		(47,299	)		(51,965	)
Total stockholders' equity		96,965			91,513
Total liabilities and stockholders’ equity	$	192,509		$	201,598

See Notes to Unaudited Consolidated Financial Statements

3

THE L. S. STARRETT COMPANY

Consolidated Statements of Operations

(in thousands except per share data) (unaudited)

	3 Months Ended						6 Months Ended
	12/31/2016			12/31/2015			12/31/2016			12/31/2015
Net sales	$	53,187		$	53,671		$	102,100		$	104,709
Cost of goods sold		36,365			37,672			71,364			72,858
Gross margin		16,822			15,999			30,736			31,851
% of Net sales		31.6	%		29.8	%		30.1	%		30.4	%
Selling, general and administrative expenses		14,942			14,796			30,363			30,469
Restructuring charges		51			-			394			-
Operating income (loss)		1,829			1,203			(21	)		1,382
Other income (expense)		(312	)		(211	)		(75	)		92
Gain on sale of building		-			-			3,089			-
Income before income taxes		1,517			992			2,993			1,474
Income tax expense		454			534			1,171			1,194
Net income	$	1,063		$	458		$	1,822		$	280
Basic and diluted income per share	$	0.15		$	0.07		$	0.26		$	0.04
Weighted average outstanding shares used in per share calculations:
Basic		7,050			7,022			7,039			7,018
Diluted		7,068			7,043			7,068			7,050
Dividends per share	$	0.10		$	0.10		$	0.20		$	0.20

See Notes to Unaudited Consolidated Financial Statements

4

THE L. S. STARRETT COMPANY

Consolidated Statements of Comprehensive Income (Loss)

 (in thousands) (unaudited)

	3 Months Ended					6 Months Ended
	12/31/2016			12/31/2015		12/31/2016			12/31/2015
Net income	$	1,063		$	458	$	1,822		$	280
Other comprehensive income (loss):
Translation gain (loss)		(988	)		102		(1,756	)		(9,678	)
Pension and postretirement plans, net of tax of $3,958,$0,$3,958 and $0 respectively		6,469			-		6,422			-
Other comprehensive income (loss)		5,481			102		4,666			(9,678	)
Total comprehensive income (loss)	$	6,544		$	560	$	6,488		$	(9,398	)

See Notes to Unaudited Consolidated Financial Statements

5

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

For the Six Months Ended December 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, 2016	$	6,250	$	773		$	55,227		$	81,228		$	(51,965	)	$	91,513
Total comprehensive income		-		-			-			1,822			4,666			6,488
Dividends ($0.20 per share)		-		-			-			(1,407	)		-			(1,407	)
Repurchase of shares		-		(3	)		(30	)		-			-			(33	)
Issuance of stock		11		7			163			-			-			181
Stock-based compensation		16		-			207			-			-			223
Conversion		10		(10	)		-			-			-			-
Balance December 31, 2016	$	6,287	$	767		$	55,567		$	81,643		$	(47,299	)	$	96,965
Accumulated balance consists of:
Translation loss												$	(43,642	)
Pension and postretirement plans, net of taxes													(3,657	)
												$	(47,299	)

See Notes to Unaudited Consolidated Financial Statements

6

THE L. S. STARRETT COMPANY

Consolidated Statements of Cash Flows

(in thousands of dollars) (unaudited)

	6 Months Ended
	12/31/2016			12/31/2015
Cash flows from operating activities:
Net income	$	1,822		$	280
Non-cash operating activities:
Gain on sale of building		(3,089	)		-
Depreciation		2,732			3,052
Amortization		732			667
Stock-based compensation		223			227
Net long-term tax obligations		842			320
Deferred taxes		413			(1	)
Postretirement benefit and pension obligations		1,743			1,561
Income from equity method investment		(43	)		(73	)
Working capital changes:
Accounts receivable		1,849			4,666
Inventories		(3,389	)		(661	)
Other current assets		(1,563	)		(235	)
Other current liabilities		(1,026	)		(1,307	)
Prepaid pension expense		(2,418	)		(2,238	)
Other		188			(79	)
Net cash provided by (used in) operating activities		(984	)		6,179
Cash flows from investing activities:
Additions to property, plant and equipment		(2,412	)		(3,611	)
Software development		(368	)		(325	)
Proceeds from sale of investments		-			7,621
Proceeds from sale of building		3,321			-
Net cash provided by investing activities		541			3,685
Cash flows from financing activities:
Proceeds from long-term borrowings		-			750
Long-term debt repayments		(762	)		(1,448	)
Proceeds from common stock issued		181			217
Shares repurchased		(33	)		(297	)
Dividends paid		(1,407	)		(1,407	)
Net cash used in financing activities		(2,021	)		(2,185	)
Effect of exchange rate changes on cash		(603	)		(407	)
Net increase (decrease) in cash		(3,067	)		7,272
Cash, beginning of period		19,794			11,108
Cash, end of period	$	16,727		$	18,380
Supplemental cash flow information:
Interest paid	$	302		$	349
Income taxes paid, net		113			557

See Notes to Unaudited Consolidated Financial Statements

7

THE L. S. STARRETT COMPANY

Notes to Unaudited Consolidated Financial Statements

December 31, 2016

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

The unaudited interim financial statements as of and for the three and six months ended December 31, 2016 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, 2016.  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, 2016 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 for its fiscal year beginning July 1, 2018. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. 

In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." Previous to the issuance of this ASU, ASC 330 required that an entity measure inventory at the lower of cost or market. ASU 2015-11 specifies that “market” is defined as “net realizable value,” or the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Application is to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 will not have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”.  The ASU requires that organizations that lease assets recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases.  The ASU will affect the presentation of lease related expenses on the income statement and statement of cash flows and will increase the required disclosures related to leases.  This ASU is effective for annual periods beginning after December 15, 2018, and interim periods thereafter, with early adoption permitted.  The Company is currently evaluating the impact of ASU No. 2016-02 on its consolidated financial statements.  It is expected that a key change upon adoption will be the balance sheet recognition of leased assets and liabilities and that any changes in income statement recognition will not be material.

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 December 31, 2016, there were 20,000 stock options and 105,634 restricted stock units outstanding. In addition, there were 346,600 shares available for grant under the 2012 Stock Plan as of December 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 six months ended December 31, 2016 and 2015.

The weighted average contractual term for stock options outstanding as of December 31, 2016 was 6 years.  The aggregate intrinsic value of stock options outstanding as of December 31, 2016 was negligible. Stock options exercisable as of December 31, 2016 were 20,000. In recognizing stock compensation expense for the 2012 Stock Incentive Plan management has estimated that there will be no forfeitures of options.

