10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	March 31, 2018
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 ☐

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐    NO ☒

Common Shares outstanding as of	April 30, 2018
Class A Common Shares	6,272,716
Class B Common Shares	744,656

1

 THE L. S. STARRETT COMPANY

CONTENTS

				Page No.
Part I.		Financial Information:
		Item 1.	Financial Statements
			Consolidated Balance Sheets – March 31, 2018 (unaudited) and June 30, 2017	3
			Consolidated Statements of Operations – three  and nine months ended March 31, 2018 and March 31, 2017 (unaudited)	4
			Consolidated Statements of Comprehensive Income (Loss) – three and nine months ended March 31, 2018 and March 31, 2017 (unaudited)	5
			Consolidated Statements of Stockholders' Equity – nine months ended March 31, 2018 (unaudited)	6
			Consolidated Statements of Cash Flows - nine months ended March 31, 2018 and March 31, 2017 (unaudited)	7
			Notes to Unaudited Consolidated Financial Statements	8-16
		Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16-19
		Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
		Item 4.	Controls and Procedures	19
Part II.	Other Information:
	Item 1A.		Risk Factors	20
	Item 6.		Exhibits	21
SIGNATURES				22

2

PART I.                      FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets

(in thousands except share data)

	03/31/2018 (unaudited)			06/30/2017
ASSETS
Current assets:
Cash	$	15,444		$	14,607
Accounts receivable (less allowance for doubtful accounts of $1,164 and $946, respectively)		31,684			30,425
Inventories		63,799			58,097
Prepaid expenses and other current assets		7,546			6,994
Total current assets		118,473			110,123
Property, plant and equipment, net		38,659			39,345
Taxes receivable		1,888			2,627
Deferred tax assets, net		18,523			26,032
Intangible assets, net		9,452			9,868
Goodwill		4,668			4,668
Other assets		2			2
Total assets	$	191,665		$	192,665
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	4,681		$	11,514
Accounts payable		10,464			8,366
Accrued expenses		6,328			5,424
Accrued compensation		4,597			5,435
Total current liabilities		26,070			30,739
Other tax obligations		2,889			3,645
Long-term debt, net of current portion		17,736			6,095
Postretirement benefit and pension obligations		56,258			58,571
Other non-current liabilities		1,650			1,589
Total liabilities		104,603			100,639
Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 6,272,716 outstanding at March 31, 2018 and 6,267,603 outstanding at June 30, 2017)		6,273			6,268
Class B Common stock $1 par (10,000,000 shares authorized; 745,216 outstanding at March 31, 2018 and 761,588 outstanding at June 30, 2017)		745			762
Additional paid-in capital		55,562			55,579
Retained earnings		73,543			79,402
Accumulated other comprehensive loss		(49,061	)		(49,985	)
Total stockholders' equity		87,062			92,026
Total liabilities and stockholders’ equity	$	191,665		$	192,665

See Notes to Unaudited Consolidated Financial Statements

3

THE L. S. STARRETT COMPANY

Consolidated Statements of Operations

(in thousands except per share data) (unaudited)

	3 Months Ended						9 Months Ended
	03/31/2018			03/31/2017			03/31/2018			03/31/2017
Net sales	$	54,834		$	50,670		$	158,776		$	152,770
Cost of goods sold		36,762			36,191			108,235			107,555
Gross margin		18,072			14,479			50,541			45,215
% of Net sales		33.0	%		28.6	%		31.8	%		29.6	%
Selling, general and administrative expenses		15,859			15,326			47,435			45,689
Restructuring charges		-			6			-			400
Operating income (loss)		2,213			(853	)		3,106			(874	)
Other income (expense)		124			(391	)		968			(466	)
Gain on sale of building		-			-			-			3,089
Income (loss) before income taxes		2,337			(1,244	)		4,074			1,749
Income tax expense (benefit)		700			(458	)		8,532			713
Net income (loss)	$	1,637		$	(786	)	$	(4,458	)	$	1,036
Basic income (loss) per share	$	0.23		$	(0.11	)	$	(0.64	)	$	0.15
Diluted income (loss) per share	$	0.23		$	(0.11	)	$	(0.64	)	$	0.15
Weighted average outstanding shares used in per share calculations:
Basic		7,018			7,058			7,012			7,046
Diluted		7,036			7,058			7,012			7,078
Dividends per share	$	-		$	0.10		$	0.20		$	0.30

See Notes to Unaudited Consolidated Financial Statements

4

THE L. S. STARRETT COMPANY

Consolidated Statements of Comprehensive Income (Loss)

 (in thousands) (unaudited)

	3 Months Ended						9 Months Ended
	03/31/2018			03/31/2017			03/31/2018			03/31/2017
Net income (loss)	$	1,637		$	(786	)	$	(4,458	)	$	1,036
Other comprehensive income (loss):
Currency translation gain (loss)		321			1,456			1,006			(300	)
Pension and postretirement plans, net of tax of $0, $0, $0, and $3,958, respectively		(28	)		(45	)		(82	)		6,377
Other comprehensive income (loss)		293			1,411			924			6,077
Total comprehensive income (loss)	$	1,930		$	625		$	(3,534	)	$	7,113

See Notes to Unaudited Consolidated Financial Statements

5

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

For the Nine Months Ended March 31, 2018

(in thousands except per share data) (unaudited)

	Common Stock Outstanding						Additional Paid-in			Retained			Accumulated Other Comprehensive
	Class A			Class B			Capital			Earnings			Loss			Total
Balance June 30, 2017	$	6,268		$	762		$	55,579		$	79,402		$	(49,985	)	$	92,026
Total comprehensive income (loss)		-			-			-			(4,458	)		924			(3,534	)
Dividends ($0.20 per share)		-			-			-			(1,401	)		-			(1,401	)
Repurchase of shares		(58	)		(6	)		(487	)		-			-			(551	)
Issuance of stock		21			13			244			-			-			278
Stock-based compensation		18			-			226			-			-			244
Conversion		24			(24	)		-			-			-			-
Balance March 31, 2018	$	6,273		$	745		$	55,562		$	73,543		$	(49,061	)	$	87,062
Accumulated balance consists of:
Translation loss													$	(42,317	)
Pension and postretirement plans, net of taxes														(6,744	)
													$	(49,061	)

See Notes to Unaudited Consolidated Financial Statements

6

THE L. S. STARRETT COMPANY

Consolidated Statements of Cash Flows

(in thousands) (unaudited)

	9 Months Ended
	03/31/2018			03/31/2017
Cash flows from operating activities:
Net income (loss)	$	(4,458	)	$	1,036
Non-cash operating activities:
Gain on sale of building		-			(3,089	)
Depreciation		4,163			4,020
Amortization		1,490			1,280
Stock-based compensation		244			320
Net long-term tax obligations		32			(31	)
Deferred taxes		7,649			702
Postretirement benefit and pension obligations		439			1,916
(Income) loss from equity method investment		-			223
Working capital changes:
Accounts receivable		(254	)		6,200
Inventories		(4,720	)		(2,184	)
Other current assets		(474	)		(1,501	)
Other current liabilities		1,007			(1,790	)
Prepaid pension expense		(3,541	)		(4,303	)
Other		63			222
Net cash provided by (used in) operating activities		1,640			3,021
Cash flows from investing activities:
Business acquisition, net of cash acquired		-			(1,324	)
Additions to property, plant and equipment		(3,250	)		(3,478	)
Software development		(1,014	)		(750	)
Proceeds from sale of building		-			3,321
Net cash provided by (used in) investing activities		(4,264	)		(2,231	)
Cash flows from financing activities:
Proceeds from borrowings		6,845			-
Debt repayments		(2,037	)		(1,151	)
Proceeds from common stock issued		278			242
Shares repurchased		(551	)		(51	)
Dividends paid		(1,401	)		(2,113	)
Net cash provided by (used in) financing activities		3,134			(3,073	)
Effect of exchange rate changes on cash		327			(450	)
Net increase (decrease) in cash		837			(2,733	)
Cash, beginning of period		14,607			19,794
Cash, end of period	$	15,444		$	17,061
Supplemental cash flow information:
Interest paid	$	479		$	474
Income taxes paid, net		175			(213	)

See Notes to Unaudited Consolidated Financial Statements

7

THE L. S. STARRETT COMPANY

Notes to Unaudited Consolidated Financial Statements

March 31, 2018

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

The unaudited interim financial statements as of and for the nine months ended March 31, 2018 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, 2017.  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, 2017 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 Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenues from Contracts with Customers (Topic 606)," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements comprehensive information about the nature, amounts, timing and uncertainty of revenue and cash flows arising from a company's contracts with customers. ASU 2014-09 defines a five-step process to achieve this core principle and in doing so, it is possible that more judgment and estimates may be required within the revenue recognition process than are required under existing guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to separate performance obligations, among others. The new standard will be effective for the Company beginning July 1, 2018. The FASB issued four subsequent standards in 2016 containing implementation guidance related to the new standard. These standards provide additional guidance related to principal versus agent considerations, licensing, and identifying performance obligations. Additionally, these standards provide narrow-scope improvements and practical expedients as well as technical corrections and improvements.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company will be adopting the standard using the modified retrospective method effective July 1, 2018.

The Company expects to complete our implementation procedures with respect to the new revenue recognition standard during the fourth quarter of fiscal year 2018. While the Company continues to assess the impact of the new standard, it should be noted that revenues are primarily generated from the sale of finished products to customers, and that sales predominantly contain a single delivery element and that revenue is recognized at a single point in time when ownership, risks and rewards transfer. The timing of revenue recognition for these product sales is not materially impacted by the new standard. However, the Company is utilizing a comprehensive approach to assess the impact of the guidance on its current contract portfolio by reviewing its current accounting policies and practices to identify potential differences that would result from applying the new requirements to the Company’s revenue contracts, including evaluation of performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and accounting treatment of costs to obtain and fulfill contracts. While certain differences may arise specifically related to variable consideration and consideration payable to a customer, the Company does not expect these differences to materially impact our consolidated financial statements. In addition, the Company is currently analyzing our internal control over financial reporting framework to determine if controls should be added or modified as a result of adopting this standard, and reviewing the tax impact, if any, the adoption of the new standard may have. The Company also expects that the adoption of the new standard will result in expanded and disaggregated disclosure requirements.

8

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 fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, 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.