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

There were 45,000 RSU awards with a fair value of $10.86 per RSU granted during the six months ended December 31, 2016. There were 12,733 RSUs settled during the six months ended December 31, 2016.  The aggregate intrinsic value of RSU awards outstanding as of December 31, 2016 was $1.0 million. As of December 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 six month periods ended December 31, 2016 and 2015 was $0.2 million and $0.2 million, respectively.  As of December 31, 2016, there was $1.4 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost $1.1 million relates to performance based RSU grants that are not expected to be awarded. The remaining $0.3 million is expected to be recognized over a weighted average period of 1.6 years.

Note 4:   Inventories

Inventories consist of the following (in thousands):

	12/31/2016			6/30/2016
Raw material and supplies	$	28,568		$	29,209
Goods in process and finished parts		15,394			16,459
Finished goods		42,584			39,449
		86,546			85,117
LIFO Reserve		(28,342	)		(28,796	)
Inventories	$	58,204		$	56,321

LIFO inventories were $9.7 million and $10.5 million at December 31, 2016 and June 30, 2016, respectively, such amounts being approximately $28.3 million and $28.8 million, respectively, less than if determined on a FIFO basis.  The use of LIFO, as compared to FIFO, resulted in a $0.5 million decrease in cost of sales for the six months ended December 31, 2016 compared to a $0.4 million increase for the six months ended December 31, 2015.

9

Note 5:   Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 gave rise to goodwill. The Company performed a qualitative analysis in accordance with ASU 2011-08 for its October 1, 2016 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, 2016.

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

	12/31/2016			6/30/2016
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		2,770			2,402
Other intangible assets		325			325
Total		12,483			12,115
Accumulated amortization		(6,357	)		(5,625	)
Total net balance	$	6,126		$	6,490

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 2017 and for each of the next five years and thereafter, is as follows (in thousands):

2017 (Remainder of year)	$	862
2018		1,587
2019		1,491
2020		984
2021		581
2022		262
Thereafter		359

Note 6:  Pension and Post-retirement Benefits

The Company has two defined benefit pension plans, one for U.S. employees and another for U.K. employees.   The U.K. plan was closed to new entrants in fiscal 2009.  The Company has a postretirement medical and life insurance benefit plan for U.S. employees. The Company also has defined contribution plans.  

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

10

The amendment of the defined benefit pension plan triggered a pension curtailment which required a remeasurement of the Plan's obligation as of December 31, 2016. The remeasurement resulted in a decrease in the benefit obligation of approximately $6.9 million primarily due to an increase in the discount rate from 3.77% to 4.31%, with an additional $4.2 million decrease resulting from the impact of the curtailment. These reductions in the Plan’s benefit obligation were recorded as other comprehensive income, net of taxes.

Reconciliation of Funded Status of U.S. Defined Benefit Pension Plan as of December 31, 2016
Benefit obligation as of June 30, 2016	$	130,863
Service cost		1,405
Interest cost		2,457
Benefits paid		(2,374	)
Actuarial (gain)/loss		(8,443	)
Benefit obligation prior to curtailment		123,908
Effect of curtailment		(4,170	)
Benefit obligation as of December 31, 2016		119,738
Fair value of assets		80,989
Funded status as of December 31, 2016	$	(38,749	)

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

	Three Months Ended						Six Months Ended
	12/31/2016 (Unaudited)			12/31/2015			12/31/2016 (Unaudited)			12/31/2015
Service cost	$	614		$	715		$	1,405		$	1,429
Interest cost		1,533			1,759			3,085			3,527
Expected return on plan assets		(1,288	)		(1,585	)		(2,594	)		(3,179	)
Amortization of net loss		68			12			96			26
	$	927		$	901		$	1,992		$	1,803

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

	Three Months Ended						Six Months Ended
	12/31/2016 (Unaudited)			12/31/2015			12/31/2016 (Unaudited)			12/31/2015
Service cost	$	24		$	27		$	47		$	53
Interest cost		68			72			136			144
Amortization of prior service credit		(169	)		(196	)		(337	)		(391	)
Amortization of net loss		30			3			60			7
	$	(47	)	$	(94	)	$	(94	)	$	(187	)

For the six-month period ended December 31, 2016, the Company contributed $1.9 million to the U.S. and $0.5 to the UK pension plans. The Company estimates that it will contribute an additional $3.0 million for the remainder of fiscal 2017.

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

Note 7:   Debt

Debt is comprised of the following (in thousands):

	12/31/2016		6/30/2016
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,578	$	1,543
Long-term debt
Loan and Security Agreement		16,311		17,109
	$	17,889	$	18,652

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 Line of Credit agreement expires on April 30, 2018 and has an interest rate of LIBOR plus 1.5%.  The effective interest rate on the Line of Credit under the Loan and Security Agreement for the six months ended December 31, 2016 and 2015 was 2.4% and 2.1%, respectively. Based upon its three year term, the Line of Credit has been classified as long term. As of December 31, 2016, $9.4 million was outstanding on the Line of Credit.

11

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 then existing Loan and Security Agreement.  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 had a balance of $8.5 million at December 31, 2016.

The material 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 1.2) annual capital expenditures not to exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1 and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time.  The Company was in compliance with all debt covenants as of December 31, 2016.

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 second quarter of fiscal 2017 was 29.9% and for the second quarter of fiscal 2016, it was 53.8%. For the first half of fiscal 2017, the effective tax rate was 39.1% and for the first half of fiscal 2016, it was 81.0%. The tax rate in the second quarter of fiscal 2017 is lower than the U.S. statutory rate as a result of earnings in foreign jurisdictions with lower effective tax rates. This benefit was offset as a result of discrete adjustments primarily for the impact of a tax rate change in the U.K. applied to deferred tax assets which increased tax expense by $298,000 in the first quarter. In fiscal 2016, the tax rate is higher than the U.S. statutory rate primarily due to losses in foreign jurisdictions for which no tax benefit is recognized. In addition, in the first half of fiscal 2016, there were discrete reductions to tax expense primarily as a result of return to provision adjustments of $200,000.

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 2012 are still subject to adjustment. As of December 31, 2016, the Company has no local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2011 – 2015. During the next twelve months, there are no significant changes expected in the Company’s long term tax obligations for prior year exposures.

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 deferred tax assets related to temporary differences in items included in taxable income. 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 tax benefit provided by those differences. In the U.S., there is a valuation allowance against foreign tax credits to the extent they are limited. 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.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17 ("ASU 2015-17") regarding ASC Topic 740 "Income Taxes: Balance Sheet Classification of Deferred Taxes." The amendments in ASU 2015-17 eliminate the requirement to bifurcate Deferred Taxes between current and non-current on the balance sheet and requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The amendments for ASU-2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The Company has adopted the new guidance prospectively in the first quarter of fiscal 2017. Prior periods were not retrospectively adjusted.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting." The ASU affects the accounting for employee share-based payment transactions as it relates to accounting for income taxes, accounting for forfeitures, and statutory tax withholding requirements. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those periods with early adoption permitted. The Company has adopted the new guidance prospectively in the first quarter of fiscal 2017.

12

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.