In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory", which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This update removes the current exception in GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. The amendments in this update are effective for public entities for annual reporting periods beginning after December 15, 2017. Early adoption is permitted. The adoption of ASU No. 2016-16 is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805) - Clarifying the Definition of a Business", with the objective to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets versus businesses. The amendments in ASU 2017-01 provide a screen to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen is expected to reduce the number of transactions that need to be further evaluated. If the screen is not met, the amendments in ASU 2017-01 (i) require that to be considered a business, a set of assets and liabilities acquired must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output; and (ii) remove the evaluation of whether a market participant could replace missing elements. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2017 and should be applied prospectively. Early adoption is permitted for transactions for which the acquisition date occurs before the issuance date of ASU 2017-01, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. The adoption of ASU No. 2017-01 is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". Under the new guidance, if a reporting unit's carrying value amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the requirement to calculate goodwill impairment using Step 2, which calculates an impairment charge by comparing the implied fair value of goodwill with its carrying amount. The standard does not change the guidance on completing Step 1 of the goodwill impairment test. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2019 and should be applied prospectively for annual and any interim goodwill impairment tests. Early adoption is permitted for entities for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the update on its consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. For deferred tax items recognized in Accumulated Other Comprehensive Income (AOCI), changes in tax rates can leave amounts “stranded” in AOCI. Under ASU 2018-02, FASB has given companies an option to reclassify the stranded tax effects resulting from the tax law and tax rate changes under the Tax Cuts and Jobs Act of 2017 from AOCI to retained earnings. This guidance is effective for fiscal years beginning after December 15, 2018 and requires companies to disclosure whether they are or are not opting to reclassify the income tax effects from the new 2017 tax act. Early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. This update codified the guidance provided in SAB 118 on applying ASC 740, Income Taxes, if the accounting for certain income tax effects of the Tax Cuts and Jobs Act of 2017 is incomplete when the financial statements are issued for a reporting period. This update was effective upon issuance. Therefore, the Company has applied the guidance in this update within our consolidated financial statements for the quarter ended March 31, 2018. See Note 9: “Income Taxes”, of this Form 10-Q for more information on the adoption of this guidance.

9

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, and the material terms of its performance goals were recently re-approved by shareholders at the Company’s Annual Meeting held on October 18, 2017. The 2012 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2012 Stock Plan provides for the issuance of up to 500,000 shares of common stock.      

Options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of March 31, 2018, there were 20,000 stock options and 140,802 restricted stock units outstanding. In addition, there were 297,033 shares available for grant under the 2012 Stock Plan as of March 31, 2018.

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

No stock options were granted during the nine months ended March 31, 2018 and 2017.

The weighted average contractual term for stock options outstanding as of March 31, 2018 was 4.75 years.  The aggregate intrinsic value of stock options outstanding as of March 31, 2018 was less than $0.1 million. Stock options exercisable as of March 31, 2018 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 62,000 RSU awards with a fair value of $7.22 per RSU granted during the nine months ended March 31, 2018. There were 14,400 RSUs settled, and 12,433 RSUs forfeited during the nine months ended March 31, 2018.  The aggregate intrinsic value of RSU awards outstanding as of March 31, 2018 was $1.0 million. As of March 31, 2018 all vested awards had been issued and settled.

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

Compensation expense related to all stock based plans for the nine month periods ended March 31, 2018 and 2017 was $0.2 million, and $0.3 million respectively.  As of March 31, 2018, there was $1.5 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost, $1.4 million relates to performance based RSU grants that are not expected to be awarded. The remaining $0.1 million is expected to be recognized over a weighted average period of 2.0 years.

Note 4:   Inventories

ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory", specifies that when an entity measures inventory at the lower of cost or market 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. The adoption of ASU No. 2015-11 on July 1, 2017 did not have a material impact on our consolidated financial statements.

10

Inventories consist of the following (in thousands):

	03/31/2018			6/30/2017
Raw material and supplies	$	26,098		$	26,293
Goods in process and finished parts		19,788			16,419
Finished goods		43,910			41,591
		89,796			84,303
LIFO Reserve		(25,997	)		(26,206	)
	$	63,799		$	58,097

LIFO inventories were $8.4 million and $7.7 million at March 31, 2018 and June 30, 2017, respectively, such amounts being approximately $26.0 million and $26.2 million, respectively, less than if determined on a FIFO basis.  The use of LIFO, as compared to FIFO, resulted in a $0.2 million decrease in cost of sales for the nine months ended March 31, 2018 compared to a $1.5 million decrease in cost of sales for the nine months ended March 31, 2017.

Note 5: Business Acquisition

In fiscal 2010, the Company entered into an agreement with a private software company to invest $1.5 million in exchange for a 36% equity interest therein. In the third quarter of fiscal 2017, the Company entered into a new agreement to invest an additional $3.6 million for an additional 64% of equity in the company. The Company paid $1.8 million in cash at closing and is obligated to pay an additional $1.8 million in cash three years subsequent to closing (discounted to $1.6 million on the purchase date). In addition, the agreement provides for the former owners to receive a 30% share of operating profits of the business over the next three years so long as they remain employed by the Company. The Company has accrued for such profit sharing as an expense based on results of operations since the date of acquisition.

The acquisition has been accounted for as a business combination and the financial results of the company have been included in our consolidated financial statements since the date of acquisition. Under the acquisition method of accounting, the purchase price was allocated to net tangible and intangible assets based upon their estimated fair values as of the acquisition date.

The table below presents the allocation of the purchase price to the acquired net assets (in thousands):

Cash	$	509
Accounts receivable		273
Inventories		243
Other current assets		18
Deferred software development costs		2,520
Intangible Assets		1,220
Goodwill		1,634
Fixed assets		47
Deferred tax liability		(1,090	)
Accounts payable & current liabilities		(80	)
Purchase Price (1)	$	5,294

(1) $1,833 + 1,555 ($1.8 million discounted at 5%) = $3,388 purchase price divided by 64% = $5.294 million.

Pro-forma financial information has not been presented for this acquisition because it is not considered material to the Company’s financial position or results of operations.

Note 6:   Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 and the private software company in 2017 resulted in the recognition of goodwill totaling $4.7 million. Under ASU 2011-08, the Company is required, on a set date, to annually assess its goodwill in order to determine whether or not it is more likely than not that the fair value of the reporting unit’s goodwill exceeded its carrying amount. Determining the fair value of a reporting unit is subjective and requires the use of significant estimates and assumptions.

11

For Bytewise, the annual assessment date was October 1, 2017. The Company performed a quantitative analysis in accordance with ASU 2011-08 for its annual assessment (commonly referred to as “Step One”). With the assistance of an independent third-party valuation specialist, the Company estimated the fair value using an income approach based on the present value of future cash flows. The Company believes this approach yields the most appropriate evidence of fair value. The Company also utilized the comparable company multiples method and market transaction fair value method to validate the fair value amount obtained using the income approach. The key assumptions utilized in the discounted cash flow model included estimates of future cash flows from operating activities offset by estimated capital expenditures of the reporting unit, the estimated terminal value for the reporting unit, a discount rate based on a weighted average cost of capital, and an assessment of current market capitalization.

Under the quantitative analysis, the 2017 fair value assessment of the Bytewise goodwill exceeded the carrying amount by approximately 81.1%. Therefore no goodwill impairment was determined to exist. If future results significantly vary from current estimates, related projections, or business assumptions in the future due to changes in industry or market conditions, the Company may be required to record impairment charges.

The Company performed a qualitative analysis in accordance with ASU 2011-08 for its February 1, 2018 annual assessment of goodwill (commonly referred to as “Step Zero”) associated with its purchase of the private software company. From a qualitative perspective, in evaluating whether it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, relevant events and circumstances are 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 this reporting unit exceeded its carrying amount as of February 1, 2018.

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

	03/31/2018			6/30/2017
Non-compete agreement	$	600		$	600
Trademarks and trade names		2,070			2,070
Completed technology		2,358			2,358
Customer relationships		5,580			5,580
Software development		7,197			6,184
Other intangible assets		325			325
Total		18,130			17,117
Accumulated amortization		(8,678	)		(7,249	)
Total net balance	$	9,452		$	9,868

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 range between 5 years for software development and 20 years for some trademark and trade name assets.

The estimated aggregate amortization expense for the remainder of fiscal 2018 and for each of the next five years and thereafter, is as follows (in thousands):

2018 (Remainder of year)	$	578
2019		2,210
2020		1,687
2021		1,284
2022		1,051
2023		708
Thereafter		1,934

Note 7:  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 is closed to new participants and current participants will no longer earn additional benefits after December 31, 2016.

12

The amendment of the defined benefit pension plan triggered a pension curtailment which required a re-measurement of the Plan's benefit obligation as of December 31, 2016. The re-measurement 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.

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

	Three Months Ended						Nine Months Ended
	03/31/2018			03/31/2017			03/31/2018			03/31/2017
Service cost	$	-		$	-		$	-		$	1,405
Interest cost		1,531			1,574			4,560			4,659
Expected return on plan assets		(1,300	)		(1,284	)		(3,876	)		(3,878	)
Amortization of net loss		5			6			17			102
	$	236		$	296		$	701		$	2,288

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

	Three Months Ended						Nine Months Ended
	03/31/2018			03/31/2017			03/31/2018			03/31/2017
Service cost	$	21		$	23		$	64		$	70
Interest cost		69			67			203			203
Amortization of prior service credit		(134	)		(168	)		(403	)		(505	)
Amortization of net loss		24			30			74			90
	$	(20	)	$	(48	)	$	(62	)	$	(142	)

For the nine month period ended March 31, 2018, the Company contributed $2.8 million to the U.S. and $0.8 million to the UK pension plans. The Company estimates that it will contribute an additional $1.2 million for the remainder of fiscal 2018.

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 8:   Debt

Debt is comprised of the following (in thousands):

	03/31/2018		6/30/2017
Short-term and current maturities
Loan and Security Agreement	$	1,669	$	11,514
Other Loans		3,012		-
Long-term debt
Loan and Security Agreement, net of current portion		17,736		6,095
	$	22,417	$	17,609

The Company amended its Loan and Security Agreement, which includes a Line of Credit and a Term Loan, in January 2018.  Borrowings under the Line of Credit may not exceed $23.0 million.  The Line of Credit has an interest rate of LIBOR plus 1.5%, and expires on April 30, 2021.  The effective interest rate on the Line of Credit under the Loan and Security Agreement for the nine months ended March 31, 2018 and 2017 was 3.2% and 2.5%, respectively. As of March 31, 2018, $12.9 million was outstanding on the Line of Credit.

Availability under the Line of Credit is subject to a borrowing base comprised of accounts receivable and inventory. The Company believes that the borrowing base will consistently produce availability under the Line of Credit in excess of $23.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

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The obligations under the Credit Facility are unsecured. In the event of certain triggering events, such obligations would become secured by the assets of the Company’s domestic subsidiaries. A triggering event occurs when the Company fails to achieve any of the financial covenants noted below in consecutive quarters.

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 1.00, 2) annual capital expenditures not to exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1.00, and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time.  As of March 31, 2018, the Company was in compliance with all the financial debt covenants related to its Loan and Security Agreement. The Company was not in compliance with one of its non-financial covenants related to additional borrowings made in December, but the waiver received in January 2018 was granted until June 30, 2018. The Company expects to be in compliance with this covenant prior to the waiver expiration.

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 $6.5 million at March 31, 2018.

In December 2017, the Company’s Brazilian subsidiary entered into two short-term loans with local banks in order to support the Company’s strategic initiatives. The loans backed by the entity’s US dollar denominated export receivables were made with Santander Bank and Bradesco Bank and totaled $3.5 million. The Santander loan of $1.5 million has a term of 180 days and a rate of 4.19% and the Bradesco loan of $2.0 million has a term of 360 days and a rate of 4.75%. As of March 31, 2018, the outstanding balance on these loans was $3.0 million.