Note 10. Segment Information

The segment information and the accounting policies of each segment are the same as those described in the notes to the consolidated financial statements entitled “Financial Information by Segment & Geographic Area” included in our Annual Report on Form 10-K for the year ended June 30, 2016. Our business is aggregated into two reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses which are included in unallocated in the table below. Other income and expense, including interest income and expense, the gain on the sale of a building and income taxes are excluded entirely from the table below. There were no significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations			Unallocated			Total
Three Months ended December 31, 2016
Sales1	$	32,151	$	21,036		$	—		$	53,187
Operating Income (Loss)	$	2,805	$	636		$	(1,612	)	$	1,829
Three Months ended December 31, 2015
Sales2	$	34,304	$	19,367		$	—		$	53,671
Operating Income (Loss)	$	2,804	$	(423	)	$	(1,178	)	$	1,203

1. Excludes $2,339 of North American segment sales to the International segment and $2,968 of International segment sales to the North American segment.

2. Excludes $2,333 of North American segment sales to the International segment and $2,416 of International segment sales to the North American segment.

	North American Operations		International Operations			Unallocated			Total
Six Months ended December 31, 2016
Sales3	$	60,554	$	41,546		$	—		$	102,100
Operating Income (Loss)	$	2,957	$	550		$	(3,528	)	$	(21	)
Six Months ended December 31, 2015
Sales4	$	66,715	$	37,994		$	—		$	104,709
Operating Income (Loss)	$	5,630	$	(1,471	)	$	(2,777	)	$	1,382

3. Excludes $4,696 of North American segment sales to the International segment and $6,049 of International segment sales to the North American segment.

4. Excludes $4,242 of North American segment sales to the International segment and $4,679 of International segment sales to the North American segment.

13

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

RESULTS OF OPERATIONS

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

Overview

The Company managed through the political and economic volatility of the quarter posting flat revenue and higher net income. The North American market suffered from the uncertainty of decisions regarding major investments as the high-end Metrology sales declined 15%, while the International saw and hand tool business improved, especially in Brazil.

Net sales decreased $0.5 million or 1% from $53.7 million in fiscal 2016 to $53.2 million in fiscal 2017 with North America declining $2.1 million and International growing $1.6 million. Operating income increased $0.6 million as a $0.8 million improvement in gross margin was only partially offset by a $0.2 million increase in selling, general and administrative expenses plus restructuring charges of $0.1 million.

Net Sales

North American sales decreased $2.1 million or 6% from $34.3 million in fiscal 2016 to $32.2 million in fiscal 2017 due to a weakening demand for capital equipment metrology products.

International sales increased $1.6 million or 8% from $19.4 million in fiscal 2016 to $21.0 million in fiscal 2017 due to organic growth in Europe and a 15% improvement of the Brazilian Real to the US dollar offsetting a weak pound sterling.

Gross Margin

Gross margin increased $0.8 million or 5% from 30% of sales in fiscal 2016 to 32% of sales in fiscal 2017.

North American gross margins decreased $0.5 million from $9.9 million or 29% of sales in fiscal 2016 to $9.4 million or 29% of sales in fiscal 2017 due to product mix related to lower sales of higher margin capital equipment products.

International gross margins increased $1.3 million from 31% of sales in fiscal 2016 to 35% of sales in fiscal 2017 based upon an improved international performance with higher margins in Europe and a favorable exchange rate relative to the Brazilian Real to the US dollar.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including restructuring charges, increased $0.2 million or 1% from $14.8 million in fiscal 2016 to $15.0 million in fiscal 2017.

North American expenses, including Corporate, decreased $0.1 million from $8.3 million in fiscal 2016 to $8.2 million in fiscal 2017 as reduced employee and commission expenses offset higher professional fees.

International expenses increased $0.3 million or 5% due principally to the weakening of the US dollar to the Brazilian Real.

Other Income (Expense)

Other expense increased $0.1 million primarily due to foreign exchange translation losses.

Income Taxes

The effective tax rate for the second quarter of fiscal 2017 and 2016 were 30% and 54%, respectively. The quarterly tax rate is lower than a normalized combined federal and state rate of approximately 40% due to profits in some foreign subsidiaries with lower effective tax rates. The tax rate includes discrete tax expense of $0.1 million in fiscal 2017 compared to a $0.1 million tax benefit in fiscal 2016.

Net Income

The Company recorded net income of $1.1 million or $0.15 per share in the second quarter of fiscal 2017 compared to net income of $0.5 million or $0.07 per share in fiscal 2016 principally due to higher Operating Income and a lower effective tax rate.

14

Six Months Ended December 31, 2016 and December 31, 2015

Overview 

Net sales declined $2.6 million or 3% from $104.7 million in fiscal 2016 to $102.1 million in fiscal 2017. Operating income decreased $1.4 million in fiscal 2017 from $1.4 million profit in fiscal 2016 compared to $0.0 million or breakeven in fiscal 2017 as lower sales and related gross margins more than offset reduced selling, general and administrative expenses.

Net Sales

North American sales decreased $6.2 million or 9% from $66.7 million in fiscal 2016 to $60.5 million in fiscal 2017 due to lower precision hand tool and high end metrology shipments.

International sales increased $3.6 million or 10% from $38.0 million in fiscal 2016 to $41.6 million in fiscal 2017 with strong organic growth in Brazil. The weakening British Pound offset the strengthening Brazilian Real resulting in no impact related to foreign exchange rates.

Gross Margin

Gross margin decreased $1.1 million or 3% but remained level at 30% of sales.

North American gross margins decreased $3.4 million or 17% in fiscal 2017 compared to fiscal 2016 due to lower sales of higher margin capital equipment products.

International gross margins increased $2.3 million with volume and margin improvement representing $1.1 and $1.2 million, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expense decreased $0.1 million or 1% from $30.5 million in fiscal 2016 to $30.4 million in fiscal 2017.

North American expenses, including Corporate, decreased $0.5 million or 3% as lower commissions and travel expenses more than offset higher professional fees.

International expenses increased $0.4 million or 3% due increased selling expenses and a strengthening Brazilian Reals versus the US dollar.

Other Income (Expense)

Other income declined $0.2 million due to foreign exchange translation losses.

Income Taxes

The effective tax rates for the first half of fiscal 2017 and 2016 were 39% and 81%, respectively. The effective tax rate is slightly lower than federal and state statutory rates of approximately 40% in fiscal 2017 due to profits in foreign jurisdictions subject to lower effective rates which was partly offset by a discrete net increase in tax expense of $0.3 million. The effective rate in fiscal 2016 is higher due to losses in some foreign subsidiaries for which no tax benefit is recognized in consolidation.

Net Income

The Company recorded net income of $1.8 million or $0.26 per share in the first half of fiscal 2017 compared to net income of $0.3 million or $0.04 per share in fiscal 2016 principally due to an after tax gain of $1.6 million on the sale of the Canadian distribution facility in the first quarter of fiscal 2017.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Six Months Ended
	12/31/2016			12/31/2015
Cash provided by (used in) operating activities	$	(984	)	$	6,179
Cash provided by investing activities		541			3,685
Cash used in financing activities		(2,021	)		(2,185	)
Effect of exchange rate changes on cash		(603	)		(407	)
Net increase (decrease) in cash	$	(3,067	)	$	7,272

Fiscal 2017 net cash for the six months ended December 31, 2016 decreased $3.1 million primarily due to Net Income of $1.8 million and proceeds of $3.3 million from the sale of the Canadian distribution facility which were offset by increased working capital of $4.1 million; prepaid payments to the pension of $2.4 million; and property plant and equipment expenditures of $2.4 million.

15

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 December 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 December 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 and the Company plans to negotiate an extension to the agreement.

The effective interest rate on the borrowings under the Loan and Security Agreement during the six months ended December 31, 2016 and 2015 was 2.4% and 2.1% 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, 2016.

ITEM 4.             CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, has evaluated the Company's disclosure controls and procedures as of December 31, 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 December 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 December 31, 2016.

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, 2016. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2016.

16

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 December 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.

17

SIGNATURES

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

		THE L. S. STARRETT COMPANY (Registrant)
Date	February 3, 2017	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	February 3, 2017	/S/R. Francis J. O’Brien
		Francis J. O’Brien - Treasurer and CFO (Principal Accounting Officer)

18

EX-31.A

EXHIBIT 31.a

CERTIFICATIONS

I, Douglas A. Starrett, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 3, 2017	/S/	Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer

EX-31.B

EXHIBIT 31.b

CERTIFICATIONS

I, Francis J. O’Brien, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 3, 2017	/S/	Francis J. O’Brien
		Francis J. O’Brien Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATIONS

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

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

The Quarterly Report on Form 10-Q for the quarter ended December 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	February 3, 2017	/S/ Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer
Date	February 3, 2017	/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	6 Months Ended
	Dec. 31, 2016	Jan. 31, 2017
Document Information [Line Items]
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	Dec. 31, 2016
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false
Common Class A [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		6,293,967
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		765,837

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Current assets:
Cash	$ 16,727	$ 19,794
Accounts receivable (less allowance for doubtful accounts of $752 and $887, respectively)	31,388	34,367
Inventories	58,204	56,321
Current deferred income tax assets		4,518
Prepaid expenses and other current assets	7,316	5,911
Total current assets	113,635	120,911
Property, plant and equipment, net	39,870	41,010
Income taxes receivable	2,517	2,655
Deferred income tax assets, net of current portion	25,069	25,284
Intangible assets, net	6,126	6,490
Goodwill	3,034	3,034
Other assets	2,258	2,214
Total assets	192,509	201,598
Current liabilities:
Notes payable and current maturities of long-term debt	1,578	1,543
Accounts payable	8,056	8,981
Accrued expenses	5,758	6,372
Accrued compensation	3,924	4,922
Total current liabilities	19,316	21,818
Long-term debt, net of current portion	16,311	17,109
Other income tax obligations	4,609	3,813
Deferred income tax liabilities		187
Postretirement benefit and pension obligations	55,308	67,158
Total liabilities	95,544	110,085
Stockholders' equity:
Additional paid-in capital	55,567	55,227
Retained earnings	81,643	81,228
Accumulated other comprehensive loss	(47,299)	(51,965)
Total stockholders' equity	96,965	91,513
Total liabilities and stockholders’ equity	192,509	201,598
Common Class A [Member]
Stockholders' equity:
Common stock	6,287	6,250
Common Class B [Member]
Stockholders' equity:
Common stock	$ 767	$ 773

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Allowance for doubtful accounts	$ 752	$ 887
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)	6,286,978	6,249,563
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)	766,623	772,742

XML

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2016		Dec. 31, 2015
Net sales	$ 53,187	[1]	$ 53,671	[2]	$ 102,100	[3]	$ 104,709	[4]
Cost of goods sold	36,365		37,672		71,364		72,858
Gross margin	$ 16,822		$ 15,999		$ 30,736		$ 31,851
% of Net sales	31.60%		29.80%		30.10%		30.40%
Selling, general and administrative expenses	$ 14,942		$ 14,796		$ 30,363		$ 30,469
Restructuring charges	51				394
Operating income (loss)	1,829		1,203		(21)		1,382
Other income (expense)	(312)		(211)		(75)		92
Gain on sale of building					3,089
Income before income taxes	1,517		992		2,993		1,474
Income tax expense	454		534		1,171		1,194
Net income	$ 1,063		$ 458		$ 1,822		$ 280
Basic and diluted income per share (in dollars per share)	$ 0.15		$ 0.07		$ 0.26		$ 0.04
Weighted average outstanding shares used in per share calculations:
Basic (in shares)	7,050		7,022		7,039		7,018
Diluted (in shares)	7,068		7,043		7,068		7,050
Dividends per share declared (in dollars per share)	$ 0.10		$ 0.10		$ 0.20		$ 0.20

[1] Excludes $2,339 of North American segment sales to the International segment and $2,968 of International segment sales to the North American segment.

[2] Excludes $2,333 of North American segment sales to the International segment and $2,416 of International segment sales to the North American segment.

[3] Excludes $4,696 of North American segment sales to the International segment and $6,049 of International segment sales to the North American segment.

[4] Excludes $4,242 of North American segment sales to the International segment and $4,679 of International segment sales to the North American segment.

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Net income	$ 1,063	$ 458	$ 1,822	$ 280
Other comprehensive income (loss):
Translation gain (loss)	(988)	102	(1,756)	(9,678)
Pension and postretirement plans, net of tax of $3,958,$0,$3,958 and $0 respectively	6,469		6,422
Other comprehensive income (loss)	5,481	102	4,666	(9,678)
Total comprehensive income (loss)	$ 6,544	$ 560	$ 6,488	$ (9,398)

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Pension and postretirement plans, tax	$ 3,958	$ 0	$ 3,958	$ 0

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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:
						$ (51,965)
Balance at Jun. 30, 2016	$ 6,250	$ 773	$ 55,227	$ 81,228	$ (51,965)	91,513
Total comprehensive income				1,822	4,666	6,488
Dividends ($0.20 per share)				(1,407)		(1,407)
Repurchase of shares		(3)	(30)			(33)
Issuance of stock	11	7	163			181
Stock-based compensation	16		207			223
Conversion	10	(10)
Balance at Dec. 31, 2016	$ 6,287	$ 767	$ 55,567	$ 81,643	(47,299)	96,965
Accumulated balance consists of:
Translation loss					(43,642)
Pension and postretirement plans, net of taxes					(3,657)
					$ (47,299)	$ (47,299)

XML

Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals)	6 Months Ended
	Dec. 31, 2016 $ / shares
Retained Earnings [Member]
Dividends per share declared (in dollars per share)	$ 0.20
Dividends per share declared (in dollars per share)	$ 0.20