Note 9:   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.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law in the United States. This law made numerous changes to federal taxation in the U.S., including a reduction in the federal corporate tax rate to 21% and a one-time tax on historical foreign earnings that had not yet been repatriated. The effect of the tax rate change is that the Company’s federal tax rate is reduced to a blended rate of 28% from the previous rate of 34% for fiscal 2018, and then will further reduce to the enacted 21% in Fiscal 2019 and beyond. In addition, there are also a number of other changes primarily related to U.S. taxation of income earned by foreign subsidiaries and on transactions with those subsidiaries. As a result of this legislation, in the quarter ended December 31, 2017, the Company performed an initial assessment of the impact of tax reform and has taken a charge to tax expense of $7.3 million to reflect the estimated impact of the tax rate reduction on its deferred tax assets. The Company has estimated the overall federal tax impact for the one time transition tax to be zero. Further guidance from the Department of Treasury and various state taxing authorities as well as year-end financial data is required, however, before the various tax calculations can be considered complete.

The Company is reviewing all aspects of the tax law change and, other than the reduced tax rate on earnings going forward, which will provide a favorable benefit, the Company does not believe the other provisions will have a significant impact to tax expense. The Company will continue to measure the impact of these provisions and will record any changes in subsequent quarters when information and guidance becomes available.

The tax expense for the third quarter of fiscal 2018 was $0.7 million on profit before tax of $2.3 million for an effective tax rate of 30.0%. The effective tax rate for the third quarter of fiscal 2017 was 36.8%. For the first nine months of fiscal 2018, tax expense was $8.5 million on profit before tax of $4.1 million for an effective tax rate of 209%. Before the tax charge related to new tax legislation, tax expense was $1.3 million or 31.5% of pre-tax income. For the first nine months of fiscal 2017, the effective tax rate was 40.8%.

The tax expense in the third quarter of fiscal 2018 was increased by a nominal amount of discrete items primarily related to interest charges on tax liabilities and an increase in the valuation allowance for state tax loss carryforwards which were mostly offset by the benefit from a reduced liability for uncertain tax positions net of the reduction in the receivable for a competent authority review. In prior quarters, there were net discrete charges of $7.2 million including discrete charges for the impact of the tax law change referred to above, the impact of tax deductions on stock grants which were less than the book deductions, and interest on tax liabilities; these were partly offset by discrete tax benefits for research credits in the U.K., the use of carryforward tax losses in the U.K. and the impact of provision to return adjustments. The tax expense in the third quarter of fiscal 2017 was increased by less than $0.1 million for interest expense on uncertain tax positions and for the first nine months of fiscal 2017, it was increased by $0.3 million primarily for the impact of a tax rate change in the U.K. applied to the deferred tax asset balance.

14

U.S. Federal tax returns through fiscal 2014 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from years before fiscal 2015 are still subject to adjustment. As of March 31, 2018, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2012 - 2017. During the next twelve months, it is possible there will be a reduction of $0.2 million in long term tax obligations due to the expiration of the statute of limitations on prior year tax returns.

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., a partial valuation allowance has been provided for foreign tax credit carryforwards due to the uncertainty of generating sufficient foreign source income to utilize those credits in the future. In certain other countries where Company operations are in a loss position, the deferred tax assets for tax loss carryforwards and other temporary differences are fully offset by a valuation allowance.

Note 10:  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.

In the second quarter of this year, the Company’s Brazilian subsidiary received a favorable ruling on an old tax dispute related to the Brazilian Program of Social Integration (PIS) taxes. This ruling resulted in the recognition of other income of approximately $1.0 million, and was awarded in the form of tax credits to be used to offset future tax payments.

Note 11: 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, 2017. The Company’s business is aggregated into two reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses which are included in unallocated in the table below. Other income and expense, including interest income and expense, the gain on the sale of a building in fiscal 2017, 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 March 31, 2018
Sales1	$	34,119	$	20,715		$	-		$	54,834
Operating Income (Loss)	$	2,831	$	629		$	(1,247	)	$	2,213
Three Months ended March 31, 2017
Sales2	$	31,791	$	18,879		$	-		$	50,670
Operating Income (Loss)	$	1,563	$	(693	)	$	(1,723	)	$	(853	)

1. Excludes $1,527 of North American segment intercompany sales to the International segment, and $3,602 of International segment intercompany sales to the North American segment.

2. Excludes $1,493 of North American segment intercompany sales to the International segment, and $2,536 of International segment intercompany sales to the North American segment.

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	North American Operations		International Operations			Unallocated			Total
Nine Months ended March 31, 2018
Sales1	$	94,937	$	63,839		$	-		$	158,776
Operating Income (Loss)	$	5,545	$	1,629		$	(4,068	)	$	3,106
Nine Months ended March 31, 2017
Sales2	$	92,345	$	60,425		$	-		$	152,770
Operating Income (Loss)	$	4,520	$	(143	)	$	(5,251	)	$	(874	)

1. Excludes $4,804 of North American segment intercompany sales to the International segment, and $10,290 of International segment intercompany sales to the North American segment.

2. Excludes $6,189 of North American segment intercompany sales to the International segment, and $8,585 of International segment intercompany sales to the North American segment.

Note 12:  Facility Closure

This footnote was previously reported as a “subsequent event” in the fiscal 2018 second quarter 10-Q report.

The Company decided in January 2018 to vacate its facility in Mt. Airy, North Carolina, and move current operations to a smaller building. While no definitive date for this move has been set yet, the Company anticipates that the move will happen within the next 12 months. The Company incurred a $4.1 million impairment charge in fiscal 2016, when the majority of the plant’s operations were relocated to the Company’s Brazilian production facility. As of December 31, 2017, the carrying value of the building is $2.0 million, and the Company believes that the current fair value exceeds the carrying value. During the current quarter, the Company sold the inventory and equipment related to one of the product lines impacted by this decision. This sale resulted in a $0.1 million increase in income before tax.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three months Ended March 31, 2018 and March 31, 2017

Overview

The Company continued to experience healthy demand globally, which translated into revenue increases based upon improved fulfillment rates for precision hand tools, growth in high-end metrology products and an economic recovery in Brazil.

Net sales were $54.8 million in fiscal 2018, an increase of $4.1 million or 8% from $50.7 million in fiscal 2017. North America and International improved $2.3 million and $1.8 million, respectively. Operating income was $2.2 million, an increase of $3.1 million due to a $3.6 million increase in gross margin offset by a $0.5 million increase in selling, general and administrative expenses.

16

Net Sales

North American sales increased $2.3 million or 7% from $31.8 million in fiscal 2017 to $34.1 million in fiscal 2018 as the result of a 9% growth in precision hand tools and a 13% improvement in high-end metrology equipment.

International sales increased $1.8 million or 10% from $18.9 million in fiscal 2017 to $20.7 million in fiscal 2018 due to a 13% gain in Brazil shipments.

Gross Margin

Gross margin increased $3.6 million or 25% from 29% of sales in fiscal 2017 to 33% of sales in fiscal 2018.

North American gross margins increased $1.9 million from $8.8 million or 28% of sales in fiscal 2017 to $10.7 million or 31% of sales in fiscal 2018 due to higher sales volume of precision hand tools and a favorable products mix of increased sales of high-end metrology equipment.

International gross margins increased $1.6 million from 30% of sales in fiscal 2017 to 35% of sales in fiscal 2018 based upon higher sales volume from Brazil.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.5 million or 3% from $15.3 million in fiscal 2017 to $15.8 million in fiscal 2018.

North American expenses, including Corporate, increased $0.2 million from $9.0 million in fiscal 2017 to $9.2 million in fiscal 2018 as increased research and development spending on high-end metrology more than offset reduced professional fees.

International expenses increased $0.3 million or 5% due principally to higher professional consulting fees related to the previously announced saw consolidation.

Other Income (Expense)

Other income increased $0.5 million from a $0.4 million loss in fiscal 2017 to a $0.1 million gain in 2018 principally as a result of a loss related to an acquisition investment in fiscal 2017 compared to a gain on sales of equipment in fiscal 2018. 

Income Taxes

The tax expense for the third quarter of fiscal 2018 was $0.7 million on pre-tax income of $2.3 million for an effective rate of 30%. The effective tax rate for the third quarter of fiscal 2017 was 37%. The passage of the Tax Cuts and Jobs Act in December 2017 reduced the federal tax rate in the U.S. to 21% effective January 1, 2018; the impact of this change reduced the Company’s fiscal 2018 federal tax rate to 28%. The tax expense for the third quarter of fiscal 2018 and 2017 is slightly lower than the normalized combined federal and state tax rate of 31% in fiscal 2018 and 40% in fiscal 2017 due to profits in foreign jurisdictions subject to a lower tax rate.

Net Income

The Company recorded net income of $1.6 million or $0.23 per share in the third quarter of fiscal 2018 compared to net loss of $0.8 million or $0.11 per share in fiscal 2017 principally due to higher sales and improved gross margins.

Nine months Ended March 31, 2018 and March 31, 2017

Overview

Net sales were $158.8 million in fiscal 2018, an increase $6.0 million or 4% from $152.8 million in fiscal 2017. Operating income was $3.1 million, an increase of $4.0 million, as a result of a $5.3 million improvement in gross margins offset by a $1.3 million increase in selling, general and administrative expenses, including $0.4 million in restructuring charges in fiscal 2017.

17

Net Sales

North American sales increased $2.6 million or 3% from $92.3 million in fiscal 2017 to $94.9 million in fiscal 2018 led by gains in higher-end metrology.

International sales increased $3.4 million or 6% from $60.4 million in fiscal 2017 to $63.8 million in fiscal 2018 based upon strong organic growth in Brazil.

Gross Margin

Gross margin increased $5.3 million or 12% and improved to 32% of sales in fiscal 2018 from 30% of sales in fiscal 2017.

North American gross margins increased $2.6 million or 10% in fiscal 2018 compared to fiscal 2017 due to increased sales of high margin capital equipment.

International gross margins increased $2.7 million based upon increased volume and improved margins in Brazil.

Selling, General and Administrative Expenses

Selling, general and administrative expense increased $1.7 million or 4% from $45.7 million in fiscal 2017 to $47.4 million in fiscal 2018.

North American expenses, including Corporate, increased $0.9 million or 3% due to increased research and development spending on high-end metrology and the full year impact of the expenses from the acquired software company.

International expenses increased $0.8 million or 4% due to higher professional fees related to the previously announced saw consolidation. 

Other Income (Expense)

Other income declined $1.7 million, as a $3.1 million gain on the sale of the Canadian warehouse in fiscal 2017 more than offset a $1.4 million favorable legal settlement in Brazil in fiscal 2018.