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash flows from operating activities:
Net income	$ 1,822	$ 280
Non-cash operating activities:
Gain on sale of building	(3,089)
Depreciation	2,732	3,052
Amortization	732	667
Stock-based compensation	223	227
Net long-term tax obligations	842	320
Deferred taxes	413	(1)
Postretirement benefit and pension obligations	1,743	1,561
Income from equity method investment	(43)	(73)
Working capital changes:
Accounts receivable	1,849	4,666
Inventories	(3,389)	(661)
Other current assets	(1,563)	(235)
Other current liabilities	(1,026)	(1,307)
Prepaid pension expense	(2,418)	(2,238)
Other	188	(79)
Net cash provided by (used in) operating activities	(984)	6,179
Cash flows from investing activities:
Additions to property, plant and equipment	(2,412)	(3,611)
Software development	(368)	(325)
Proceeds from sale of investments		7,621
Proceeds from sale of building	3,321
Net cash provided by investing activities	541	3,685
Cash flows from financing activities:
Proceeds from long-term borrowings		750
Long-term debt repayments	(762)	(1,448)
Proceeds from common stock issued	181	217
Shares repurchased	(33)	(297)
Dividends paid	(1,407)	(1,407)
Net cash used in financing activities	(2,021)	(2,185)
Effect of exchange rate changes on cash	(603)	(407)
Net increase (decrease) in cash	(3,067)	7,272
Cash, beginning of period	19,794	11,108
Cash, end of period	16,727	18,380
Supplemental cash flow information:
Interest paid	302	349
Income taxes paid, net	$ 113	$ 557

XML

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

6 Months Ended

Dec. 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 unaudited interim financial statements as of and for the

three

and

six

months ended

December

31,

2016

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,

2016.

  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,

2016

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

6 Months Ended

Dec. 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 for its fiscal year beginning

July

 

1,

2018.

The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. 

In

July

2015,

the FASB issued ASU No.

2015

-

11,

"Inventory (Topic

330):

Simplifying the Measurement of Inventory." Previous to the issuance of this ASU, ASC

330

required that an entity measure inventory at the lower of cost or market. ASU

2015

-

11

specifies that “market” is defined as “net realizable value,” or the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after

December

15,

2016.

Application is to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No.

2015

-

11

will not have a material impact on our consolidated financial statements.

In

February

2016,

the FASB issued ASU No.

2016

-

02,

“Leases (Topic

842)”.

  The ASU requires that organizations that lease assets recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases.  The ASU will affect the presentation of lease related expenses on the income statement and statement of cash flows and will increase the required disclosures related to leases.  This ASU is effective for annual periods beginning after

December

15,

2018,

and interim periods thereafter, with early adoption permitted.  The Company is currently evaluating the impact of ASU No.

2016

-

02

on its consolidated financial statements.  It is expected that a key change upon adoption will be the balance sheet recognition of leased assets and liabilities and that any changes in income statement recognition will not be material.

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Note 3 - Stock-based Compensation

6 Months Ended

Dec. 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

December

31,

2016,

there were

20,000

stock options and

105,634

restricted stock units outstanding. In addition, there were

346,600

shares available for grant under the

2012

Stock Plan as of

December

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

six

months ended

December

31,

2016

and

2015.

The weighted average contractual term for stock options outstanding as of

December

31,

2016

was

6

years.  The aggregate intrinsic value of stock options outstanding as of

December

31,

2016

was negligible. Stock options exercisable as of

December

31,

2016

were

20,000.

In recognizing stock compensation expense for the

2012

Stock Incentive Plan management has estimated that there will be no forfeitures of options.

The Company accounts for stock options and RSU awards by recognizing the expense of the grant date fair value ratably over vesting periods generally ranging from

one

year to

three

years. The related expense is included in selling, general and administrative expenses. 

There were

45,000

RSU awards with a fair value of

$10.86

per RSU granted during the

six

months ended

December

31,

2016.

There were

12,733

RSUs settled during the

six

months ended

December

31,

2016.

  The aggregate intrinsic value of RSU awards outstanding as of

December

31,

2016

was

$1.0

million. As of

December

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

six

month periods ended

December

31,

2016

and

2015

was

$0.2

million and

$0.2

million, respectively.  As of

December

31,

2016,

there was

$1.4

million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost

$1.1

million relates to performance based RSU grants that are not expected to be awarded. The remaining

$0.3

million is expected to be recognized over a weighted average period of

1.6

years.

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Note 4 - Inventories

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note

4:

   Inventories

Inventories consist of the following (in thousands):

	12/31/2016			6/30/2016
Raw material and supplies	$	28,568		$	29,209
Goods in process and finished parts		15,394			16,459
Finished goods		42,584			39,449
		86,546			85,117
LIFO Reserve		(28,342	)		(28,796	)
Inventories	$	58,204		$	56,321

LIFO inventories were

$9.7

million and

$10.5

million at

December

31,

2016

and

June

30,

2016,

respectively, such amounts being approximately

$28.3

million and

$28.8

million, respectively, less than if determined on a FIFO basis.  The use of LIFO, as compared to FIFO, resulted in a

$0.5

million decrease in cost of sales for the

six

months ended

December

31,

2016

compared to a

$0.4

million increase for the

six

months ended

December

31,

2015.

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Note 5 - Goodwill and Intangible Assets

6 Months Ended

Dec. 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 goodwill. The Company performed a qualitative analysis in accordance with ASU

2011

-

08

for its

October

 

1,

2016

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,

2016.

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

	12/31/2016			6/30/2016
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		2,770			2,402
Other intangible assets		325			325
Total		12,483			12,115
Accumulated amortization		(6,357	)		(5,625	)
Total net balance	$	6,126		$	6,490

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

2017

and for each of the next

five

years and thereafter, is as follows (in thousands):

2017 (Remainder of year)	$	862
2018		1,587
2019		1,491
2020		984
2021		581
2022		262
Thereafter		359

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Note 6 - Pension and Post-retirement Benefits

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note

6:

  Pension and Post-retirement Benefits

The Company has

two

defined benefit pension plans,

one

for U.S. employees and another for U.K. employees.   The U.K. plan was closed to new entrants in fiscal

2009.

  The Company has a postretirement medical and life insurance benefit plan for U.S. employees. The Company also has defined contribution plans.  

On

December

21,

2016,

the Company amended the U.S. defined benefit pension plan to freeze benefit accruals effective

December

31,

2016.

Consequently, the Plan will be closed to new participants and current participants will no longer earn additional benefits after

December

31,

2016.

The amendment of the defined benefit pension plan triggered a pension curtailment which required a remeasurement of the Plan's obligation as of

December

31,

2016.

The remeasurement resulted in a decrease in the benefit obligation of approximately

$6.9

million primarily due to an increase in the discount rate from

3.77%

to

4.31%,

with an additional

$4.2

million decrease resulting from the impact of the curtailment. These reductions in the Plan’s benefit obligation were recorded as other comprehensive income, net of taxes.