Income Taxes

The tax expense for the first three quarters of fiscal 2018 was $8.5 million on pre-tax income of $4.1 million for an effective rate of 209%. The tax expense includes a charge of $7.3 million resulting from the impact of the Tax Cuts and Jobs Act passed in December 2017. Without that charge, tax expense was $1.3 million or 31.5% of pre-tax income. The effective tax rate for the first three quarters of fiscal 2017 was 41%. In addition to the impact of the new tax law, there were discrete items decreasing tax expense by $0.1 million in the first three quarters of fiscal 2018 and increasing tax expense by $0.3 million in the first three quarters of fiscal 2017.

The passage of the Tax Cuts and Jobs Act in December 2017 reduced the federal tax rate in the U.S. to 21% effective January 1, 2018; the impact of this change reduced the Company’s fiscal 2018 federal tax rate to 28% and to 21% thereafter. Also included in the Act was a provision to tax a portion of cumulative foreign earnings not yet repatriated. Tax expense included a charge of $7.3 million in December for a reduction of the deferred tax asset due to the change in tax rates enacted in the United States. The impact due to the tax on cumulative foreign earnings is not expected to be material due to the use of foreign tax credits. In fiscal 2019 and future years, the Company expects to benefit from the lower U.S. tax rate.

Net Income

The Company recorded net loss of $4.5 million or $0.64 per share for the first three quarters of fiscal 2018 compared to net income of $1.0 million or $0.15 per share in fiscal 2017. This was principally due to a higher effective tax rate related to the new tax legislation enacted in December 2017, and its impact on the Company’s deferred tax assets.

18

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Nine Months Ended
	03/31/2018			03/31/2017
Cash provided by (used in) operating activities	$	1,640		$	3,021
Cash provided by (used in) investing activities		(4,264	)		(2,231	)
Cash provided by (used in) financing activities		3,134			(3,073	)
Effect of exchange rate changes on cash		327			(450	)
Net increase (decrease) in cash	$	837		$	(2,733	)

Fiscal 2018 net cash flow for the nine months ended March 31, 2018 of $0.8 million increased $3.5 million compared to a $2.7 million decrease for the nine months ended March 31, 2017 as a $6.8 million increase in borrowings more than offset reduced cash from operations and higher long-term debt payments.

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, $12.9 million was outstanding as of March 31, 2018.  Availability under the agreement is further reduced by open letters of credit totaling $0.9 million.  The Loan and Security Agreement contains financial covenants with respect to leverage, tangible net worth, and interest coverage, and also contains customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions and fundamental corporate changes, and certain customary events of default.  As of March 31, 2018, the Company was in compliance with all its financial covenants, but was not in compliance with the non-financial covenant related to additional borrowings. The waiver received in January for this instance of non-compliance was granted until June 30, 2018, at which time the Company expects to be in compliance with this covenant. The Loan and Security Agreement was amended on January 30, 2018 to extend the Line of Credit for an additional three years until April 30, 2021.

The effective interest rate on the borrowings under the Loan and Security Agreement during the nine months ended March 31, 2018 and 2017 was 3.2% and 2.5% 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 quantitative and qualitative 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, 2017.

ITEM 4.             CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, has evaluated the Company's disclosure controls and procedures as of March 31, 2018, and they have concluded that our disclosure controls and procedures were effective as of such date. All information required to be filed in this report was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

There have been no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the quarter ended March 31, 2018.

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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, 2017. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2017.

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ITEM 6.             EXHIBITS

31a Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31b Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32 Certifications of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 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.

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SIGNATURES

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

		THE L. S. STARRETT COMPANY (Registrant)
Date	May 2, 2018	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	May 2, 2018	/S/R. Francis J. O’Brien
		Francis J. O’Brien - Treasurer and CFO (Principal Accounting Officer)

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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: May 2, 2018	/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: May 2, 2018	/S/	Francis J. O’Brien
		Francis J. O’Brien Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATIONS

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

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

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 (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	May 2, 2018	/S/ Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer
Date	May 2, 2018	/S/ Francis J. O’Brien
		Francis J. O’Brien Chief Financial Officer

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

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

XML

Document And Entity Information - shares	9 Months Ended
	Mar. 31, 2018	Apr. 30, 2018
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	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false
Common Class A [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		6,272,716
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		744,656

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Jun. 30, 2017
Current assets:
Cash	$ 15,444	$ 14,607
Accounts receivable (less allowance for doubtful accounts of $1,164 and $946, respectively)	31,684	30,425
Inventories	63,799	58,097
Prepaid expenses and other current assets	7,546	6,994
Total current assets	118,473	110,123
Property, plant and equipment, net	38,659	39,345
Taxes receivable	1,888	2,627
Deferred tax assets, net	18,523	26,032
Intangible assets, net	9,452	9,868
Goodwill	4,668	4,668
Other assets	2	2
Total assets	191,665	192,665
Current liabilities:
Current maturities of long-term debt	4,681	11,514
Accounts payable	10,464	8,366
Accrued expenses	6,328	5,424
Accrued compensation	4,597	5,435
Total current liabilities	26,070	30,739
Other tax obligations	2,889	3,645
Long-term debt, net of current portion	17,736	6,095
Postretirement benefit and pension obligations	56,258	58,571
Other non-current liabilities	1,650	1,589
Total liabilities	104,603	100,639
Stockholders' equity:
Additional paid-in capital	55,562	55,579
Retained earnings	73,543	79,402
Accumulated other comprehensive loss	(49,061)	(49,985)
Total stockholders' equity	87,062	92,026
Total liabilities and stockholders’ equity	191,665	192,665
Common Class A [Member]
Stockholders' equity:
Common stock	6,273	6,268
Common Class B [Member]
Stockholders' equity:
Common stock	$ 745	$ 762

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2018	Jun. 30, 2017
Allowance for doubtful accounts	$ 1,164	$ 946
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)	6,272,716	6,267,603
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)	745,216	761,588

XML

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended				9 Months Ended
	Mar. 31, 2018		Mar. 31, 2017		Mar. 31, 2018		Mar. 31, 2017
Net sales	$ 54,834	[1]	$ 50,670	[2]	$ 158,776	[3]	$ 152,770	[4]
Cost of goods sold	36,762		36,191		108,235		107,555
Gross margin	$ 18,072		$ 14,479		$ 50,541		$ 45,215
% of Net sales	33.00%		28.60%		31.80%		29.60%
Selling, general and administrative expenses	$ 15,859		$ 15,326		$ 47,435		$ 45,689
Restructuring charges			6				400
Operating income (loss)	2,213		(853)		3,106		(874)
Other income (expense)	124		(391)		968		(466)
Gain on sale of building							3,089
Income (loss) before income taxes	2,337		(1,244)		4,074		1,749
Income tax expense (benefit)	700		(458)		8,532		713
Net income (loss)	$ 1,637		$ (786)		$ (4,458)		$ 1,036
Basic income (loss) per share (in dollars per share)	$ 0.23		$ (0.11)		$ (0.64)		$ 0.15
Diluted income (loss) per share (in dollars per share)	$ 0.23		$ (0.11)		$ (0.64)		$ 0.15
Weighted average outstanding shares used in per share calculations:
Basic (in shares)	7,018		7,058		7,012		7,046
Diluted (in shares)	7,036		7,058		7,012		7,078
Dividends (in dollars per share)			$ 0.10		$ 0.20		$ 0.30

[1] Excludes $4,804 of North American segment intercompany sales to the International segment, and $10,290 of International segment intercompany sales to the North American segment.

[2] Excludes $6,189 of North American segment intercompany sales to the International segment, and $8,585 of International segment intercompany sales to the North American segment.

[3] Excludes $4,804 of North American segment intercompany sales to the International segment, and $10,290 of International segment intercompany sales to the North American segment.

[4] Excludes $6,189 of North American segment intercompany sales to the International segment, and $8,585 of International segment intercompany sales to the North American segment.

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Net income (loss)	$ 1,637	$ (786)	$ (4,458)	$ 1,036
Other comprehensive income (loss):
Currency translation gain (loss)	321	1,456	1,006	(300)
Pension and postretirement plans, net of tax of $0, $0, $0, and $3,958, respectively	(28)	(45)	(82)	6,377
Other comprehensive income (loss)	293	1,411	924	6,077
Total comprehensive income (loss)	$ 1,930	$ 625	$ (3,534)	$ 7,113

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Pension and post retirement plans, tax	$ 0	$ 0	$ 0	$ 3,958

XML

Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member] Common Class A [Member]	Common Stock [Member] Common Class B [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Accumulated balance consists of:
						$ (49,985)
Balance at Jun. 30, 2017	$ 6,268	$ 762	$ 55,579	$ 79,402	$ (49,985)	92,026
Total comprehensive income (loss)				(4,458)	924	(3,534)
Dividends ($0.20 per share)				(1,401)		(1,401)
Repurchase of shares	(58)	(6)	(487)			(551)
Issuance of stock	21	13	244			278
Stock-based compensation	18		226			244
Conversion	24	(24)
Balance at Mar. 31, 2018	$ 6,273	$ 745	$ 55,562	$ 73,543	(49,061)	87,062
Accumulated balance consists of:
Translation loss					(42,317)
Pension and postretirement plans, net of taxes					(6,744)
					$ (49,061)	$ (49,061)

XML

Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals)	9 Months Ended
	Mar. 31, 2018 $ / shares
Retained Earnings [Member]
Dividends (in dollars per share)	$ 0.20
Dividends (in dollars per share)	$ 0.20

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net income (loss)	$ (4,458)	$ 1,036
Non-cash operating activities:
Gain on sale of building		(3,089)
Depreciation	4,163	4,020
Amortization	1,490	1,280
Stock-based compensation	244	320
Net long-term tax obligations	32	(31)
Deferred taxes	7,649	702
Postretirement benefit and pension obligations	439	1,916
(Income) loss from equity method investment		223
Working capital changes:
Accounts receivable	(254)	6,200
Inventories	(4,720)	(2,184)
Other current assets	(474)	(1,501)
Other current liabilities	1,007	(1,790)
Prepaid pension expense	(3,541)	(4,303)
Other	63	222
Net cash provided by (used in) operating activities	1,640	3,021
Cash flows from investing activities:
Business acquisition, net of cash acquired		(1,324)
Additions to property, plant and equipment	(3,250)	(3,478)
Software development	(1,014)	(750)
Proceeds from sale of building		3,321
Net cash provided by (used in) investing activities	(4,264)	(2,231)
Cash flows from financing activities:
Proceeds from borrowings	6,845
Debt repayments	(2,037)	(1,151)
Proceeds from common stock issued	278	242
Shares repurchased	(551)	(51)
Dividends paid	(1,401)	(2,113)
Net cash provided by (used in) financing activities	3,134	(3,073)
Effect of exchange rate changes on cash	327	(450)
Net increase (decrease) in cash	837	(2,733)
Cash, beginning of period	14,607	19,794
Cash, end of period	15,444	17,061
Supplemental cash flow information:
Interest paid	479	474
Income taxes paid, net	$ 175	$ (213)

XML

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

9 Months Ended

Mar. 31, 2018

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

nine

months ended

March 31, 2018

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, 2017.  

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, 2017

describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

XML

Note 2 - Recent Accounting Pronouncements

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

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

Note

2:

Recent A

ccounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

2014

-

09,

"Revenues from Contracts with Customers (Topic

606

)," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements comprehensive information about the nature, amounts, timing and uncertainty of revenue and cash flows arising from a company's contracts with customers. ASU

2014

-

09

defines a

five

-step process to achieve this core principle and in doing so, it is possible that more judgment and estimates

may

be required within the revenue recognition process than are required under existing guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to separate performance obligations, among others. The new standard will be effective for the Company beginning

July 1, 2018.

The FASB issued

four

subsequent standards in

2016

containing implementation guidance related to the new standard. These standards provide additional guidance related to principal versus agent considerations, licensing, and identifying performance obligations. Additionally, these standards provide narrow-scope improvements and practical expedients as well as technical corrections and improvements.

The guidance permits

two

methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company will be adopting the standard using the modified retrospective method effective

July 1, 2018.

The Company expects to complete our implementation procedures with respect to the new revenue recognition standard during the

fourth

quarter of fiscal year

2018.

While the Company continues to assess the impact of the new standard, it should be noted that revenues are primarily generated from the sale of finished products to customers, and that sales predominantly contain a single delivery element and that revenue is recognized at a single point in time when ownership, risks and rewards transfer. The timing of revenue recognition for these product sales is

not

materially impacted by the new standard. However, the Company is utilizing a comprehensive approach to assess the impact of the guidance on its current contract portfolio by reviewing its current accounting policies and practices to identify potential differences that would result from applying the new requirements to the Company’s revenue contracts, including evaluation of performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and accounting treatment of costs to obtain and fulfill contracts. While certain differences

may

arise specifically related to variable consideration and consideration payable to a customer, the Company does

not

expect these differences to materially impact our consolidated financial statements. In addition, the Company is currently analyzing our internal control over financial reporting framework to determine if controls should be added or modified as a result of adopting this standard, and reviewing the tax impact, if any, the adoption of the new standard

may

have. The Company also expects that the adoption of the new standard will result in expanded and disaggregated disclosure requirements.

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 fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years, 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.

In

October 2016,

the FASB issued ASU

No.

2016

-

16,

"Income Taxes (Topic

740

): Intra-Entity Transfers of Assets Other Than Inventory", which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This update removes the current exception in GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a

third

party remains unaffected. The amendments in this update are effective for public entities for annual reporting periods beginning after

December 15, 2017.

Early adoption is permitted. The adoption of ASU

No.

2016

-

16

is

not

expected to have a material impact on the Company’s consolidated financial statements.

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

"Business Combinations (Topic

805

) - Clarifying the Definition of a Business", with the objective to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets versus businesses. The amendments in ASU

2017

-

01

provide a screen to determine when a set of assets and activities is

not

a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is

not

a business. This screen is expected to reduce the number of transactions that need to be further evaluated. If the screen is

not

met, the amendments in ASU

2017

-

01

(i) require that to be considered a business, a set of assets and liabilities acquired must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output; and (ii) remove the evaluation of whether a market participant could replace missing elements. The amendments in this ASU are effective for annual and interim periods beginning after

December 15, 2017

and should be applied prospectively. Early adoption is permitted for transactions for which the acquisition date occurs before the issuance date of ASU

2017

-

01,

only when the transaction has

not

been reported in financial statements that have been issued or made available for issuance. The adoption of ASU

No.

2017

-

01

is

not

expected to have a material impact on the Company’s consolidated financial statements.

In

January 2017,

the FASB issued ASU

No.

2017

-

04,

"Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment". Under the new guidance, if a reporting unit's carrying value amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the requirement to calculate goodwill impairment using Step

2,

which calculates an impairment charge by comparing the implied fair value of goodwill with its carrying amount. The standard does

not

change the guidance on completing Step

1

of the goodwill impairment test. The amendments in this ASU are effective for annual and interim periods beginning after

December 15, 2019

and should be applied prospectively for annual and any interim goodwill impairment tests. Early adoption is permitted for entities for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

The Company is currently evaluating the impact of the update on its consolidated financial statements.

In

February 2018,

the FASB issued ASU

No.

2018

-

02,

“Income Statement – Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. For deferred tax items recognized in Accumulated Other Comprehensive Income (AOCI), changes in tax rates can leave amounts “stranded” in AOCI. Under ASU

2018

-

02,

FASB has given companies an option to reclassify the stranded tax effects resulting from the tax law and tax rate changes under the Tax Cuts and Jobs Act of

2017

from AOCI to retained earnings. This guidance is effective for fiscal years beginning after

December 15, 2018

and requires companies to disclosure whether they are or are

not

opting to reclassify the income tax effects from the new

2017

tax act. Early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.

In

February 2018,

the FASB issued ASU

2018

-

05,

“Income Taxes (Topic

740

): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

118”.

This update codified the guidance provided in SAB

118

on applying ASC

740,

Income Taxes, if the accounting for certain income tax effects of the Tax Cuts and Jobs Act of

2017

is incomplete when the financial statements are issued for a reporting period. This update was effective upon issuance. Therefore, the Company has applied the guidance in this update within our consolidated financial statements for the quarter ended

March 31, 2018.

See Note

9:

“Income Taxes”, of this Form

10

-Q for more information on the adoption of this guidance.

XML

Note 3 - Stock-based Compensation

9 Months Ended

Mar. 31, 2018

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,

and the material terms of its performance goals were recently re-approved by shareholders at the Company’s Annual Meeting held on

October 18, 2017.

The

2012

Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The

2012

Stock Plan provides for the issuance of up to

500,000

shares of common stock.      

Options granted vest in periods ranging from

one

year to

three

years and expire

ten

years after the grant date. Restricted stock units (“RSU”) granted generally vest from

one

year to

three

years. Vested restricted stock units will be settled in shares of common stock. As of

March 31, 2018,

there were

20,000

stock options and

140,802

restricted stock units outstanding. In addition, there were

297,033

shares available for grant under the

2012

Stock Plan as of

March 31, 2018.

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

No

stock options were granted during the

nine

months ended

March 31, 2018

and

2017.

The weighted average contractual term for stock options outstanding as of

March 31, 2018

was

4.75

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

March 31, 2018

was less than

$0.1

million. Stock options exercisable as of

March 31, 2018

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

62,000

RSU awards with a fair value of

$7.22

per RSU granted during the

nine

months ended

March 31, 2018.

There were

14,400

RSUs settled, and

12,433

RSUs forfeited during the

nine

months ended

March 31, 2018. 

The aggregate intrinsic value of RSU awards outstanding as of

March 31, 2018

was

$1.0

million. As of

March 31, 2018

all vested awards had been issued and settled.

On

February 5, 2013,

the Board of Directors adopted The L.S. Starrett Company

2013

Employee Stock Ownership Plan (the

“2013

ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income.  The plan is intended as an employee stock ownership plan within the meaning of Section

4975

(e) (

7

) of the Internal Revenue Code of

1986,

as amended. U.S. employees who have completed a year of service are eligible to participate.

Compensation expense related to all stock based plans for the

nine

month periods ended

March 31, 2018

and

2017

was

$0.2

million, and

$0.3

million respectively.  As of

March 31, 2018,

there was

$1.5

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

$1.4

million relates to performance based RSU grants that are

not

expected to be awarded. The remaining

$0.1

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

2.0

years.

XML

Note 4 - Inventories

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note

4:

   Inventories

ASU

No.

2015

-

11,

"Inventory (Topic

330

): Simplifying the Measurement of Inventory", specifies that when an entity measures inventory at the lower of cost or market 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. The adoption of ASU

No.

2015

-

11

 on July

1,

2017

did

not

have a material impact on our consolidated financial statements.

Inventories consist of the following (in thousands):

	03/31/2018			6/30/2017
Raw material and supplies	$	26,098		$	26,293
Goods in process and finished parts		19,788			16,419
Finished goods		43,910			41,591
		89,796			84,303
LIFO Reserve		(25,997	)		(26,206	)
	$	63,799		$	58,097

LIFO inventories were

$8.4

million and

$7.7

million at

March 31, 2018

and

June 30, 2017,

respectively, such amounts being approximately

$26.0

million and

$26.2

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

$0.2

million decrease in cost of sales for the

nine

months ended

March 31, 2018

compared to a

$1.5

million decrease in cost of sales for the

nine

months ended

March 31, 2017.

XML

Note 5 - Business Acquisition

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note

5:

Business Acquisition

In fiscal

2010,

the Company entered into an agreement with a private software company to invest

$1.5

million in exchange for a

36%

equity interest therein. In the

third

quarter of fiscal

2017,

the Company entered into a new agreement to invest an additional

$3.6

million for an additional

64%

of equity in the company. The Company paid

$1.8

million in cash at closing and is obligated to pay an additional

$1.8

million in cash

three

years subsequent to closing (discounted to

$1.6

million on the purchase date). In addition, the agreement provides for the former owners to receive a

30%

share of operating profits of the business over the next

three

years so long as they remain employed by the Company. The Company has accrued for such profit sharing as an expense based on results of operations since the date of acquisition.

The acquisition has been accounted for as a business combination and the financial results of the company have been included in our consolidated financial statements since the date of acquisition. Under the acquisition method of accounting, the purchase price was allocated to net tangible and intangible assets based upon their estimated fair values as of the acquisition date.

The table below presents the allocation of the purchase price to the acquired net assets (in thousands):

Cash	$	509
Accounts receivable		273
Inventories		243
Other current assets		18
Deferred software development costs		2,520
Intangible Assets		1,220
Goodwill		1,634
Fixed assets		47
Deferred tax liability		(1,090	)
Accounts payable & current liabilities		(80	)
Purchase Price (1)	$	5,294

( 1 ) $1,833 + 1,555 ( $1.8 million discounted at 5% ) = $3,388 purchase price divided by 64% = $5.294 million.

Pro-forma financial information has

not

been presented for this acquisition because it is

not

considered material to the Company’s financial position or results of operations.

XML

Note 6 - Goodwill and Intangible Assets

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note

6

:   Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in

2011

and the private software company in

2017

resulted in the recognition of goodwill totaling

$4.7

million. Under ASU

2011

-

08,

the Company is required, on a set date, to annually assess its goodwill in order to determine whether or

not

it is more likely than

not

that the fair value of the reporting unit’s goodwill exceeded its carrying amount. Determining the fair value of a reporting unit is subjective and requires the use of significant estimates and assumptions.

For Bytewise, the annual assessment date was

October 1, 2017.

The Company performed a quantitative analysis in accordance with ASU

2011

-

08

for its annual assessment (commonly referred to as “Step One”). With the assistance of an independent

third

-party valuation specialist, the Company estimated the fair value using an income approach based on the present value of future cash flows. The Company believes this approach yields the most appropriate evidence of fair value. The Company also utilized the comparable company multiples method and market transaction fair value method to validate the fair value amount obtained using the income approach. The key assumptions utilized in the discounted cash flow model included estimates of future cash flows from operating activities offset by estimated capital expenditures of the reporting unit, the estimated terminal value for the reporting unit, a discount rate based on a weighted average cost of capital, and an assessment of current market capitalization.