Reconciliation of Funded Status of U.S. Defined Benefit Pension Plan as of December 31, 2016
Benefit obligation as of June 30, 2016	$	130,863
Service cost		1,405
Interest cost		2,457
Benefits paid		(2,374	)
Actuarial (gain)/loss		(8,443	)
Benefit obligation prior to curtailment		123,908
Effect of curtailment		(4,170	)
Benefit obligation as of December 31, 2016		119,738
Fair value of assets		80,989
Funded status as of December 31, 2016	$	(38,749	)

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

	Three Months Ended						Six Months Ended
	12/31/2016 (Unaudited)			12/31/2015			12/31/2016 (Unaudited)			12/31/2015
Service cost	$	614		$	715		$	1,405		$	1,429
Interest cost		1,533			1,759			3,085			3,527
Expected return on plan assets		(1,288	)		(1,585	)		(2,594	)		(3,179	)
Amortization of net loss		68			12			96			26
	$	927		$	901		$	1,992		$	1,803

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

	Three Months Ended						Six Months Ended
	12/31/2016 (Unaudited)			12/31/2015			12/31/2016 (Unaudited)			12/31/2015
Service cost	$	24		$	27		$	47		$	53
Interest cost		68			72			136			144
Amortization of prior service credit		(169	)		(196	)		(337	)		(391	)
Amortization of net loss		30			3			60			7
	$	(47	)	$	(94	)	$	(94	)	$	(187	)

For the

six

-month period ended

December

31,

2016,

the Company contributed

$1.9

million to the U.S. and

$0.5

to the UK pension plans. The Company estimates that it will contribute an additional

$3.0

million for the remainder of fiscal

2017.

The Company’s pension plans use fair value as the market-related value of plan assets and recognize net actuarial gains or losses in excess of

ten

percent

(10%)

of the greater of the market-related value of plan assets or of the plans’ projected benefit obligation in net periodic (benefit) cost as of the plan measurement date. Net actuarial gains or losses that are less than

10%

of the thresholds noted above are accounted for as part of the accumulated other comprehensive loss.

XML

Note 7 - Debt

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

7:

   Debt

Debt is comprised of the following (in thousands):

	12/31/2016		6/30/2016
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,578	$	1,543
Long-term debt
Loan and Security Agreement		16,311		17,109
	$	17,889	$	18,652

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 Line of Credit agreement expires on

April

30,

2018

and has an interest rate of LIBOR plus

1.5%.

  The effective interest rate on the Line of Credit under the Loan and Security Agreement for the

six

months ended

December

31,

2016

and

2015

was

2.4%

and

2.1%,

respectively. Based upon its

three

year term, the Line of Credit has been classified as long term. As of

December

31,

2016,

$9.4

million was outstanding on the Line of Credit.

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 then existing Loan and Security Agreement.  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 had a balance of

$8.5

million at

December

31,

2016.

The material 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

1.2)

annual capital expenditures not to exceed

$15.0

million,

3)

maintain a Debt Service Coverage Rate of a minimum of

1.25

to

1

and

4)

maintain consolidated cash plus liquid investments of not less than

$10.0

million at any time.  The Company was in compliance with all debt covenants as of

December

31,

2016.

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Note 8 - Income Taxes

6 Months Ended

Dec. 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

second

quarter of fiscal

2017

was

29.9%

and for the

second

quarter of fiscal

2016,

it was

53.8%.

For the

first

half of fiscal

2017,

the effective tax rate was

39.1%

and for the

first

half of fiscal

2016,

it was

81.0%.

The tax rate in the

second

quarter of fiscal

2017

is lower than the U.S. statutory rate as a result of earnings in foreign jurisdictions with lower effective tax rates. This benefit was offset as a result of discrete adjustments primarily for the impact of a tax rate change in the U.K. applied to deferred tax assets which increased tax expense by

$298,000

in the

first

quarter. In fiscal

2016,

the tax rate is higher than the U.S. statutory rate primarily due to losses in foreign jurisdictions for which no tax benefit is recognized. In addition, in the

first

half of fiscal

2016,

there were discrete reductions to tax expense primarily as a result of return to provision adjustments of

$200,000.

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

2012

are still subject to adjustment. As of

December

31,

2016,

the Company has no local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that

may

be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years

2011

–

2015.

During the next

twelve

months, there are no significant changes expected in the Company’s long term tax obligations for prior year exposures.

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 deferred tax assets related to temporary differences in items included in taxable income. 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 tax benefit provided by those differences. In the U.S., there is a valuation allowance against foreign tax credits to the extent they are limited. 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.

In

November

2015,

the FASB issued Accounting Standards Update No.

2015

-

17

("ASU

2015

-

17")

regarding ASC Topic

740

"Income Taxes: Balance Sheet Classification of Deferred Taxes." The amendments in ASU

2015

-

17

eliminate the requirement to bifurcate Deferred Taxes between current and non-current on the balance sheet and requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The amendments for ASU-

2015

-

17

can be applied retrospectively or prospectively and early adoption is permitted. The Company has adopted the new guidance prospectively in the

first

quarter of fiscal

2017.

Prior periods were not retrospectively adjusted.

In

March

2016,

the FASB issued ASU No.

2016

-

09,

"Compensation - Stock Compensation (Topic

718),

Improvements to Employee Share-Based Payment Accounting." The ASU affects the accounting for employee share-based payment transactions as it relates to accounting for income taxes, accounting for forfeitures, and statutory tax withholding requirements. This ASU is effective for annual periods beginning after

December

15,

2016,

and interim periods within those periods with early adoption permitted. The Company has adopted the new guidance prospectively in the

first

quarter of fiscal

2017.

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Note 9 - Contingencies

6 Months Ended

Dec. 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.

XML

Note 10 - Segment Information

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

10.

Segment Information

The segment information and the accounting policies of each segment are the same as those described in the notes to the consolidated financial statements entitled “Financial Information by Segment & Geographic Area” included in our Annual Report on Form

10

-K for the year ended

June

30,

2016.

Our business is aggregated into

two

reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses which are included in unallocated in the table below. Other income and expense, including interest income and expense, the gain on the sale of a building and income taxes are excluded entirely from the table below. There were no significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations			Unallocated			Total
Three Months ended December 31, 2016
Sales 1	$	32,151	$	21,036		$	—		$	53,187
Operating Income (Loss)	$	2,805	$	636		$	(1,612	)	$	1,829
Three Months ended December 31, 2015
Sales 2	$	34,304	$	19,367		$	—		$	53,671
Operating Income (Loss)	$	2,804	$	(423	)	$	(1,178	)	$	1,203

1. Excludes $2,339 of North American segment sales to the International segment and $2,968 of International segment sales to the North American segment.

2. Excludes $2,333 of North American segment sales to the International segment and $2,416 of International segment sales to the North American segment.