Under the quantitative analysis, the

2017

fair value assessment of the Bytewise goodwill exceeded the carrying amount by approximately

81.1%.

Therefore

no

goodwill impairment was determined to exist. If future results significantly vary from current estimates, related projections, or business assumptions in the future due to changes in industry or market conditions, the Company

may

be required to record impairment charges.

The Company performed a qualitative analysis in accordance with ASU

2011

-

08

for its

February 1, 2018

annual assessment of goodwill (commonly referred to as “Step Zero”) associated with its purchase of the private software company. From a qualitative perspective, in evaluating whether it is more likely than

not

that the fair value of a reporting unit exceeds its carrying amount, relevant events and circumstances are 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 this reporting unit exceeded its carrying amount as of

February 1, 2018.

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

	03/31/2018			6/30/2017
Non-compete agreement	$	600		$	600
Trademarks and trade names		2,070			2,070
Completed technology		2,358			2,358
Customer relationships		5,580			5,580
Software development		7,197			6,184
Other intangible assets		325			325
Total		18,130			17,117
Accumulated amortization		(8,678	)		(7,249	)
Total net balance	$	9,452		$	9,868

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 range between

5

years for software development and

20

years for some trademark and trade name assets.

The estimated aggregate amortization expense for the remainder of fiscal

2018

and for each of the next

five

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

2018 (Remainder of year)	$	578
2019		2,210
2020		1,687
2021		1,284
2022		1,051
2023		708
Thereafter		1,934

XML

Note 7 - Pension and Post-retirement Benefits

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note

7

:  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 is 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 re-measurement of the Plan's benefit obligation as of

December 31, 2016.

The re-measurement 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.

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

	Three Months Ended						Nine Months Ended
	03/31/2018			03/31/2017			03/31/2018			03/31/2017
Service cost	$	-		$	-		$	-		$	1,405
Interest cost		1,531			1,574			4,560			4,659
Expected return on plan assets		(1,300	)		(1,284	)		(3,876	)		(3,878	)
Amortization of net loss		5			6			17			102
	$	236		$	296		$	701		$	2,288

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

	Three Months Ended						Nine Months Ended
	03/31/2018			03/31/2017			03/31/2018			03/31/2017
Service cost	$	21		$	23		$	64		$	70
Interest cost		69			67			203			203
Amortization of prior service credit		(134	)		(168	)		(403	)		(505	)
Amortization of net loss		24			30			74			90
	$	(20	)	$	(48	)	$	(62	)	$	(142	)

For the

nine

month period ended

March 31, 2018,

the Company contributed

$2.8

million to the U.S. and

$0.8

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

$1.2

million for the remainder of fiscal

2018.

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 8 - Debt

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

8

:   Debt

Debt is comprised of the following (in thousands):

	03/31/2018		6/30/2017
Short-term and current maturities
Loan and Security Agreement	$	1,669	$	11,514
Other Loans		3,012		-
Long-term debt
Loan and Security Agreement, net of current portion		17,736		6,095
	$	22,417	$	17,609

The Company amended its Loan and Security Agreement, which includes a Line of Credit and a Term Loan, in

January 2018.  

Borrowings under the Line of Credit

may

not

exceed

$23.0

million.  The Line of Credit has an interest rate of LIBOR plus

1.5%,

and expires on

April 30, 2021. 

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

nine

months ended

March 31, 2018

and

2017

was

3.2%

and

2.5%,

respectively. As of

March 31, 2018,

$12.9

million was outstanding on the Line of Credit.

Availability under the Line of Credit is subject to a borrowing base comprised of accounts receivable and inventory. The Company believes that the borrowing base will consistently produce availability under the Line of Credit in excess of

$23.0

million. A

0.25%

commitment fee is charged on the unused portion of the Line of Credit.

The obligations under the Credit Facility are unsecured. In the event of certain triggering events, such obligations would become secured by the assets of the Company’s domestic subsidiaries. A triggering event occurs when the Company fails to achieve any of the financial covenants noted below in consecutive quarters.

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

1.00,

2

) annual capital expenditures

not

to exceed

$15.0

million,

3

) maintain a Debt Service Coverage Rate of a minimum of

1.25

to

1.00,

and

4

) maintain consolidated cash plus liquid investments of

not

less than

$10.0

million at any time.  As of

March 31, 2018,

the Company was in compliance with all the financial debt covenants related to its Loan and Security Agreement. The Company was

not

in compliance with

one

of its non-financial covenants related to additional borrowings made in

December,

but the waiver received in

January 2018

was granted until

June 30, 2018.

The Company expects to be in compliance with this covenant prior to the waiver expiration.

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

$6.5

million at

March 31, 2018.

In

December 2017,

the Company’s Brazilian subsidiary entered into

two

short-term loans with local banks in order to support the Company’s strategic initiatives. The loans backed by the entity’s US dollar denominated export receivables were made with Santander Bank and Bradesco Bank and totaled

$3.5

million. The Santander loan of

$1.5

million has a term of

180

days and a rate of

4.19%

and the Bradesco loan of

$2.0

million has a term of

360

days and a rate of

4.75%.

As of

March 31, 2018,

the outstanding balance on these loans was

$3.0

million.

XML

Note 9 - Income Taxes

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

9

:   Income Tax

es

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.

On

December 22, 2017,

the Tax Cuts and Jobs Act was signed into law in the United States. This law made numerous changes to federal taxation in the U.S., including a reduction in the federal corporate tax rate to

21%

and a

one

-time tax on historical foreign earnings that had

not

yet been repatriated. The effect of the tax rate change is that the Company’s federal tax rate is reduced to a blended rate of

28%

from the previous rate of

34%

for fiscal

2018,

and then will further reduce to the enacted

21%

in Fiscal

2019

and beyond. In addition, there are also a number of other changes primarily related to U.S. taxation of income earned by foreign subsidiaries and on transactions with those subsidiaries. As a result of this legislation, in the quarter ended

December 31, 2017,

the Company performed an initial assessment of the impact of tax reform and has taken a charge to tax expense of

$7.3

million to reflect the estimated impact of the tax rate reduction on its deferred tax assets. The Company has estimated the overall federal tax impact for the

one

time transition tax to be zero. Further guidance from the Department of Treasury and various state taxing authorities as well as year-end financial data is required, however, before the various tax calculations can be considered complete.

The Company is reviewing all aspects of the tax law change and, other than the reduced tax rate on earnings going forward, which will provide a favorable benefit, the Company does

not

believe the other provisions will have a significant impact to tax expense. The Company will continue to measure the impact of these provisions and will record any changes in subsequent quarters when information and guidance becomes available.

The tax expense for the

third

quarter of fiscal

2018

was

$0.7

million on profit before tax of

$2.3

million for an effective tax rate of

30.0%.

The effective tax rate for the

third

quarter of fiscal

2017

was

36.8%.

For the

first

nine

months of fiscal

2018,

tax expense was

$8.5

million on profit before tax of

$4.1

million for an effective tax rate of

209%.

Before the tax charge related to new tax legislation, tax expense was

$1.3

million or

31.5%

of pre-tax income. For the

first

nine

months of fiscal

2017,

the effective tax rate was

40.8%.

The tax expense in the

third

quarter of fiscal

2018

was increased by a nominal amount of discrete items primarily related to interest charges on tax liabilities and an increase in the valuation allowance for state tax loss carryforwards which were mostly offset by the benefit from a reduced liability for uncertain tax positions net of the reduction in the receivable for a competent authority review. In prior quarters, there were net discrete charges of

$7.2

million including discrete charges for the impact of the tax law change referred to above, the impact of tax deductions on stock grants which were less than the book deductions, and interest on tax liabilities; these were partly offset by discrete tax benefits for research credits in the U.K., the use of carryforward tax losses in the U.K. and the impact of provision to return adjustments. The tax expense in the

third

quarter of fiscal

2017

was increased by less than

$0.1

million for interest expense on uncertain tax positions and for the

first

nine

months of fiscal

2017,

it was increased by

$0.3

million primarily for the impact of a tax rate change in the U.K. applied to the deferred tax asset balance.

U.S. Federal tax returns through fiscal

2014

are generally

no

longer subject to review by tax authorities; however, tax loss carryforwards from years before fiscal

2015

are still subject to adjustment. As of

March 31, 2018,

the Company has substantially resolved all open income tax audits and there were

no

other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that

may

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

2012

-

2017.

During the next

twelve

months, it is possible there will be a reduction of

$0.2

million in long term tax obligations due to the expiration of the statute of limitations on prior year tax returns.

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., a partial valuation allowance has been provided for foreign tax credit carryforwards due to the uncertainty of generating sufficient foreign source income to utilize those credits in the future. 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.

XML

Note 10 - Contingencies

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

10

:  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.

In the

second

quarter of this year, the Company’s Brazilian subsidiary received a favorable ruling on an old tax dispute related to the Brazilian Program of Social Integration (PIS) taxes. This ruling resulted in the recognition of other income of approximately

$1.0

million, and was awarded in the form of tax credits to be used to offset future tax payments.

XML

Note 11 - Segment Information

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

11

:

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, 2017.

The Company’s business is aggregated into

two

reportable segments based on geography of operations: North American Operations and International Operations. Segment income is measured for internal reporting purposes by excluding corporate expenses which are included in unallocated in the table below. Other income and expense, including interest income and expense, the gain on the sale of a building in fiscal

2017,

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 March 31, 2018
Sales 1	$	34,119	$	20,715		$	-		$	54,834
Operating Income (Loss)	$	2,831	$	629		$	(1,247	)	$	2,213
Three Months ended March 31, 2017
Sales 2	$	31,791	$	18,879		$	-		$	50,670
Operating Income (Loss)	$	1,563	$	(693	)	$	(1,723	)	$	(853	)

1. Excludes $1,527 of North American segment intercompany sales to the International segment, and $3,602 of International segment intercompany sales to the North American segment.

2. Excludes $1,493 of North American segment intercompany sales to the International segment, and $2,536 of International segment intercompany sales to the North American segment.

	North American Operations		International Operations			Unallocated			Total
Nine Months ended March 31, 2018
Sales 1	$	94,937	$	63,839		$	-		$	158,776
Operating Income (Loss)	$	5,545	$	1,629		$	(4,068	)	$	3,106
Nine Months ended March 31, 2017
Sales 2	$	92,345	$	60,425		$	-		$	152,770
Operating Income (Loss)	$	4,520	$	(143	)	$	(5,251	)	$	(874	)

1. Excludes $4,804 of North American segment intercompany sales to the International segment, and $10,290 of International segment intercompany sales to the North American segment.

2. Excludes $6,189 of North American segment intercompany sales to the International segment, and $8,585 of International segment intercompany sales to the North American segment.

XML

Note 12 - Facility Closure

9 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

Note

12:

  Facility Closure

This footnote was previously reported as a “subsequent event” in the fiscal

2018

second

quarter

10

-Q report.

The Company decided in

January 2018

to vacate its facility in Mt. Airy, North Carolina, and move current operations to a smaller building. While

no

definitive date for this move has been set yet, the Company anticipates that the move will happen within the next

12

months. The Company incurred a

$4.1

million impairment charge in fiscal

2016,

when the majority of the plant’s operations were relocated to the Company’s Brazilian production facility. As of

December 31, 2017,

the carrying value of the building is

$2.0

million, and the Company believes that the current fair value exceeds the carrying value. During the current quarter, the Company sold the inventory and equipment related to

one

of the product lines impacted by this decision. This sale resulted in a

$0.1

million increase in income before tax.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

The unaudited interim financial statements as of and for the

nine

months ended

March 31, 2018

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, 2017.  

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, 2017

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 Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

2014

-

09,

"Revenues from Contracts with Customers (Topic

606

)," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements comprehensive information about the nature, amounts, timing and uncertainty of revenue and cash flows arising from a company's contracts with customers. ASU

2014

-

09

defines a

five

-step process to achieve this core principle and in doing so, it is possible that more judgment and estimates

may

be required within the revenue recognition process than are required under existing guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to separate performance obligations, among others. The new standard will be effective for the Company beginning

July 1, 2018.

The FASB issued

four

subsequent standards in

2016

containing implementation guidance related to the new standard. These standards provide additional guidance related to principal versus agent considerations, licensing, and identifying performance obligations. Additionally, these standards provide narrow-scope improvements and practical expedients as well as technical corrections and improvements.

The guidance permits

two

methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company will be adopting the standard using the modified retrospective method effective

July 1, 2018.

The Company expects to complete our implementation procedures with respect to the new revenue recognition standard during the

fourth

quarter of fiscal year

2018.

While the Company continues to assess the impact of the new standard, it should be noted that revenues are primarily generated from the sale of finished products to customers, and that sales predominantly contain a single delivery element and that revenue is recognized at a single point in time when ownership, risks and rewards transfer. The timing of revenue recognition for these product sales is

not

materially impacted by the new standard. However, the Company is utilizing a comprehensive approach to assess the impact of the guidance on its current contract portfolio by reviewing its current accounting policies and practices to identify potential differences that would result from applying the new requirements to the Company’s revenue contracts, including evaluation of performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and accounting treatment of costs to obtain and fulfill contracts. While certain differences

may

arise specifically related to variable consideration and consideration payable to a customer, the Company does

not

expect these differences to materially impact our consolidated financial statements. In addition, the Company is currently analyzing our internal control over financial reporting framework to determine if controls should be added or modified as a result of adopting this standard, and reviewing the tax impact, if any, the adoption of the new standard

may

have. The Company also expects that the adoption of the new standard will result in expanded and disaggregated disclosure requirements.

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 fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years, 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.

In

October 2016,

the FASB issued ASU

No.

2016

-

16,

"Income Taxes (Topic

740

): Intra-Entity Transfers of Assets Other Than Inventory", which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This update removes the current exception in GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a

third

party remains unaffected. The amendments in this update are effective for public entities for annual reporting periods beginning after

December 15, 2017.

Early adoption is permitted. The adoption of ASU

No.

2016

-

16

is

not

expected to have a material impact on the Company’s consolidated financial statements.

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

"Business Combinations (Topic

805

) - Clarifying the Definition of a Business", with the objective to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets versus businesses. The amendments in ASU

2017

-

01

provide a screen to determine when a set of assets and activities is

not

a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is

not

a business. This screen is expected to reduce the number of transactions that need to be further evaluated. If the screen is

not

met, the amendments in ASU

2017

-

01

(i) require that to be considered a business, a set of assets and liabilities acquired must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output; and (ii) remove the evaluation of whether a market participant could replace missing elements. The amendments in this ASU are effective for annual and interim periods beginning after

December 15, 2017

and should be applied prospectively. Early adoption is permitted for transactions for which the acquisition date occurs before the issuance date of ASU

2017

-

01,

only when the transaction has

not

been reported in financial statements that have been issued or made available for issuance. The adoption of ASU

No.

2017

-

01

is

not

expected to have a material impact on the Company’s consolidated financial statements.

In

January 2017,

the FASB issued ASU

No.

2017

-

04,

"Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment". Under the new guidance, if a reporting unit's carrying value amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the requirement to calculate goodwill impairment using Step

2,

which calculates an impairment charge by comparing the implied fair value of goodwill with its carrying amount. The standard does

not

change the guidance on completing Step

1

of the goodwill impairment test. The amendments in this ASU are effective for annual and interim periods beginning after

December 15, 2019

and should be applied prospectively for annual and any interim goodwill impairment tests. Early adoption is permitted for entities for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

The Company is currently evaluating the impact of the update on its consolidated financial statements.

In

February 2018,

the FASB issued ASU

No.

2018

-

02,

“Income Statement – Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. For deferred tax items recognized in Accumulated Other Comprehensive Income (AOCI), changes in tax rates can leave amounts “stranded” in AOCI. Under ASU

2018

-

02,

FASB has given companies an option to reclassify the stranded tax effects resulting from the tax law and tax rate changes under the Tax Cuts and Jobs Act of

2017

from AOCI to retained earnings. This guidance is effective for fiscal years beginning after

December 15, 2018

and requires companies to disclosure whether they are or are

not

opting to reclassify the income tax effects from the new

2017

tax act. Early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.

In

February 2018,

the FASB issued ASU

2018

-

05,

“Income Taxes (Topic

740

): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

118”.

This update codified the guidance provided in SAB

118

on applying ASC

740,

Income Taxes, if the accounting for certain income tax effects of the Tax Cuts and Jobs Act of

2017

is incomplete when the financial statements are issued for a reporting period. This update was effective upon issuance. Therefore, the Company has applied the guidance in this update within our consolidated financial statements for the quarter ended

March 31, 2018.

See Note

9:

“Income Taxes”, of this Form

10

-Q for more information on the adoption of this guidance.

XML

Note 4 - Inventories (Tables)

9 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	03/31/2018			6/30/2017
Raw material and supplies	$	26,098		$	26,293
Goods in process and finished parts		19,788			16,419
Finished goods		43,910			41,591
		89,796			84,303
LIFO Reserve		(25,997	)		(26,206	)
	$	63,799		$	58,097

XML

Note 5 - Business Acquisition (Tables)

9 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Cash	$	509
Accounts receivable		273
Inventories		243
Other current assets		18
Deferred software development costs		2,520
Intangible Assets		1,220
Goodwill		1,634
Fixed assets		47
Deferred tax liability		(1,090	)
Accounts payable & current liabilities		(80	)
Purchase Price (1)	$	5,294

XML

Note 6 - Goodwill and Intangible Assets (Tables)

9 Months Ended

Mar. 31, 2018

Notes Tables

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

	03/31/2018			6/30/2017
Non-compete agreement	$	600		$	600
Trademarks and trade names		2,070			2,070
Completed technology		2,358			2,358
Customer relationships		5,580			5,580
Software development		7,197			6,184
Other intangible assets		325			325
Total		18,130			17,117
Accumulated amortization		(8,678	)		(7,249	)
Total net balance	$	9,452		$	9,868

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

2018 (Remainder of year)	$	578
2019		2,210
2020		1,687
2021		1,284
2022		1,051
2023		708
Thereafter		1,934

XML

Note 7 - Pension and Post-retirement Benefits (Tables)

9 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended						Nine Months Ended
	03/31/2018			03/31/2017			03/31/2018			03/31/2017
Service cost	$	-		$	-		$	-		$	1,405
Interest cost		1,531			1,574			4,560			4,659
Expected return on plan assets		(1,300	)		(1,284	)		(3,876	)		(3,878	)
Amortization of net loss		5			6			17			102
	$	236		$	296		$	701		$	2,288

	Three Months Ended						Nine Months Ended
	03/31/2018			03/31/2017			03/31/2018			03/31/2017
Service cost	$	21		$	23		$	64		$	70
Interest cost		69			67			203			203
Amortization of prior service credit		(134	)		(168	)		(403	)		(505	)
Amortization of net loss		24			30			74			90
	$	(20	)	$	(48	)	$	(62	)	$	(142	)

XML

Note 8 - Debt (Tables)

9 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Debt [Table Text Block]

	03/31/2018		6/30/2017
Short-term and current maturities
Loan and Security Agreement	$	1,669	$	11,514
Other Loans		3,012		-
Long-term debt
Loan and Security Agreement, net of current portion		17,736		6,095
	$	22,417	$	17,609

XML

Note 11 - Segment Information (Tables)

9 Months Ended

Mar. 31, 2018

Notes Tables

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

	North American Operations		International Operations			Unallocated			Total
Three Months ended March 31, 2018
Sales 1	$	34,119	$	20,715		$	-		$	54,834
Operating Income (Loss)	$	2,831	$	629		$	(1,247	)	$	2,213
Three Months ended March 31, 2017
Sales 2	$	31,791	$	18,879		$	-		$	50,670
Operating Income (Loss)	$	1,563	$	(693	)	$	(1,723	)	$	(853	)

	North American Operations		International Operations			Unallocated			Total
Nine Months ended March 31, 2018
Sales 1	$	94,937	$	63,839		$	-		$	158,776
Operating Income (Loss)	$	5,545	$	1,629		$	(4,068	)	$	3,106
Nine Months ended March 31, 2017
Sales 2	$	92,345	$	60,425		$	-		$	152,770
Operating Income (Loss)	$	4,520	$	(143	)	$	(5,251	)	$	(874	)

XML

Note 3 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Millions	9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Sep. 05, 2012
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	297,033
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	4 years 273 days
Allocated Share-based Compensation Expense, Total	$ 0.2	$ 0.3
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	$ 0.1
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	2 years
The 2012 Stock Incentive Plan [Member] | Total Unrecognized Compensation Including Portion Relating to Grants Not Expected to Be Awarded [Member]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	$ 1.5
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, Total	$ 1.4
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, Ending Balance	20,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 0.1
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	20,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period	0
Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Ending Balance	140,802
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 1.0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	14,400
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	12,433
Minimum [Member] | Employee Stock Option [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Minimum [Member] | Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Maximum [Member] | Employee Stock Option [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Maximum [Member] | Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	62,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 7.22

XML

Note 4 - Inventories (Details Textual) - USD ($) $ in Millions	9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Jun. 30, 2017
LIFO Inventory Amount	$ 8.4		$ 7.7
Inventory Difference Using FIFO Basis	26.0		$ 26.2
Cost of Sales [Member]
Inventory, LIFO Reserve, Effect on Income, Net, Total	$ 0.2	$ 1.5

XML

Note 4 - Inventories - Components of Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Jun. 30, 2017
Raw material and supplies	$ 26,098	$ 26,293
Goods in process and finished parts	19,788	16,419
Finished goods	43,910	41,591
	89,796	84,303
LIFO Reserve	(25,997)	(26,206)
	$ 63,799	$ 58,097

XML

Note 5 - Business Acquisition (Details Textual) - Private Software Company [Member] - USD ($) $ in Thousands		3 Months Ended	9 Months Ended	12 Months Ended
		Mar. 31, 2017	Mar. 31, 2018	Jun. 30, 2010
Business Combination, Consideration Transferred, Total		$ 3,600		$ 1,500
Business Acquisition, Percentage of Voting Interests Acquired		64.00%		36.00%
Payments to Acquire Businesses, Gross		$ 1,800
Business Combination, Consideration Transferred, Liabilities Incurred		$ 1,800
Business Combination, Consideration Transferred, Subsequent Period		3 years
Business Combination, Consideration Transferred, Liabilities Incurred, Discounted		$ 1,600
Business Combination, Operating Profits, Percentage		30.00%
Business Combination, Operating Profits, Term		3 years
Business Combination, Consideration Transferred, Cash Considerations				$ 1,833
Business Combination, Consideration Transferred, Cash Considerations at Discounted Rate				$ 1,555
Business Combination, Consideration Transferred, Discounted Rate				5.00%
Business Combination, Consideration Transferred, Total Cash Considerations Before Noncontrolling Interest Rate			$ 3,388
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net, Total	[1]		$ 5,294

[1] $1,833 + 1,555 ($1.8 million discounted at 5%) = $3,388 purchase price divided by 64% = $5.294 million.