	North American Operations		International Operations			Unallocated			Total
Six Months ended December 31, 2016
Sales 3	$	60,554	$	41,546		$	—		$	102,100
Operating Income (Loss)	$	2,957	$	550		$	(3,528	)	$	(21	)
Six Months ended December 31, 2015
Sales 4	$	66,715	$	37,994		$	—		$	104,709
Operating Income (Loss)	$	5,630	$	(1,471	)	$	(2,777	)	$	1,382

3. Excludes $4,696 of North American segment sales to the International segment and $6,049 of International segment sales to the North American segment.

4. Excludes $4,242 of North American segment sales to the International segment and $4,679 of International segment sales to the North American segment.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

The unaudited interim financial statements as of and for the

three

and

six

months ended

December

31,

2016

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,

2016.

  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,

2016

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 for its fiscal year beginning

July

 

1,

2018.

The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. 

In

July

2015,

the FASB issued ASU No.

2015

-

11,

"Inventory (Topic

330):

Simplifying the Measurement of Inventory." Previous to the issuance of this ASU, ASC

330

required that an entity measure inventory at the lower of cost or market. ASU

2015

-

11

specifies that “market” is defined as “net realizable value,” or the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after

December

15,

2016.

Application is to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No.

2015

-

11

will not have a material impact on our consolidated financial statements.

In

February

2016,

the FASB issued ASU No.

2016

-

02,

“Leases (Topic

842)”.

  The ASU requires that organizations that lease assets recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases.  The ASU will affect the presentation of lease related expenses on the income statement and statement of cash flows and will increase the required disclosures related to leases.  This ASU is effective for annual periods beginning after

December

15,

2018,

and interim periods thereafter, with early adoption permitted.  The Company is currently evaluating the impact of ASU No.

2016

-

02

on its consolidated financial statements.  It is expected that a key change upon adoption will be the balance sheet recognition of leased assets and liabilities and that any changes in income statement recognition will not be material.

XML

Note 4 - Inventories (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	12/31/2016			6/30/2016
Raw material and supplies	$	28,568		$	29,209
Goods in process and finished parts		15,394			16,459
Finished goods		42,584			39,449
		86,546			85,117
LIFO Reserve		(28,342	)		(28,796	)
Inventories	$	58,204		$	56,321

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Note 5 - Goodwill and Intangible Assets (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

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

	12/31/2016			6/30/2016
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		2,770			2,402
Other intangible assets		325			325
Total		12,483			12,115
Accumulated amortization		(6,357	)		(5,625	)
Total net balance	$	6,126		$	6,490

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

2017 (Remainder of year)	$	862
2018		1,587
2019		1,491
2020		984
2021		581
2022		262
Thereafter		359

XML

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

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Changes in Projected Benefit Obligations [Table Text Block]

Reconciliation of Funded Status of U.S. Defined Benefit Pension Plan as of December 31, 2016
Benefit obligation as of June 30, 2016	$	130,863
Service cost		1,405
Interest cost		2,457
Benefits paid		(2,374	)
Actuarial (gain)/loss		(8,443	)
Benefit obligation prior to curtailment		123,908
Effect of curtailment		(4,170	)
Benefit obligation as of December 31, 2016		119,738
Fair value of assets		80,989
Funded status as of December 31, 2016	$	(38,749	)

Post Retirement Medical and Life Insurance Plan [Member]

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended						Six Months Ended
	12/31/2016 (Unaudited)			12/31/2015			12/31/2016 (Unaudited)			12/31/2015
Service cost	$	24		$	27		$	47		$	53
Interest cost		68			72			136			144
Amortization of prior service credit		(169	)		(196	)		(337	)		(391	)
Amortization of net loss		30			3			60			7
	$	(47	)	$	(94	)	$	(94	)	$	(187	)

Pension Plan [Member]

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended						Six Months Ended
	12/31/2016 (Unaudited)			12/31/2015			12/31/2016 (Unaudited)			12/31/2015
Service cost	$	614		$	715		$	1,405		$	1,429
Interest cost		1,533			1,759			3,085			3,527
Expected return on plan assets		(1,288	)		(1,585	)		(2,594	)		(3,179	)
Amortization of net loss		68			12			96			26
	$	927		$	901		$	1,992		$	1,803

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Note 7 - Debt (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Debt [Table Text Block]

	12/31/2016		6/30/2016
Notes payable and current maturities of long term debt
Loan and Security Agreement	$	1,578	$	1,543
Long-term debt
Loan and Security Agreement		16,311		17,109
	$	17,889	$	18,652

XML

Note 10 - Segment Information (Tables)

6 Months Ended

Dec. 31, 2016

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	North American Operations		International Operations			Unallocated			Total
Three Months ended December 31, 2016
Sales 1	$	32,151	$	21,036		$	—		$	53,187
Operating Income (Loss)	$	2,805	$	636		$	(1,612	)	$	1,829
Three Months ended December 31, 2015
Sales 2	$	34,304	$	19,367		$	—		$	53,671
Operating Income (Loss)	$	2,804	$	(423	)	$	(1,178	)	$	1,203

	North American Operations		International Operations			Unallocated			Total
Six Months ended December 31, 2016
Sales 3	$	60,554	$	41,546		$	—		$	102,100
Operating Income (Loss)	$	2,957	$	550		$	(3,528	)	$	(21	)
Six Months ended December 31, 2015
Sales 4	$	66,715	$	37,994		$	—		$	104,709
Operating Income (Loss)	$	5,630	$	(1,471	)	$	(2,777	)	$	1,382

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Note 3 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Millions	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	500,000
The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	346,600
Allocated Share-based Compensation Expense	$ 0.2	$ 0.2
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 0.3
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	1 year 219 days
The 2012 Stock Incentive Plan [Member] | Total Unrecognized Compensation Including Portion Relating to Grants Not Expected to Be Awarded [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	$ 1.0
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	1.4
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	$ 1.1
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, Non-Option Equity Instruments, Outstanding, Number	105,634
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	6 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	20,000
Employee Stock Option [Member] | Minimum [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Employee Stock Option [Member] | Maximum [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	45,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 10.86
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	12,733
Restricted Stock Units (RSUs) [Member] | Minimum [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Restricted Stock Units (RSUs) [Member] | Maximum [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years

XML

Note 4 - Inventories (Details Textual) - USD ($) $ in Millions	6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Jun. 30, 2016
LIFO Inventory Amount	$ 9.7		$ 10.5
Inventory Difference Using FIFO Basis	28.3		$ 28.8
Cost of Sales [Member]
Inventory, LIFO Reserve, Effect on Income, Net	$ 0.5	$ 0.4

XML

Note 4 - Inventories - Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Raw material and supplies	$ 28,568	$ 29,209
Goods in process and finished parts	15,394	16,459
Finished goods	42,584	39,449
	86,546	85,117
LIFO Reserve	(28,342)	(28,796)
Inventories	$ 58,204	$ 56,321

XML

Note 5 - Goodwill and Intangible Assets (Details Textual)	6 Months Ended
	Dec. 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

XML

Note 5 - Goodwill and Intangible Assets - Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Intangible assets, gross	$ 12,483	$ 12,115
Accumulated amortization	(6,357)	(5,625)
Total net balance	6,126	6,490
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	2,770	2,402
Other Intangible Assets [Member]
Intangible assets, gross	$ 325	$ 325

XML

Note 5 - Goodwill and Intangible Assets - Estimated Aggregate Amortization Expense (Details) $ in Thousands	Dec. 31, 2016 USD ($)
2017 (Remainder of year)	$ 862
2018	1,587
2019	1,491
2020	984
2021	581
2022	262
Thereafter	$ 359

XML

Note 6 - Pension and Post-retirement Benefits (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2016	Dec. 20, 2015
Defined Benefit Plans, Estimated Future Employer Contributions in Current Fiscal Year	$ 3,000
United States Pension Plan of US Entity [Member]
Other Comprehensive Income (Loss), Finalization of Pension and Other Postretirement Benefit Plan Valuation, before Tax	$ 6,900
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate	4.31%	3.77%
Defined Benefit Plan, Curtailments	$ 4,170
Defined Benefit Plan, Contributions by Employer	1,900
UK Plan [Member]
Defined Benefit Plan, Contributions by Employer	$ 500

XML

Note 6 - Pension and Post-retirement Benefits - Changed in Benefit Obligation (Details) - United States Pension Plan of US Entity [Member] - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2016
Benefit obligation as of June 30, 2016	$ 130,863
Service cost	1,405
Interest cost	2,457
Benefits paid	(2,374)
Actuarial (gain)/loss	(8,443)
Benefit obligation prior to curtailment	123,908
Effect of curtailment	(4,170)
Benefit obligation as of December 31, 2016	119,738
Fair value of assets	80,989
Funded status as of December 31, 2016	$ (38,749)

XML

Note 6 - Pension and Post-retirement Benefits - Net Periodic Costs (Details) - Pension Plan [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Service cost	$ 614	$ 715	$ 1,405	$ 1,429
Interest cost	1,533	1,759	3,085	3,527
Expected return on plan assets	(1,288)	(1,585)	(2,594)	(3,179)
Amortization of net loss	68	12	96	26
	$ 927	$ 901	$ 1,992	$ 1,803

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Note 6 - Pensions and Post-retirement Benefits - Net Periodic Benefit Costs for Postretirement Medical Plan (Details) - Post Retirement Medical and Life Insurance Plan [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Service cost	$ 24	$ 27	$ 47	$ 53
Interest cost	68	72	136	144
Amortization of prior service credit	(169)	(196)	(337)	(391)
Amortization of net loss	30	3	60	7
	$ (47)	$ (94)	$ (94)	$ (187)

XML

Note 7 - Debt (Details Textual)		6 Months Ended
	Nov. 22, 2011 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015
Line of Credit Facility, Maximum Borrowing Capacity		$ 23,000,000
Line of Credit Facility, Interest Rate During Period		2.40%	2.10%
Long-term Line of Credit		$ 9,400,000
Minimum Consolidated Cash and Liquid Investments Pursuant to New Loan and Security Agreement		10,000,000
Maximum [Member]
Annual Capital Expenditures		$ 15,000,000
Maximum [Member] | Amended Agreement [Member]
Current Funded Debt to EBITDA Ratio		2.25
Minimum [Member]
Debt Service Coverage Rate		1.25
Term Loan [Member]
Long-term Line of Credit		$ 8,500,000
Debt Instrument, Face Amount	$ 15,500,000
Debt Instrument, Term	10 years
Debt Instrument, Interest Rate, Stated Percentage	4.50%
Line of Credit Facility, Periodic Payment	$ 160,640
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		1.50%

XML

Note 7 - Debt - Debt Schedule (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Jun. 30, 2016
Notes payable and current maturities of long term debt
Loan and Security Agreement	$ 1,578	$ 1,543
Long-term debt
Loan and Security Agreement	16,311	17,109
	$ 17,889	$ 18,652

XML

Note 8 - Income Taxes (Details Textual) - USD ($)	3 Months Ended			6 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Effective Income Tax Rate Reconciliation, Percent	29.90%		53.80%	39.10%	81.00%
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount		$ 298,000
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount, Return to Provision Adjustment					$ 200,000

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Note 10 - Segment Information (Details Textual) $ in Thousands	3 Months Ended				6 Months Ended
	Dec. 31, 2016 USD ($)		Dec. 31, 2015 USD ($)		Dec. 31, 2016 USD ($)		Dec. 31, 2015 USD ($)
Number of Reportable Segments					2
Revenue, Net	$ 53,187	[1]	$ 53,671	[2]	$ 102,100	[3]	$ 104,709	[4]
North American Segment [Member]
Revenue, Net	32,151	[1]	34,304	[2]	60,554	[3]	66,715	[4]
North American Segment [Member] | Intersegment Eliminations [Member]
Revenue, Net	2,339		2,333		4,696		4,242
International Segment [Member]
Revenue, Net	21,036	[1]	19,367	[2]	41,546	[3]	37,994	[4]
International Segment [Member] | Intersegment Eliminations [Member]
Revenue, Net	$ 2,968		$ 2,416		$ 6,049		$ 4,679

[1] Excludes $2,339 of North American segment sales to the International segment and $2,968 of International segment sales to the North American segment.

[2] Excludes $2,333 of North American segment sales to the International segment and $2,416 of International segment sales to the North American segment.

[3] Excludes $4,696 of North American segment sales to the International segment and $6,049 of International segment sales to the North American segment.

[4] Excludes $4,242 of North American segment sales to the International segment and $4,679 of International segment sales to the North American segment.

XML

Note 10 - Segment Information - Financial Results for Reportable Segments (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2016		Dec. 31, 2015
Sales	$ 53,187	[1]	$ 53,671	[2]	$ 102,100	[3]	$ 104,709	[4]
Operating Income (Loss)	1,829		1,203		(21)		1,382
North American Segment [Member]
Sales	32,151	[1]	34,304	[2]	60,554	[3]	66,715	[4]
Operating Income (Loss)	2,805		2,804		2,957		5,630
International Segment [Member]
Sales	21,036	[1]	19,367	[2]	41,546	[3]	37,994	[4]
Operating Income (Loss)	636		(423)		550		(1,471)
Unallocated [Member]
Sales		[1]		[2]		[3]		[4]
Operating Income (Loss)	$ (1,612)		$ (1,178)		$ (3,528)		$ (2,777)

[1] Excludes $2,339 of North American segment sales to the International segment and $2,968 of International segment sales to the North American segment.

[2] Excludes $2,333 of North American segment sales to the International segment and $2,416 of International segment sales to the North American segment.

[3] Excludes $4,696 of North American segment sales to the International segment and $6,049 of International segment sales to the North American segment.

[4] Excludes $4,242 of North American segment sales to the International segment and $4,679 of International segment sales to the North American segment.