XML

Note 5 - Business Acquisition - Allocation of the Purchase Price to the Acquired Net Assets (Details) - USD ($) $ in Thousands		Mar. 31, 2018	Jun. 30, 2017
Goodwill		$ 4,668	$ 4,668
Private Software Company [Member]
Cash		509
Accounts receivable		273
Inventories		243
Other current assets		18
Deferred software development costs		2,520
Intangible Assets		1,220
Goodwill		1,634
Fixed assets		47
Deferred tax liability		(1,090)
Accounts payable & current liabilities		(80)
Purchase Price (1)	[1]	$ 5,294

[1] $1,833 + 1,555 ($1.8 million discounted at 5%) = $3,388 purchase price divided by 64% = $5.294 million.

XML

Note 6 - Goodwill and Intangible Assets (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Mar. 31, 2018	Jun. 30, 2017
Goodwill, Ending Balance	$ 4,668	$ 4,668
Reporting Unit, Percentage of Fair Value in Excess of Carrying Amount	81.10%
Goodwill, Impairment Loss	$ 0
Computer Software, Intangible Asset [Member]
Finite-Lived Intangible Asset, Useful Life	5 years
Trademarks and Trade Names [Member]
Finite-Lived Intangible Asset, Useful Life	20 years

XML

Note 6 - Goodwill and Intangible Assets - Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Jun. 30, 2017
Intangible assets, gross	$ 18,130	$ 17,117
Accumulated amortization	(8,678)	(7,249)
Total net balance	9,452	9,868
Noncompete Agreements [Member]
Intangible assets, gross	600	600
Trademarks and Trade Names [Member]
Intangible assets, gross	2,070	2,070
Completed Technology [Member]
Intangible assets, gross	2,358	2,358
Customer Relationships [Member]
Intangible assets, gross	5,580	5,580
Software Developement [Member]
Intangible assets, gross	7,197	6,184
Other Intangible Assets [Member]
Intangible assets, gross	$ 325	$ 325

XML

Note 6 - Goodwill and Intangible Assets - Estimated Aggregate Amortization Expense (Details) $ in Thousands	Mar. 31, 2018 USD ($)
2018 (Remainder of year)	$ 578
2019	2,210
2020	1,687
2021	1,284
2022	1,051
2023	708
Thereafter	$ 1,934

XML

Note 7 - Pension and Post-retirement Benefits (Details Textual) - USD ($) $ in Millions	9 Months Ended
	Mar. 31, 2018	Dec. 31, 2016
Defined Benefit Plan, Benefit Obligation, Increase (Decrease) for Plan Amendment	$ (6.9)
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate	4.31%	3.77%
Defined Benefit Plan, Benefit Obligation, (Increase) Decrease for Curtailment	$ 4.2
Defined Benefit Plan, Expected Future Employer Contributions, Remainder of Fiscal Year	1.2
Pension Plan [Member]
Defined Benefit Plan, Plan Assets, Contributions by Employer	2.8
Pension Plan [Member] | Foreign Plan [Member]
Defined Benefit Plan, Plan Assets, Contributions by Employer	$ 0.8

XML

Note 7 - Pension and Post-retirement Benefits - Net Periodic Costs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Pension Plan [Member]
Service cost				$ 1,405
Interest cost	1,531	1,574	4,560	4,659
Expected return on plan assets	(1,300)	(1,284)	(3,876)	(3,878)
Amortization of net loss	5	6	17	102
	236	296	701	2,288
Other Postretirement Benefits Plan [Member]
Service cost	21	23	64	70
Interest cost	69	67	203	203
Amortization of net loss	24	30	74	90
	(20)	(48)	(62)	(142)
Amortization of prior service credit	$ (134)	$ (168)	$ (403)	$ (505)

XML

Note 8 - Debt (Details Textual)		9 Months Ended		12 Months Ended
	Nov. 22, 2011 USD ($)	Mar. 31, 2018 USD ($)	Mar. 31, 2017	Dec. 31, 2017 USD ($)	Jun. 30, 2017 USD ($)
Line of Credit Facility, Maximum Borrowing Capacity		$ 23,000,000
Line of Credit Facility, Interest Rate During Period		3.20%	2.50%
Long-term Line of Credit, Total		$ 12,900,000
Line of Credit Facility, Commitment Fee Percentage		0.25%
Minimum Consolidated Cash and Liquid Investments Pursuant to New Loan and Security Agreement		$ 10,000,000
Long-term Debt, Total		22,417,000			$ 17,609,000
Notes Payable to Banks [Member] | Santander Bank and Bradesco Bank [Member]
Debt Instrument, Face Amount				$ 3,500,000
Notes Payable to Banks [Member] | Santander Bank [Member]
Debt Instrument, Face Amount				$ 1,500,000
Debt Instrument, Term				180 days
Debt Instrument, Interest Rate, Stated Percentage				4.19%
Notes Payable to Banks [Member] | Bradesco Bank [Member]
Debt Instrument, Face Amount				$ 2,000,000
Debt Instrument, Term				360 days
Debt Instrument, Interest Rate, Stated Percentage				4.75%
Short-term Debt, Total		3,000,000
Term Loan [Member]
Debt Instrument, Face Amount	$ 15,500,000
Debt Instrument, Term	10 years
Debt Instrument, Interest Rate, Stated Percentage	4.50%
Debt Instrument, Periodic Payment, Total	$ 160,640
Long-term Debt, Total		$ 6,500,000
Maximum [Member]
Current Funded Debt to EBITDA Ratio		2.25
Annual Capital Expenditures		$ 15,000,000
Minimum [Member]
Debt Service Coverage Rate		1.25
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		1.50%

XML

Note 8 - Debt - Debt Schedule (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Jun. 30, 2017
Short-term and current maturities
Loan and Security Agreement	$ 1,669	$ 11,514
Other Loans	3,012
Long-term debt
Loan and Security Agreement, net of current portion	17,736	6,095
	$ 22,417	$ 17,609

XML

Note 9 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended	9 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017	Mar. 31, 2018	Mar. 31, 2017	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2017
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent								34.00%
Deferred Income Tax Expense (Benefit), Total			$ 7,300	$ 7,649	$ 702
Income Tax Expense (Benefit), Total	$ 700	$ (458)		8,532	713
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total	$ 2,337	$ (1,244)		$ 4,074	$ 1,749
Effective Income Tax Rate Reconciliation, Percent, Total	30.00%	36.80%		209.00%	40.80%
Income Tax Expense (Benefit), Before Tax Cuts and Jobs Act					$ 1,300
Effective Income Tax Rate Reconciliation, Before Tax Cuts and Jobs Act, Percent					31.50%
Income Loss From Continuing Operations Before Income Taxes, Prior Year Discrete Charges	$ 7,200
Increase in Interest Expense on Uncertain Tax Positions		$ 100
Deferred Tax Assets, Valuation Allowance, Total	0			$ 0
Foreign Tax Authority [Member] | Her Majesty's Revenue and Customs (HMRC) [Member]
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability					$ 300
Foreign Tax Authority [Member] | Secretariat of the Federal Revenue Bureau of Brazil [Member]
Unrecognized Tax Benefits, Ending Balance	$ 200			$ 200
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent						21.00%	28.00%

XML

Note 10 - Contingencies (Details Textual) $ in Millions	Dec. 31, 2017 USD ($)
Brazilian Program of Social Integration (PIS) Tax Dispute [Member] | Other Nonoperating Income (Expense) [Member]
Former Gain Contingency, Recognized in Current Period	$ 1

XML

Note 11 - Segment Information (Details Textual) $ in Thousands	3 Months Ended		9 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)
Number of Reportable Segments			2
Intersegment Eliminations [Member] | North American Segment [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 1,527	$ 1,493	$ 4,804	$ 6,189
Intersegment Eliminations [Member] | International Segment [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 3,602	$ 2,536	$ 10,290	$ 8,585

XML

Note 11 - Segment Information - Summary of Financial Results for Reportable Segments (Details) - USD ($) $ in Thousands	3 Months Ended				9 Months Ended
	Mar. 31, 2018		Mar. 31, 2017		Mar. 31, 2018		Mar. 31, 2017
Sales	$ 54,834	[1]	$ 50,670	[2]	$ 158,776	[3]	$ 152,770	[4]
Operating Income (Loss)	2,213		(853)		3,106		(874)
North American Segment [Member]
Sales	34,119	[1]	31,791	[2]	94,937	[3]	92,345	[4]
Operating Income (Loss)	2,831		1,563		5,545		4,520
International [Member]
Sales	20,715	[1]	18,879	[2]	63,839	[3]	60,425	[4]
Operating Income (Loss)	629		(693)		1,629		(143)
Unallocated [Member]
Sales		[1]		[2]		[3]		[4]
Operating Income (Loss)	$ (1,247)		$ (1,723)		$ (4,068)		$ (5,251)

[1] Excludes $4,804 of North American segment intercompany sales to the International segment, and $10,290 of International segment intercompany sales to the North American segment.

[2] Excludes $6,189 of North American segment intercompany sales to the International segment, and $8,585 of International segment intercompany sales to the North American segment.

[3] Excludes $4,804 of North American segment intercompany sales to the International segment, and $10,290 of International segment intercompany sales to the North American segment.

[4] Excludes $6,189 of North American segment intercompany sales to the International segment, and $8,585 of International segment intercompany sales to the North American segment.

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Note 12 - Facility Closure (Details Textual) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Jun. 30, 2016	Dec. 31, 2017	Jun. 30, 2017
Property, Plant and Equipment, Net, Ending Balance	$ 38,659			$ 39,345
Vacated Facility at Mt. Airy, North Carolina [Member]
Impairment of Long-Lived Assets to be Disposed of		$ 4,100
Property, Plant and Equipment, Net, Ending Balance			$ 2,000
Disposal Group, Not Discontinued Operation, Gain (Loss) on Disposal	$ 100